This holiday season, there’s pretty much only one question on everyone’s mind: “Where is my product?”
With just a little more than two months to go until Christmas and an exceptionally early Hanukkah this year (kicking off on Nov. 28, just two days after Black Friday), the outlook for a successful holiday season continues to fluctuate. Families will have less time to plan, retailers will have less time to sell, and the ongoing global supply chain crisis continues to cause anxiety on par with being delivered a lump of coal this season.
If there’s a Grinch involved, chances are the cold-hearted villain is working for one of the major shipping companies responsible for supplying containers and ocean transport. Over the past year, container prices have increased from as little as $2,500 to as much as $26,000. In the meantime, some container shipping companies, such as Hapag-Lloyd AG, began adding a Value Added Surcharge fee to trans-Pacific trade, including shipments from China to the U.S. and Canada. In a widely circulated LinkedIn post this summer, ZURU’s Co-Founder and Director Nick Mowbray flat-out called these increases “price gouging” just as the first lawsuits on the matter began hitting U.S. courts.
On Aug. 1, Loadstar reported that MCS Industries — a family-owned home furnishings company — filed a complaint with the Federal Maritime Commission alleging that shipping lines, including Cosco and MSC, violated the 1984 U.S. Shipping Act by colluding with one another to “unjustly and unreasonably exploit customers” while “vastly increasing their profitability at the expense of shippers and the U.S. public generally, which bears increased freight cost in the form of inflation.”
A week later, MSRP increases began hitting retail en masse, making good on the warnings from toymakers that had been dominating headlines all summer. No one wants to be the Scrooge, but the reality of consumer products in 2021 is that every aspect of the supply chain — from raw materials issues to labor — is struggling to keep up.
“Right now, it is a two-fold issue of actually getting product to leave the factory on time, and then the immense delays and expense on shipping the product to the States,’’ says Brian Flynn, founder and owner of Super7. “Every time a product slips two weeks, it has a cascading effect on every product behind it, and there is no way to make up for the lost time.”
McFarlane Toys’ CEO and Creative Force Todd McFarlane explains that the challenges continue even after product hits U.S. shores. “Getting containers is an issue at point of origin, and once you can get them — at an inflated price — then it becomes a question of even if they get here, can you get them offloaded in an efficient way?”
Making sure that product arrives safely and on time is something only those with exceptionally deep pockets can afford. During its second-quarter earnings call, Walmart U.S. CEO John Furner revealed that the retail giant had chartered its own vessels to keep its stores stocked throughout the holiday season, with inventory levels up 20% over last year. Similarly, during Target’s Q2 earnings call, COO John Mulligan said that the retailer ended the quarter with 26% more inventory on hand due to ordering larger quantities upfront ahead of the holidays.
PRICING PRESSURE
The cost increases that ultimately get passed onto consumers have widely varied based on the individual companies’ mitigation abilities, including the willingness or ability to absorb some of the cost themselves — at a risk of depleting already thin margins — or the pushback or acceptance from retail partners. Some companies are also beginning to take a closer look at a shift in manufacturing operations as demand increases for products already available on U.S. soil.
“We’ve worked hard to make the cost increases as small as possible for our retailers,” says Julie Jurrjens, vice president of brand development at Madame Alexander Doll Co. “We’ve also worked very hard to make sure that we’re in stock, and we are — and we’re ready to ship.”
Two years ago, during the U.S.-China tariff dispute, Atlanta-based Kids2 took a hands-on approach to its manufacturing business: The company built its own factory in Central China. Winvention, located near the Jiujiang Port, is now complemented by Kids2 Shanghai, which opened this past May.
“Having our own factory has enabled us to better control the manufacturing of products, but we’re still challenged by the same supply chain and container issues that all companies are facing,” says Ryan Gunnigle, Kids2 owner and CEO. Gunnigle also tells the Toy Book that his transportation costs have spiked more than 500% this year, and while some increases have been passed along to retailers and consumers, the company is making an attempt to reduce the impact. “We’re looking inward at costs to help offset them,” he says. “We are really trying to take the hit off of our partners and the parents we serve every day.”
McFarlane Toys, which has a growing presence at mass retail, finds that company size and timing helps with negotiating. “Being a smaller, nonpublic company that doesn’t have pressure to maximize profits and report on a quarterly basis, I can be more flexible,” McFarlane says. “If you go in first and say that you need a 5% increase in price, the retailers punish you. If we wait and let the Fortune 500 companies raise their prices first, the retailers will give me a kiss on the cheek when we ask for a 5% increase because the bigger companies asked for 12%.”
GOVERNMENT INTERVENTION
In June, the Biden-Harris Administration started the Supply Chain Disruptions Task Force to address “supply and demand mismatches that emerged in several sectors as the economy reawakened following the administration’s historic vaccination and economic relief efforts,” according to The White House. At launch, Transportation Secretary Pete Buttigieg joined the Task Force to focus on ports and trucking issues as plans were laid out to “strengthen American supply chains to promote economic security, national security, and good-paying union jobs here at home.”
A virtual roundtable that the Task Force held in July addressed major concerns involving the Los Angeles and Long Beach ports, which sit side-by-side in San Pedro Bay, California. At peak logjam, more than 40 container ships were anchored off port in the bay awaiting dock space. The need for an immediate response and the development of medium-to-long-term planning was glaring, leading The White House to appoint John D. Porcari as Port Envoy on Aug. 27.
Porcari’s appointment came just as the Senate passed the Bipartisan Infrastructure Bill in August. At press time, the commitment for a $17 billion investment in port infrastructure to “address congestion and supply chains over time” was awaiting a vote by the House of Representatives along with the rest of the bill.
While the long-term efforts are undoubtedly overdue, the late timing does not alleviate any of the issues heading into the holidays, or even into next year.
SHIFTING PACKAGING AND PRODUCTION TO THE U.S.
During the U.S.-China trade war, one oft-touted solution that was often suggested — albeit mostly unrealistically — was reshoring production to the U.S. Aside from having a lack of infrastructure to pull it off at the flip of a switch, the complexities and cost involved with building new factories and creating the equipment required to produce toys in the U.S. is compounded by a lack of labor. In Ohio, the three big manufacturers of rotationally molded toys — Little Tikes, Step2, and Simplay3 — are always hiring and have had difficulty filling factory jobs predating the pandemic era. Still, with inflation and shipping prices out of control, a new wave of talks has begun that indicates it might eventually make sense to ramp up American manufacturing again. Until then, some smaller companies are maximizing their container loads by shipping toys loose for final assembly and packaging in the U.S. for a multitude of reasons.
“As a brand new company, bringing in the raw materials and configuring our assortment here is allowing us to provide the best product offering to our customers based on their needs,” says Mike Morgan, owner of Waterline Toys. The company is packaging its SkimBe water and snow discs in California and adjusting pack quantities and colorways on the fly to meet demand from retailers and for its direct-to-consumer business. As to whether or not packing and assembly in the U.S. is sustainable or scalable, the jury is still out, but many, including Morgan, are pursuing options.
“We haven’t gotten there yet, but I do believe everyone is looking into every possible alternative to help find days or weeks on their calendars,” says Super7’s Flynn. “The issue now is that shipping within the U.S. has also backed up, so even if you got products here early for assembly, the delays in trucking can cancel out all of the other gains.”
LaRose Industries, which does business as Cra-Z-Art, was able to expand its U.S. production earlier this year when it acquired the Rose Art and Rose Moon brands from Mattel alongside the Rose Moon factory in Lewisburg, Tennessee. At the time, Lawrence Rosen, founder of LaRose Industries, noted that the move accelerated the company’s goal of significantly increasing manufacturing in the U.S. Next month, the company will open an expansion of its facility in North Jacksonville, Florida, to meet the growing demand for its arts and crafts products.
FUTURE OUTLOOK
The questions “When will the supply chain normalize again?” and “Will there be toys for the holidays?” remain. In the near-term, consulting a Magic 8-Ball would probably return an answer of “Reply hazy, try again,” but the end result might not be as bad as expected.
“Although our typical order-to-receive lead times are doubled, even tripled for some products, we still expect our brand’s products to arrive on shelves in retailers in time for the holidays,” Kids2’s Gunnigle says.
Meanwhile, McFarlane says that his company’s plans haven’t been hit in a significant manner, but even a small delay is troubling. “Our precision in being able to know when things are coming in is out the door,’’ he says. “We’re not off by a lot, but even being off 2-3 weeks means retailers with empty shelves, and that’s disruptive all the way around.”
At Super7, Flynn believes that retailers and consumers will do a lot of juggling well into next year. “I think for everyone, 2022 is a calendar full of asterisks. We all continue to move forward with our plans, but knowing that all the end dates, ship dates, and manufacturing dates will continue to fluctuate. We will most likely be spending a good bit of the year rearranging plans versus reality on a weekly and monthly basis,” he says.
Additionally, Gunnigle sees an end in sight, but believes that it’s still a ways off. “At this point, I do not expect [shipping] rates to go down over the next 24 months,” he says. “We have seen some relief and are securing more containers and slots, which is moving us in the right direction to begin to stabilize. However, the costs and inflation are here to stay for a while.”
The Get List Connects Retailers and Manufacturers with In-Stock, Fast-Ship Products
“How fast can you get it here?” was a common question posed by retailers to manufacturers and distributors at the ASTRA Marketplace & Academy in Minneapolis this past August. In an effort to connect retailers to manufacturers to keep shelves stocked, the Toy Book introduced The Get List.
“The Get List is a curated list of ready-to-ship items for retailers to, well, ‘get’ right now,” says Toy Book Editor-in-Chief Maddie Michalik. “The goal is to showcase products that are in-stock in U.S. warehouses that retailers can immediately order to receive within a week.”
Products on the Get List range from hot toys, games, and collectibles for all ages to “new old stock” that may be discontinued, but will still provide plenty of fun and value for kids and gift-givers.
The Get List will be updated weekly throughout the holiday season with new products and companies as fresh merchandise becomes available. Additionally, items that sell out will be removed.
Click here to view the list.
This article was originally published in the October 2021 edition of the Toy Book. Click here to read the full issue!
