Global Toy News

Retailers Against a Border Tax

Last week I wrote an article entitled: "A Border Tax; Not Good for the Toy Industry." It was in reaction to a proposal to establish a 20% tax on imports. In that article I wrote: "In a sense, it would be children who would pay the price in toys that cost more and do less."

Fortunately some big retailers are concerned as well. A group of 120 retailers and trade associations, calling itself "Americans for Affordable Products" has come together to fight the tax. Here is what their website states as their mission: "The Americans for Affordable Products" is a coalition of job creators, entrepreneurs, and business leaders united against higher prices on everyday necessities." Are toys a necessity; they are if you're a child?

If you want to consider the impact of such a tax, think about Dollar Tree or 99¢ Only Stores. How can their business models sustain a 20% increase in taxes? Oddly, neither is on the list of supporters. 

Congratulations to Learning Resources for taking a stand. It would be great to see more toy retailers do the same.

Walmart

Walgreens

Target

Sears Holdings

Dollar General

Best Buy

Kohl's

Jo-Ann Stores

Learning Resources

Macy's

Meijer

Michael's

QVC

Rite Aid

Ross Stores

For the full list, click here.

ALERT: Changes In Tax Code Could Negatively Effect Toy Companies

The game could be changing for those who manufacture outside of the U.S. According to an article in the Wall Street Journal, and republished in Morningstar, by Paul Ziobro and Richard Rubin, "Toy Makers Gird for Tax-Code Change": "A proposal to apply a border adjustment to the U.S. corporate tax would strip toy makers of the ability to deduct the cost of imported goods from their profits, potentially forcing major price increases."

Here is how Mr. Ziobro and Mr. Rubin explain the new tax scheme:

If a company imports $1 million of foreign-made toys, spends $500,000 on domestic costs and sells the products for $2 million, it would only be able to deduct the $500,000 in local costs under the proposal. Thus, it would pay taxes -- at the proposed lower corporate tax rate of 20% -- on $1.5 million. A similarly situated company now would deduct all the costs and pay 35% in taxes on just the $500,000.

Why is this happening? Because Congress is feeling the heat to keep jobs in the U.S. According to the article, the toy industry is particularly vulnerable because it generates the majority of its revenue in the U.S. while making little or none of its products domestically. This is of course not new. The industry has always produced in low cost of labour countries. In the case of China, the massive and interconnected toy industry infrastructure in that country makes it hard to imagine manufacturing anywhere else.

Brexit's Impact on the UK Toy Industry; A British Perspective

Andrew Dobbie is the highly respected founder and Managing Director of Gameplan Europe Ltd. Based in the UK, Gameplan Europe provides consulting services, executive search, distribution and publishing to its clients. I asked Andrew to provide us with his personal take on the UK's recent decision to leave the European Union (Brexit). Here are this thoughts:

The value of the pound has dropped 11% against the US$ since the day of the referendum result.  That means an 11% hike in prices if margin percentages are to be maintained, because most toys from the Far East are invoiced in US$. Clearly  most manufacturers cannot raise prices immediately because of printed prices in catalogs etc, and even if prices are raised that much, volumes are bound to fall and the profile of consumer demand  will move towards cheaper toys in a range .

In the meantime Britain is a divided nation (or even more so than normal) with bitter recriminations being thrown about, leavened with spicy adjectives to describe the opposing side of which 'pondlife' is a mild example. One of the problems is that there was a strong demographic split in the voting.  Younger people and higher socio-economic groups voted primarily 'remain', and older people and lower socio-economic groups 'exit'.  This is  a toxic scenario with young people asserting that old folks who will soon be dead have dealt a blow to the economic future of those who still have a full life ahead of them.

The proponents of Brexit asserted that once the UK economy was unshackled from the dead hand of the anti-business bureaucrats in Brussels sucking the life blood out of entrepreneurs like vampires (this is not my florid take on the issue!) then the economy would bound upwards towards the sunny uplands of the new tiger economy Great Britain. Well we can all have our dreams. 

Slave Made Toys; A Modern Problem

There is certainly a very nasty irony attached to the notion that products designed for play are made by forced, unpaid labor

I, as you, are used to thinking of slavery in an historic or Biblical context. Slavery was ended in the United States in 1865. Brazil held out until 1888, making it the last western country to do so. 

It therefore seems odd that I am, today, writing about slavery as a contemporary problem. I guess I should not be surprised. Pirates are back as are modern versions of medieval torture and death. 

Still, I was startled to see an article on Made-in-China.com entitled: "Is Your Toy Supply Chain Ready for The Modern Day Slavery Act?" Written by Mark Robertson, Director of Communications and Stakeholder Relations for ICTI Care, the article states that there are 21 million enslaved people in the world. That's more people than live in the state of New York. 

Robertson informs us that the UK has a new law on the books that states that :

Any UK-based toy company or international toy company with a business presence in the UK, and which has a global turnover of more than £36 million per year, will be required to report annually on the steps it has taken to identify and address the risks of forced labor and trafficking in its workforce, its supply chain and the workforces of its business partners and contractors.

Part 2: A Look At the Future; What to Expect Over the Next 10 years

In my last article, I wrote about a futurist report by the firm, A.T. Kearney entitled "Is Your Luck Running Out? Managing Supply Risk in Uncertain Times."  Despite the rather ominous title, the study anticipates some interesting, disruptive and in some cases positive possible outcomes. I went through the report and looked for potential consequences that could have a direct impact on the toy and play industry. Here is what I found:

Fight for top-tier manufacturers

The report references the International Monetary Fund as forecasting that  "...Brazil, Russia, India, Indonesia, and China (BRIIC) will be among the 10 largest global economies by 2020, ahead of the United Kingdom and France..." That means that there will be an increased demand for what the report describes as "top-tier suppliers." In this scenario, the traditional toy industry with its generally lower priced products could find itself in a fight for suppliers.

A strong U.S. economy

The Kearney study states that ".... The U.S. economy is projected to continue to grow at an annual rate of more than 2 percent through 2020." That means a stronger dollar which will have a negative impact on exports but will reduce the cost of imports. The western toy industries are primarily import driven due to the amount of product produced in Asia. That scenario is a plus for the toy industry.

New markets

"Chile, China, Malaysia, Mexico, Peru, Philippines, and Poland" are chosen by the report to be growing consumer markets. This could be a nice opportunity for growth if the toy and play industry seeks opportunities in these new markets.