Is the industry inflation proof

Is the toy industry inflation-proof?

Inflation is rising, and the talk everywhere is of the cost-of-living crisis. But what does this mean for the toy trade? And with a potential recession lurking around the corner, does the old maxim that the toy industry is recession-proof hold water, asks Tim Murray

With the cost-of-living crisis threatening to spiral even further, the toy trade, in keeping with many other businesses and industries, is readying itself for further turmoil, as inflationary pressures add to ongoing supply chain woes and the after-effects of the pandemic.

The traditional perceived wisdom – that the toy trade is fairly inflation-proof compared with other, pricier and potentially more volatile sectors – still holds true in many respects, but, as with the past few years, it must be noted that we are in uncharted territory.

There are now few senior executives in the toy trade who will remember the last great inflationary period during the 1970s and the 1980s, when the recession took hold, unemployment was high and inflation rose and rose.

A look back through the archives is revealing. During the early 1980s, many toy manufacturers in the UK were listed on the Stock Exchange, with analysts poring over their figures, and the recession had hit hard, causing financial problems for suppliers and distributors. Airfix was among the biggest casualties. And associated problems with companies heading into receivership made analysts jittery about the business.

As an early issue of TnP noted: “Airfix’s financial problems were all the more surprising given the bullish reports coming from the company in the weeks before the collapse. This has led city analysts to treat with some scepticism the public statements of the toy trade at this time of year.”

And, it continued: “Instead the City seems likely to rely on its own judgement of consumer spending patterns during the present deep recession. The verdict, not surprisingly, is somewhat gloomy.”

One similar pattern, then as now, is that although the conventional wisdom is that ‘even during the bad times, most parents can still manage to buy toys for their children at Christmas’, there is nothing conventional about the current state of not just the UK economy in a post-Brexit world, but the global economy, too.

The perfect storm currently facing the UK – trying to navigate the after-effects of the pandemic as well as the lingering issues caused by changing business practices from leaving the EU – means that this is a problem unlike any ever experienced by the business before. There’s more too – as one industry insider noted: “It’s so uncertain. The raw material costs to make the toys are rising, electricity and energy prices are soaring, there are so many different factors.”

But – and this is a big but – there are always the lower cost options.

“Toys, generally speaking, have an average price of £10,” says one expert I chatted too. “It’s not a major investment, like a car or big new electrical equipment.

“Without being arrogant or overconfident, people will still buy toys for their kids at Christmas. Consumers may choose – during times of hardship – to buy less or at lower prices, they will be looking for a bargain, but they’ll still buy toys.”

With this in mind, retailers may want to look for the kind of bargains and offers that will appeal to cost-conscious shoppers. They want to buy goodies for friends and family, but they want to leave the store with enough money to get their food shopping in too…

And while it’s now easy to see the effects of the current cost-of-living crisis – you’ll have noticed it in your “Without being arrogant or shopping basket and when the energy bills plop through the letterbox – what isn’t yet entirely clear is what this is over-confident, going to do to discretionary money in people will parents’ pockets. still buy toys for their kids Ironically, living in a post-Covid world means parents may be more inclined to treat their kids and skimp and save at Christmas. elsewhere. After the mental anguish Consumers children have been through during may choose – assorted lockdowns and restrictions, some believe that parents will still want during times of to treat their children to make up for the hardship – to torrid times they have just lived through. buy less or at lower prices, What isn’t yet certain is how the current problems will affect the supply chain. For with container costs having they will be risen sharply over the past few years, looking for a what will happen to these? That’s a bargain, but they’ll still question, like consumer behaviour and what will happen in stores, and whether or not retailers will pass on increased buy toys” costs to their customers, that is unclear. Proceeding with caution may be a favoured option, but remember, no one wants to up the cost of toys or see the industry failing. For, like the conventional wisdom of toys being fairly inflationproof, so too is the belief that acting like a Scrooge in the run-up to Christmas, especially where toys are concerned, is not necessarily a good look. As TnP stated in 1981: “While the prevailing mood of the City as Christmas approaches remains pessimistic about the trade, one analyst was at pains to point out that the City did not enjoy this Scrooge-like role. ‘After all, we’re all parents as well as stockbrokers and we want to say the trade is doing well. It’s just a pity the industry never lives up to expectations.’’

Diary of a Toy Shop

There’s an air of uncertainty for Amanda Alexander at Giddy Goat Toys in Didsbury, Manchester, as her shop building has been put up for sale…

Nobody needs me to tell them that things are unsettling at the moment. Covid has obviously dominated everything everywhere for two years, and in the past month I’ve had three members of staff off ill with it, despite the general feeling that it’s behind us.

Issues with shipping containers and soaring fuel prices have simultaneously increased product costs and depleted expendable incomes, while war in Ukraine is clearly awful on a human level as well as having economic repercussions. So all in all it’s a fairly unsettling world to exist in, let alone try to run a business in.

For our little Manchester shop we’ve also had the added uncertainty of our property being put up for sale and, although it was marketed as an ‘investment opportunity’ with a rent-paying tenant (us), because our lease had actually expired and was about as watertight as a bucket made of Loom Bands, it has been a bit of a worrying time. I had initially thought that buying the property myself would be a cracking idea until I found out that commercial mortgages required at least a 25% deposit and, having checked down the side of the sofa and found a lack of £10,000 notes, I realised that short of remortgaging my house, that was not an option. (The idea of borrowing against our house did cross my mind but being the wrong side of 50 and with interest rates set to rise and goodness only knows what could happen to high street retail over the next few months and years, I filed that idea alongside paragliding and sitting in the front row of a Frankie Boyle gig as being for the young, carefree, brave and fearless.)

I didn’t initially tell the staff as I didn’t want to worry anyone. But the estate agent brought round potential investors, plus someone had helpfully shared the link to the property listing on a local Facebook group so I also had customers asking if I was closing. So I had to let the rest of the team know the situation. It did prompt me to start investigating other properties and locations, and even to consider whether a city centre location might be worthwhile. Our shop is about six miles outside of Manchester in a thriving little suburb, which has some lovely shops including a cheese shop, butchers, fishmonger, a few nice clothes shops and lots of bars and restaurants, as well as plenty of good primary schools nearby and a few decent secondary schools. It’s an ideal demographic for us, so while a city centre location would be bigger footfall for sure, I reckon the percentage of customers entering the shop who went on to make a sale would be significantly less. At the moment probably 80% of people who come in actually buy something and we’re the sixth emergency service for those parents who empty their children’s book bags on a Friday evening and find out their child has two party invites that have been sat in there for a week for parties the next day!

A recent column by John Ryan in TnP about retail partnerships and concessions made me wonder whether that could be another option to consider if I discover our new landlord wants to redevelop this site or open their own shop. In many respects new premises would be great; I often say I could fill a shop twice this size as there are so many amazing products on the market, and I’ve been watching Midco’s new shop fitting and filling with a bit of envy.

It would be amazing to have a whole new unit to redesign and fill, and a stockroom and packing room to organise properly rather than ad hoc, like having an empty fridge and food cupboard before big shop day and being able to go crazy. But like many people I fear change and am fairly risk averse – better the devil you know, the grass isn’t always greener, and if it ain’t broken don’t fix it are all phrases that resonate with me so I don’t think I’ll jump unless I’m pushed…

So as I write this I’m still not entirely sure what is going to happen. I’ve been told the landlady has accepted an offer and that the new buyers are buying it as an investment, but as my lease has run out I won’t feel entirely comfortable until I know that for sure and a new lease is signed. So I have been telling suppliers that I’m sitting on my hands and not ordering stock for now… and in true toy industry style most people have been lovely and very understanding and concerned that I must be feeling stressed and anxious (even if they are also secretly thinking ‘damn I don’t want to lose an account’!).

Meanwhile, we have, of course, been trying to carry on regardless, serving customers with a smile and keeping stock at decent levels but without filling the stock room to capacity - just in case.

Online sales remain low but our shop is ticking along. I’m overstaffed really but keeping things as they are in case online picks back up and in the meantime I can always find jobs for staff to do such as unpacking deliveries, scanning new products onto the website, tidying the stockroom and stamping bags with our logo, although it will be getting to the point of asking them to clean the fridge if I’m not able to start ordering new stock soon!

As ever, my thanks to those suppliers who have been lovely enough to express concern at our situation and hopefully normal service will be resumed shortly and I’ll be gaily ordering again. I really hope so; there are just too many amazing toys out just now and trying to restrain myself is killing me!

We’re the sixth “ emergency service for those parents who empty their children’s book bags on a Friday evening and find out their child has two party invites that have been sat in there for “ a week for parties the next day!