Toy sellers reflect on their reliance on China as supply issues arise

The colorful piñatas that typically hang from the ceiling at Jennie Hogg’s Cachao Toys store in Muswell Hill in London were impossible to find this Christmas.

“My suppliers said it was too expensive to bring them in,” Hogg said. Although supply chain disruptions and higher transportation costs have put piñatas out of reach, “customers will always get what they need, they just have to keep an open mind,” he said. she adds.

The global supply chain crisis has led retailers, from grocery stores to toy stores, to warn of product shortages and higher prices. Recent manufacturing delays in China have added to the pressure, causing some players in the global $ 95 billion toy market to reconsider their dependence on the country.

Lego, the world’s largest toy maker, said its geographic distribution of manufacturing has helped it avoid disruption and has achieved a record first-half profit this year. The company has faced high demand for lockdowns and pandemic supply pressures through its manufacturing facilities in Europe and Mexico. This week, the Danish group announced a $ 1 billion investment in Vietnam to supply local production to neighboring Asian markets.

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

80%

Proportion of world toy exports from China

Most of Doudou et Compagnie products are manufactured in Chinese factories. But in 2019, the company acquired Maïlou Tradition, which manufactures high quality soft toys in Brittany.

“We had planned for 10% of our production in France. Now our target is 20 to 25 percent, ”Joly said. He hopes to achieve this by mid-2023.

French-made products from Doudou et Compagnie will not be more than 40% more expensive than high-quality toys from China, and Joly believes the demand for homemade soft toys will be high.

The toy movement “made in France” is growing, going from 8% of the French market in 2014 to 15% today, according to Alain Ingberg, president of the French Association of Creators and Manufacturers of Toys. “I’m not saying everything will come back, but we’ll get to 20 percent [in five years],” he said.

Frederique Tutt, global toy industry analyst at NPD Group, a market research firm, said the “story of localization and the drive to reindustrialize the industry” was taking root elsewhere as a result of the crisis maritime transport.

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

Jennie Hogg in her store in London. She says customers ‘have to keep an open mind’ when shopping for gifts this Christmas © Ian Johnston / FT

Costs have come down slightly, but port congestion, ship delays and container shortages persist, according to Peter Sand, chief analyst at Xeneta. “For container transport, the arrival of Omicron is another hurdle,” he said.

Character Options, whose brands include Peppa Pig and Fireman Sam, have their toys made in contract factories in China. Jerry Healy, the group’s chief marketing officer, said the company had taken “the bull by the horns”, ordering 95% of all of its needs in stock at the end of March, two to three months earlier than usual.

But long delivery times mean it hasn’t been able to replace unexpected performances like Moon Shoes – strappy inflatable shoes branded as ‘trampolines for your feet’.

“It happened to five or six toy lines, where we were considerably short,” Healy said. “We predicted a number where it was not large enough.”

Column chart of To ship 40ft container from China to UK ($) showing short term freight rates are skyrocketing

These missed opportunities amounted to “a few million” in lost income, he added. “We had the potential to have a fantastic year and we had a pretty decent year. Could have been much better. “

At the Los Angeles ports, where about 40 percent of Chinese imports to the United States arrive, about 75 container ships are waiting to dock, according to logistics group Kuehne + Nagel, with some stranded for weeks.

Ynon Kreiz, chief executive of Barbie maker Mattel, was among business leaders to the White House last month to discuss the matter. In recent years, Mattel has closed factories in Asia, Canada and Mexico, but it still has some of its own factories in China, and its size has helped it manage supply issues.

Smaller competitors, such as model train maker Hornby, which outsourced production to China in 1995, lack such control. After sourcing issues affected profits, the company has branched out into several Chinese suppliers in recent years. But, with demand up 35% for its Scalextric sets from last year, they are in short supply in some UK toy stores.

Still, Lyndon Davies, managing director, said the company has no plans to repatriate production due to high labor costs and skills shortages.

Healy of Character Options said that “if the logistical challenge were to remain, more companies will certainly look into it,” while conceding “that there is no silver bullet.” For low-margin toys sold under £ 20, the high costs of local manufacturing are off-putting, he said.

But manufacturing in China is not as cheap as it used to be. Rising costs of transport, energy and raw materials mean that prices will rise further. Tutt is forecasting increases of up to 12% next year, especially for larger toys that have fewer that can fit in containers.

“Retailers don’t have a lot of leeway,” she said. “It’s likely that they will pass some or all of this on to the consumer. “

Additional reporting by Harry Dempsey

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