February 15, 2008
Toy Prices Going Up. Will Sales Drop Down?
We’re a long ways off from the 2008 Christmas holiday selling season but manufacturers and retailers are already letting consumers know that overall toy prices will be going up and items will likely come with fewer bells and whistles than in past years.
The expected increases are due to a number of factors including higher costs for energy, raw materials and labor. The weak dollar also means that cheap imported goods will be a bit less cheap this year.
Consumers can expect to pay up to 10 percent more for toys this year than last, according to Eric Johnson, professor of operations management at Dartmouth’s Tuck School of Business.
Michael Greenberg, a toy industry consultant, told The Canadian Press, “You are going to see more $7.99 toys at the bottom instead of $2.99.”
Higher prices could put the squeeze on consumers who are already looking for ways to stretch their dollars. Particularly worrisome for manufactures and retailers is that toy sales have been soft for years despite the fact that prices have been dropping for a decade.
“This is not a good thing for consumers,” said Sean McGowan, an analyst with Needham & Co. “The deflation days may be over.”
About the best most are expecting of toy sales is 2008 is that revenues will remain flat. Sales of toys dropped five percent during the past holiday season and two percent for the entire year. Some attribute the Christmas season falloff to safety concerns related to Chinese imports.
Discussion Questions: What can toy retailers do to avoid the gloomy scenario that some see for the category in 2008? Will we see retailers begin to pull back from the category by reducing space, SKUs advertising and merchandising support, etc., or will they buck the current wisdom and put more dollars and effort into a market share grab strategy?
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Yes the sky is falling. No mothers will be able to afford the “up to” 10% increase in toys this Christmas, might as well turn out the lights. One more example of the ridiculous hype the media is continuing to terrorize retailers and shoppers alike with–and only 316 more days until Christmas!
Retailers can turn off the news channels, skip the RSS feeds and stop telling each other it’s only going to get worse. In 1941 Truman seized all the railroads yet the French came up with the bikini. Opportunity or calamity–only you can choose how you want to see your business. I am recommending to my clients: full steam ahead as if you are the sole store in your market and let those who are cowering leave it.
Given that consumers are also facing higher heating and transportation costs, higher prices could mean lower sales. Given that a recession is looming and that many consumers are facing foreclosure on their homes, raising prices is likely to put a damper on Christmas sales.
In this neck of the woods, consumers are more worried about toy safety than they are prices. The retailer and toy manufacturers that can restore some confidence to offset all the lead paint and other issues will do very well. Most that I have talked to are willing to spend more for toys that are perceived to be safe. That may equate to less toys, which will effect the overall business negatively. The only short-term winners will be ones that can meet this challenge, in my view.
Higher prices are the inevitable result of the exposure of the hazards inherent in offshoring your manufacturing operations to countries that do not have the safety standards that we always relied on to protect us before.
Last year’s imported toy fiasco pretty well proved that the toy companies were more interested in increasing the dividend to the shareholder than in protecting our kids from lead and other hazards including of all things, date rape drugs.
There is not one scintilla of evidence that shows that toy prices went down when Mattel and others outsourced to China but you can bet the farm that if those Chinese factories have to produce to American safety standards, the prices will go up at least enough to cover the actual costs of doing so while still maintaining or even enhancing the current bottom line.
If someone has to pay the costs for a major screwup, whether it be based on stupidity or cupidity, don’t EVER count on it being the corporations themselves. The consumers and/or the taxpayers will be the ones paying the ultimate price.
Why spend $7.99 when a cardboard box will do? Computers, electronic gaming and ever younger participation in team sports have all taken the wind out of the toy market. If ADD hasn’t shortened the play life of the remaining toys as evidenced this week by an announcement of a start up company to rent toys, then the three year old future linebacker’s afternoon leg massage will be eating into toy play time.
Remember the old hobby shop? Well, pretty soon you won’t remember the toy store either. One store per million people or internet shopping for that brass HO lost wax engine.
If they’re smart, toy stores and toy manufacturers don’t care if they sell more toys, as long as the profitability rises. If unit volume directly drove profit, then GM would be making the same money as Toyota, since their unit sales are the same.
Furthermore, much of the toy business is really the electronics business. And electronic commodities generally show price declines. Additionally, toy manufacturing costs are often dwarfed by marketing, advertising, licensing, distribution, and retailer markups. The packaging and shipping often outweighs the manufacturing outlay. Does anyone believe that the manufacturing cost of a Disney character toy is the majority of the retail price?
Even better news for toy makers: 3 month lead prices ($1.34/lb) are below today’s price ($1.35).
This rise in prices reflects the inflationary pressures that we will continue to see in 2008. However, the true key here is to offer toys at the right price point. Yes, there still will be toys at sub-$5 and sub $10, only a different mix and different quantity of these. There will still be plenty of products for folks to choose from, and families will continue to squander large amounts of money on gifts that include PSPs, XBox 360, Wii or iPods in many shapes and colors.
We cannot forget the millions of phones that are given away to children each year. The toy business is not just about sales at a price point, but what is hot for the year. This year’s #1 toy will certainly demand top dollar and have many OOSs regardless of the price!
Advertising the “tried and true toys” that consumers always want at a “value” price may be one approach. On the other hand, innovative retailers may want to show consumers why the toys they sell are safe. Thus some consumers may be willing to spend a little more on those toys, even if money gets tight.
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Yes the sky is falling. No mothers will be able to afford the “up to” 10% increase in toys this Christmas, might as well turn out the lights. One more example of the ridiculous hype the media is continuing to terrorize retailers and shoppers alike with–and only 316 more days until Christmas!
Retailers can turn off the news channels, skip the RSS feeds and stop telling each other it’s only going to get worse. In 1941 Truman seized all the railroads yet the French came up with the bikini. Opportunity or calamity–only you can choose how you want to see your business. I am recommending to my clients: full steam ahead as if you are the sole store in your market and let those who are cowering leave it.
Given that consumers are also facing higher heating and transportation costs, higher prices could mean lower sales. Given that a recession is looming and that many consumers are facing foreclosure on their homes, raising prices is likely to put a damper on Christmas sales.
In this neck of the woods, consumers are more worried about toy safety than they are prices. The retailer and toy manufacturers that can restore some confidence to offset all the lead paint and other issues will do very well. Most that I have talked to are willing to spend more for toys that are perceived to be safe. That may equate to less toys, which will effect the overall business negatively. The only short-term winners will be ones that can meet this challenge, in my view.
Higher prices are the inevitable result of the exposure of the hazards inherent in offshoring your manufacturing operations to countries that do not have the safety standards that we always relied on to protect us before.
Last year’s imported toy fiasco pretty well proved that the toy companies were more interested in increasing the dividend to the shareholder than in protecting our kids from lead and other hazards including of all things, date rape drugs.
There is not one scintilla of evidence that shows that toy prices went down when Mattel and others outsourced to China but you can bet the farm that if those Chinese factories have to produce to American safety standards, the prices will go up at least enough to cover the actual costs of doing so while still maintaining or even enhancing the current bottom line.
If someone has to pay the costs for a major screwup, whether it be based on stupidity or cupidity, don’t EVER count on it being the corporations themselves. The consumers and/or the taxpayers will be the ones paying the ultimate price.
Why spend $7.99 when a cardboard box will do? Computers, electronic gaming and ever younger participation in team sports have all taken the wind out of the toy market. If ADD hasn’t shortened the play life of the remaining toys as evidenced this week by an announcement of a start up company to rent toys, then the three year old future linebacker’s afternoon leg massage will be eating into toy play time.
Remember the old hobby shop? Well, pretty soon you won’t remember the toy store either. One store per million people or internet shopping for that brass HO lost wax engine.
If they’re smart, toy stores and toy manufacturers don’t care if they sell more toys, as long as the profitability rises. If unit volume directly drove profit, then GM would be making the same money as Toyota, since their unit sales are the same.
Furthermore, much of the toy business is really the electronics business. And electronic commodities generally show price declines. Additionally, toy manufacturing costs are often dwarfed by marketing, advertising, licensing, distribution, and retailer markups. The packaging and shipping often outweighs the manufacturing outlay. Does anyone believe that the manufacturing cost of a Disney character toy is the majority of the retail price?
Even better news for toy makers: 3 month lead prices ($1.34/lb) are below today’s price ($1.35).
This rise in prices reflects the inflationary pressures that we will continue to see in 2008. However, the true key here is to offer toys at the right price point. Yes, there still will be toys at sub-$5 and sub $10, only a different mix and different quantity of these. There will still be plenty of products for folks to choose from, and families will continue to squander large amounts of money on gifts that include PSPs, XBox 360, Wii or iPods in many shapes and colors.
We cannot forget the millions of phones that are given away to children each year. The toy business is not just about sales at a price point, but what is hot for the year. This year’s #1 toy will certainly demand top dollar and have many OOSs regardless of the price!
Advertising the “tried and true toys” that consumers always want at a “value” price may be one approach. On the other hand, innovative retailers may want to show consumers why the toys they sell are safe. Thus some consumers may be willing to spend a little more on those toys, even if money gets tight.