If there is any saving grace for toy shoppers this year, it’s that the coronavirus outbreak rippling through key manufacturing hub China may not lead to price spikes. That is if said toy shoppers could even find what they want on the shelves at Walmart or online at Amazon.
After all, the last thing toymakers struggling to drum up business after a lackluster holiday season want to do is to push up prices on consumers to compensate for higher supply-chain costs.
“I don’t believe they will [raise prices on consumers], actually,” said The Toy Insider senior editor James Zahn on Yahoo Finance’s The First Trade. Zahn added the last thing toymakers want to do is hurt families by jacking up prices.
Explained Zahn, “I think that is a last priority for them, especially as we are coming out of an 18-month period where the toy industry has faced several battles. They lost Toys R Us. Then they had a challenge in the amount of retail space shrinking. Now we are hitting coronavirus. But they are always resilient, and the toy industry is a very positive industry.”
China represents about 80% of the toy industry’s manufacturing base. While Funko, for instance, has done a good job diversifying out of the country and into Vietnam, many smaller toymakers haven’t been so agile. Meanwhile, industry juggernaut Hasbro still relies on China for more than 65% of its toy production. It told analysts at an event on Friday it plans to reach the 50% mark on China production in a “few” years.
Zahn said the situation on the ground in China is such (closed manufacturing hubs, limited access to workers) that consumers could see toys go out of stock at retailers come June. Toys that were supposed to be in the market before the holiday season may not appear in spring 2021.
“We are going to see a scattershot where it’s not one size fits all as far as the impact. We are looking at a six month, nine month and 12 month impact. But it is starting the ripple effect now,” Zahn says.
Factor in limited pricing power and immense supply-chain pressure, and toymakers could be in for major profit hits to kick off 2020.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.