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Toy sellers ponder reliance on China as supply problems bite

admin by admin
December 11, 2021
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Toy sellers ponder reliance on China as supply problems bite


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The brightly colored piñatas that normally hang from the ceiling of Jennie Hoggs Cachao Toys store in Muswell Hill, London were impossible to get hold of this Christmas.

“My suppliers said it was too expensive to bring,” said Hogg. Although supply chain disruptions and higher transportation costs have put piñatas out of reach, “customers will still get what they need, they just have to stay open-minded,” she added.

The global supply chain crisis has resulted in retailers from grocery stores to toy stores warning of product shortages and higher prices. Recent production delays in China have put on pressure, causing some in the $ 95 billion global toy market to reconsider their reliance on the country.

Lego, the world’s largest toy maker, said its geographic spread helped it shake off the disruption and it made a record profit in the first half of this year. The company handled the high demand for lockdowns and pandemic delivery pressures thanks to its manufacturing facilities in Europe and Mexico. This week the Danish company announced a $ 1 billion investment in Vietnam to provide local production for neighboring Asian markets.

China accounts for around 80 percent of world toy exports, but Alain Joly, founder of Doudou et Compagnie, France’s leading seller of teddy bears, said the problems caused by the pandemic gave a “financial reason” to increase local production.

80%

Share of global toy exports from China

Most of Doudou et Compagnie’s products are made in Chinese factories. But in 2019 the company acquired Maïlou Tradition, which makes high-quality plush toys in Brittany.

“We planned to have 10 percent of our production in France. Our goal is now 20 to 25 percent, ”said Joly. This should be achieved by mid-2023.

Doudou et Compagnie’s products made in France will be no more than 40 percent more expensive than high-quality toys from China, and Joly believes the demand for homemade teddies will be high.

According to Alain Ingberg, head of the French toy manufacturers association, the toy movement “made in France” is growing from 8 percent of the French market in 2014 to 15 percent today. “I’m not saying it will all come back, but we get to 20 percent [in five years],” he said.

Frédérique Tutt, global toy industry analyst at NPD Group, a research firm, said the “history of localization and the will to re-industrialize the sector” took root elsewhere due to the shipping crisis.

Freight rates have skyrocketed. The cost of shipping a 40-foot container from China to the UK peaked at over $ 15,000 in October, almost seven times more than a year earlier, according to data provider Xeneta.

Jennie Hogg in her London store. She says shoppers “need to stay open” when buying gifts this Christmas © Ian Johnston / FT

The costs have fallen, but according to Peter Sand, chief analyst at Xeneta, there are still port congestion, ship delays and a shortage of containers. “The arrival of Omicron is another hurdle for container shipping,” he said.

Character Options, whose brands include Peppa Pig and Fireman Sam, subcontracts its toys in factories in China. Jerry Healy, group marketing director, said the company had taken “the bull by the horns” and ordered 95 percent of its total inventory by the end of March, two to three months earlier than usual.

But long lead times for deliveries mean it hasn’t been able to replace unexpectedly strong performers like Moon Shoes – springy strap-on shoes known as “trampolines for your feet”.

“That happened to five or six rows of toys that we were clearly short of,” Healy said. “We predicted a number that wasn’t big enough.”

Bar chart for shipping a 40ft container from China to the UK ($) showing short-term freight rates are increasing

Those missed opportunities create “a few million” in lost revenue, he added. “We had the potential to have a fantastic year and we had a pretty decent year. It could have been much better. “

According to the logistics group Kuehne + Nagel, around 75 container ships are waiting to dock in the ports of Los Angeles, where around 40 percent of Chinese imports into the USA arrive, some of which are stuck for weeks.

Ynon Kreiz, CEO of Barbie maker Mattel, was among business leaders at the White House last month to discuss the issue. In recent years Mattel has closed factories in Asia, Canada, and Mexico, but still owns some of its own factories in China, and its size has helped it deal with delivery challenges.

Smaller competitors such as the model railway manufacturer Hornby, which outsourced production to China in 1995, do not have this control. After delivery problems hurt profits, the company has diversified into several Chinese suppliers in recent years. But with demand for its Scalextric sets up 35 percent year over year, they are becoming scarce in some UK toy stores.

However, Lyndon Davies, chief executive, said the company had no plans to repatriate production due to high labor costs and the shortage of skilled workers.

Healy of Character Options said that “if the logistical challenge persists, it will surely attract more companies,” but acknowledged that “there is no quick fix”. For low-margin toys that retail under £ 20, the increased cost of local manufacturing is daunting, he said.

But manufacturing in China is not as cheap as it used to be. Rising shipping, energy and raw material costs mean that prices continue to rise. Tutt predicts an increase of up to 12 percent next year, especially for bulkier toys that don’t fit into containers.

“Retailers don’t have that much leeway,” she said. “They will likely pass something or everything on to the consumer.”

Additional coverage from Harry Dempsey



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