Running out of time to get its products on store shelves ahead of the holidays, the Basic Fun toy company made an unprecedented decision: It's leaving one-third of its iconic Tonka Mighty Dump Trucks destined for the U.S. in China.
Why? Given surging prices for shipping containers and clogs in the supply network, transportation costs to get the bulky yellow toy to U.S. soil is now 40% of the retail price, which is roughly $26. That's dramatically up from 7% a year ago. And it doesn't even include the cost of getting the product from U.S. ports to retailers.
"We've never left product behind in this way," Basic Fun CEO Jay Foreman told the Associated Press. "We really had no choice."
Toy companies are racing to get their products to retailers as they grapple with a severe supply- network crunch that could mean sparse shelves for the holidays. They're trying to find containers to ship their goods while searching for alternative ports. Some are flying in some of the toys instead of shipping by boat to ensure delivery before Dec. 25. And in cases like Basic Fun, they are leaving toys behind in China and waiting for costs to come down.
Like all manufacturers, toy companies have been facing supply chain woes since the pandemic started and temporarily closed factories in China in early 2020. Then, U.S. stores temporarily cut back or halted production amid lockdowns. The situation has only worsened since the spring, with companies having a hard time meeting surging demand for all sorts of goods from shoppers re-entering the world.
Manufacturers are wrestling with bottlenecks at factories and key ports like Long Beach, California - and all points in between. Furthermore, labor shortages in the U.S. have made it difficult to get stuff unloaded from ships and onto trucks.
But for toymakers that heavily rely on holiday sales, there's a lot at stake for the nearly $33 billion U.S. industry. The fourth quarter accounts for 70% of its annual sales. On average, holiday sales account for 20% of the overall retail industry. And 85% of the toys are made in China, estimates Steve Pasierb, CEO of The Toy Association.
The snarls are so severe that some retailers are telling companies they don't want products if they're shipped after mid-October. That's because products that typically took four to six weeks from when they left a factory in China to landing at a U.S. distribution center now take 12 to 16 weeks, said Marc Rosenberg, a toy consultant.
The struggles are happening as the U.S. toy industry enjoyed a nearly 17% increase in sales last year and a 40% increase in the first half of this year as parents looked to entertain their kids at home, according to NPD Group, a market research firm.
But while analysts expect strong growth in 2021, many toy companies said they'll see their sales reduced because they won't be able to fulfill orders on hot items, particularly surprise hits. They are also incurring big costs that will force some toy companies to shutter.
Toy executives say they can't raise prices any more than 10% - even though it won't completely cover the higher costs - because they're worried about shopper reaction. Mattel Inc., the nation's largest toy company, warned this summer it's raising prices in time for the holiday season to offset higher shipping costs, though it didn't say by how much.
Staff Photo by Matt Hamilton / Amanda Branum stocks shelves at Learning Express Toys in Chattanooga. Melissa McCollum, owner of Learning Express Toys in Birmingham, Alabama, says she's received only 25% of the holiday toys as of mid-September; typically, that figure is 50%.Costs of containers on ships have increased more than six-fold from last year with some brand executives saying they've gone up to $20,000 from roughly $3,000 a year ago. That has forced big retailers like Walmart and Target among others to charter their own ships.
Foreman calculates 1,800 Tonka trucks fit on each 40-foot container. So at $20,000 per container, that's costing him $11 each. That's up from an average of $1.75 each in a typical year. He says he's focusing on shipping smaller items like Mash'ems - soft, squishy, water-filled collectibles - onto containers as he looks to maximize the total dollar value of the container and profit margins. He estimates he can fit $150,000 worth of Mash-ems in a container versus $40,000 worth of Tonka trucks.
Some like MGA Entertainment, the maker of L.O.L dolls, are expediting the flying of its toys because it now costs roughly the same shipping.
Jim Silver, editor-in-chief of TTPM, a toy review site, said big discounters like Target and Walmart should have a healthier supply of toys compared with smaller ones because of their clout. Target said it has been teaming up closely with its vendors and transportation partners to keep stores well-stocked and ready for its customers.
Danielle Landrum, owner of Chattanooga's Boxcar General Store - where Tonka trucks are among the best- sellers - said she was warned about supply chain disruptions earlier this year by sales representatives and industry leaders, so she intentionally placed larger- than-usual orders early in the spring in anticipation of shortages this Christmas.
Since the store may only receive 60% to 70% of the products ordered, Landrum said she intentionally ordered 30% to 40% more than usual. She placed her orders early in the year as well, knowing that many distributors fill orders on a first-come, first-served basis.
"We expect to have a stocked store this year for Christmas, but I would still recommend that everyone plan to shop early this year, especially if you have a certain toy in mind that you would like to buy," Landrum said. "An assortment of toys will likely be available at many retailers, but they may not be the toys that you had planned to buy."
Patrick Holland, owner of Learning Express Toys in Chattanooga and Mountain Top Toys: A Learning Express Store in Signal Mountain, said he also started bringing in a larger amount of toys earlier this year.
"There's probably not a toy store owner in the country that doesn't have their own personal basement filled with toys right now," Holland said. "We will have plenty of great toys for the holidays, but we won't have all of the toys. The hot items will likely sell out early, because we won't be able to re-order last minute like we normally can."
If something sells out on Black Friday, vendors won't have the inventory to be able to replenish the store's supply, Holland said. His advice to customers is to shop early and shop often, because shipping issues have also delayed some products.
"We may have things that won't be in until November or December that we had ordered months ago," Holland said. "So if you see something that you like, if you see something your kids want, get it now."
Learning Express puts out a holiday catalog Nov. 1, and Holland said he knows at least a few of the products in the catalog won't be on the shelves by then.
Melissa McCollum, owner of Learning Express Toys in Birmingham, Alabama, said she's received only 25% of the holiday toys as of mid-September; typically, that figure is 50%. And The Toy Book, the leading trade magazine serving the toy industry, is promoting a curated list of in-stock products that retailers can get fast from U.S. warehouses.
Many toy companies like Basic Fun and PlayMonster have reduced advertising.
"We would be advertising to empty shelves," said Tim Kilpin, president of PlayMonster, who says 15% to 20% of its holiday goods are snarled in the supply chain. Koosh, a toy ball made of rubber filaments, was completely sold out in August, and he didn't think there would be a chance of it being replenished by Christmas, he said. But on Wednesday, Kilpin said he received word that some of the containers including shipments of Koosh are flowing from the West Coast.
Holland said shoppers are likely to see fewer sales this year due to the scarcity of products.
"We'll still have promotions and everything, but if you're waiting for a sale, this is not the year to do that," he said. "You want to have it in your hand, because 20% off of something that's not available is 0% off."
The makers of the squeezable, collectible plush characters known as Squishmallows decided to scale back distribution of its holiday-themed line because the company wasn't confident that the products would arrive in time for retailers to sell, Holland said.
AP Photo/Matt Rourke / A shipping container is moved along the Delaware River in Philadelphia. Delays in shipments of toys could limit supplies this Christmas season."That's the first kind of casualty of the holidays, and there will be others, unfortunately," he said.
The supply chain bottlenecks are expected to have lingering consequences. Toymakers are facing pressure from retailers to ship the first flow of holiday 2022 goods in early March instead of late April and the second cycle in June instead of by late July, said Andrew Yanofsky, head of marketing and operations at WowWee.
That will force companies to make decisions about how much to make and reorder without having a full picture of the sales data, he said.
Yanofsky said he placed a big bet initially on Got2Glow Fairy Finder, a light show in a jar that allows children to find virtual fairies, because he knew he wouldn't be able to replenish the production given the snarls.
"We took a risk on excess material beyond the scope of what we thought we could sell, " he said.
Even the few toy companies that make goods in the U.S. have struggled because of labor shortages.
John Gessert is CEO and president of American Plastic Toys, based in Walled Lake, Michigan, with another plant in Mississippi. He said the company is missing 35% to 40% of its front-line workers. Now, it's shifting away its focus on play kitchens that require six workers toward less labor-intensive toys like basketball sets, which require just three workers to put together.
"I have never had such a complicated puzzle to fix," he said.
- Compiled by Emily Crisman who may be reached at ecrisman@timesfreepress.com or 423-757-6508.