Game Theory: Too Much Toy Leads to Huge Discounts and Pain for Industry

The holidays have opened up historical bargain prices for toys, and 2023 promises even bigger discounts for consumers and more challenges for toy sellers.

Known for its recession resilience, the toy industry is instead being hit by a perfect storm — cash-strapped consumers with less disposable income for non-essential items, and a toy glut that has grown steadily over the past year, reaching a tipping point over the holidays. .

Stuck with more toys than they can sell, retailers are cutting back on their toy purchases this year and manufacturers are producing fewer items, according to The Post.

“In the first half of the year, if not the entire year, toys will continue to be discounted and toy makers’ profits will plummet,” said Isaac Larian, chief executive of MGA Entertainment, maker of LOL Surprise and Bratz dolls. .

Overall toy sales revenue fell 3% over the holiday season, after increasing 3% from January to September, according to the NPD.

This is a sharp drop from the pandemic years, when toy sales rose 22% year-over-year in 2020 and 12% in 2021.

Retailers ‘bought so many [during that pandemic] that they are sitting on their own stocks,” Larian said.

According to Larian, MGA’s holiday sales fell about 10%, the first drop in six years.

Some saw this last year and have begun promoting smaller, less expensive items under $10 as the holiday season approaches, reports The Post. The steep discounting started in early November, or much earlier than usual.

While online toy sales grew 206% from November 1 to December 31 year-over-year, the industry has had to rely on big discounts, peaking at 34% markdowns from 19% last year to sell its holiday toys. goods. according to the latest data from Adobe Digital Insights, which tracks online sales.

Toys sold at a discount more than any other category of goods. According to Adobe, electronics had the second largest discount with an average discount of 25%.

“It’s going to be a tough and challenging year, especially the first half,” said Jay Foreman, chief executive of Basic Fun toys in Boca Raton, Florida.

Basic Fun, a privately held company that makes products like Tonka Trucks and Lite Brite, was expecting sales growth of 15% in 2022 from the previous year, but only 5% growth, Foreman said.

“Right now we have a lot of extra inventory, but we expect it to run out in the second half of the year and, oddly enough, I would say [the big retailers] will be a little more than they hoped,” Foreman said.

The toy buying cycle was disrupted in 2021 when a huge amount of toys, especially expensive and expensive ones, arrived too late for the holiday season, leaving retailers with more inventory than they needed or wanted at the start of 2022.

Sky-high shipping costs were partly to blame for the late arrivals, as retailers and manufacturers turned away shipping containers costing more than $20,000 each, also pushing up overall prices.

Shipping rates have since dropped sharply, but inventory levels have remained the same.

“Looks like it’s in stores for the first week of January,” Joshua Lerzel, co-owner of Sky Castle Toys, said late last year. “There are a lot of early price cuts that you usually don’t see until after the holidays.”

Larian said both retailers and manufacturers are now being cautious.

“We don’t produce that much and they don’t buy that much,” he said.