by GERRICK JOHNSON, Analyst, BMO Capital Markets (disclosures)
Looking ahead at the toy industry this year, I anticipate pressure on the consumer to continue, particularly in the early part of the year. But consumers are adjusting to higher prices and are getting a better idea of how to manage their budgets. I expect retail sales to accelerate through the year and to end with solid growth in Q4.
Retailers tend to be reactive, and so I anticipate more conservative ordering after last year’s tumultuous holiday season. I’m bracing for weak point of sale (POS) in the first half of this year, owing to the combination of suppressed retail orders and a still-cautious consumer. I keep hearing about canceled orders and plans for a down year, and that makes me wonder if the retailers could go too far and get caught short toward the end of the year, forcing them to scramble to chase inventory. And the cycle begins anew.
I am forecasting a total U.S. retail sales decline of about 1% this year. But, importantly, I am forecasting Q4 retail sales to grow by 7%. I think supply chains are now up to the task, but first, we need to get through several tough quarters. I think the first nine months could be down about 8%, with the most pressure in Q1.
Given the changes to Toy Fair and its shift from February to September in New York, I’m not sure when I am going to see key drivers for the 2023 season. But when I do, I hope to see more innovation to help drive sales. We could use a hot product to generate some buzz and excitement. When the industry’s best-selling toy two years running is a cuddly pillow, there might be a problem. Tough times tend to bring back the classics and retro toys — tried-and-true play patterns that manufacturers, retailers, and consumers alike trust with their shrinking dollars. But that’s a hunkering down and milking-the-clock strategy. I think the toy consumer is ready for a little more pizazz.
I continue to expect the categories that saw strong growth during the COVID-19 pandemic to underperform — board games have very long shelf lives. Dolls could perhaps see an up year after a disappointing performance last year. The aging of Barbie, markdowns on L.O.L. Surprise!, and work-down of Hasbro’s discontinued Disney Princess line made the doll aisle a dreary place to be last year. This year’s PG-13 Barbie movie is a wild card, but it could be the right thing at the right time to change the trajectory of the doll category. I think some consumers will also be intrigued by the new Disney Princess product from Mattel.
Action figures, which tend to be entertainment-driven, could benefit from a more robust movie slate. A potential negative is a tiring adult collector market. Times are tough and collectibles are much more of a “want” than a “need.”
“We could use a hot product to generate some buzz and excitement. … I think the toy consumer is ready for a little more pizazz.”
I expect vehicles to show growth again after a strong year last year. The appeal of Hot Wheels’ low price point was apparent during the holiday season. And, ironically enough, last year was the first year a Hot Wheels single pack broke through the $1 price ceiling.
The plush category has been strong, riding the success of Jazwares’ Squishmallows. I expect another year of growth in that category. The infant and toddler and construction categories both seem to be steady and stable.
On the cost side, toy companies will be able to take advantage of lower input prices, excess manufacturing capacity in Asia, and better shipping rates to either increase margins or pass savings along to customers to re-energize demand. I expect operating expenses to increase ahead of sales growth as toy companies utilize more advertising to stimulate demand.
Finally, the toy question I get most often is: “What’s your son Oliver into these days?” The answer is Pokémon in all shapes and forms, Hot Wheels, LEGO sets, baseball cards, and his dog, Nora.
A version of this article was originally published in the 2023 edition of The BIG Toy Book. Click here to read the full issue! Want to receive The Toy Book in print? Click here for subscription options!
