After Christmas, the shelves at the Dinosaur Farm in South Pasadena usually look barren — the toy store counts on a cohort of loyal customers who prefer supporting a local business rather than shopping at a mass retailer. Its free gift-wrapping service is hard to pass as well.
But this holiday season, owner David Plenn is resigned to carry over some of the inventory well into January.
“I over-ordered because I was expecting to get half of what I ordered, which is what happened last year,” Plenn said. “But I’ll be OK. The (sales) have been quite good … The kids are sort of the last frontier. They’re protected against inflation, if at all possible. People may not eat at nice restaurants as much or buy a nice jacket, but the kids are getting something for Christmas.”
According to local toy manufacturers, Dinosaur Farm is a microcosm of what’s happening across the toy industry – solid revenues are partly offsetting inventory woes and offering hope of a robust holiday season.
Back to normal
Nearly three years after the start of the pandemic “the supply transit is going back to normal,” said Mark Liszt, chief executive of Lawrence Warehouse in Vernon.
“So many industries are faced with an over inventory supply right now,” Liszt added.
“Retailers that lost sales last year at Christmas time, whether it was shoes or New Yorksteak, this year they bought (merchandise) earlier so they didn’t have to risk what was going on at the ports and then they ended up with too much.”
Publicly traded Mattel Inc. in El Segundo and Jakks Pacific Inc. in Santa Monica, are both contending with elevated inventory levels.
The value of Mattel’s merchandise on hand in the third quarter was $1.09 billion, compared to $854 million during the same period last year, a 27% uptick according to Chief Financial Officer Anthony Silvestro.
“The increase reflects higher quantities as we accelerated seasonal production and the impact of cost inflation, partly offset by currency translation,” Silvestro told analysts during the latest earnings call. “This position has improved meaningfully relative to last quarter when inventory was up $360 million or 44%, and we expect the trend to continue to improve.”
Jakks’ inventory stood at $109 million at the end of September, up from $89.7 million during the same period in 2021.
“We had a terrific quarter and now are utilizing our inventory that we have domestically and around the world to fulfill what’s needed and what’s projected for the remainder of this year,” Chief Executive Stephen Berman told analysts in October, adding that the excess will compensate for manufacturing shutdowns during Chinese New Year.
Full inventories may be good for sales but not necessarily for profits, according to Richard Gottlieb, chief executive of New York-based consultancy firm, Global Toy Experts.
“By having full inventories, retailers will be less likely to lose sales due to (being) out of stock,” Gottlieb said. “On the other hand, if they carry inventory over into the new year, their profits will take a hit due to carrying costs and markdowns to move inventory out of the stores.”
Bruder Toys America Inc., meanwhile, appears to be an outlier when it comes to the recent inventory woes. The Hawthorne-based toymaker, known for its offerings of German-made dump trucks and tractors, operates warehouses in New York, Montreal and Los Angeles.
When the delays at the local ports continued throughout the first half of the year, Bruder redirected all of its merchandise shipments to ports on the East Coast. The move raised the shipping costs and fulfillment times, but “it was better to do that than not having the product,” said President Beate Caso, whose grandfather, Paul Bruder, founded the company in 1926.
“When we tried to ship containers to Los Angeles, they were not allowing us to book any containers on any vessels to go there because of the capacity issues with the port itself,” Caso added. “We said, okay, then we’ll ship everything to New York and will supply (the stores) out of New York warehouse…Now, I would say our inventory is good, but we don’t have too much either. It’s just right. Finally, we got to a good spot where we receive an order, and we can ship almost all of it.”
Sales upswing
U.S. toy industry sales revenue increased by 4%, growing $201 million in the third quarter of 2022, according to The NPD Group.
“The U.S. toy industry performance in the third quarter continues to amaze us, especially after experiencing growth of 12% during the same quarter in 2021 and 22% in 2020,” Juli Lennett, U.S. toy industry advisor for NPD, said in a statement.
The shoppers are also expected to continue in-person buying well into December, unlike the past two holiday seasons when fears that retailers would run out of merchandise prompted most to shop early.
Mattel said it implemented higher advertising and increased discounts and promotions to boost sales and manage inventory through the balance of the year. Another local toymaker, MGA Entertainment Inc. in Chatsworth, is banking on new products with lower price points – around $10 – to attract cash-strapped shoppers at mass retailers. It competes with Jakks on that end, as about half of the merchandise that Jakks brings to market is priced below $29.
Mattel and Jakks forecasted they’ll end the year with an uptick in revenue – 8% to 10% for Mattel and about 20% for Jakks. Bruder expects the sales will be about the same as in 2021, which was a record year for the toymaker.
Plenn’s topline at Dinosaur Farm also looks promising.
“Last year was a record for us,” he said. “This year’s beating it so far.”
Dinosaur Farm does not sell a lot of toys that are widely available, so his store is not “in direct competition with Target” and other mass retailers.
He said shoppers are spending more this holiday season, “because things cost more.”
“I’m paying more and I’m charging more,” Plenn said. “Something I used to sell for $17 we now sell for $26. And a lot of times, I won’t take a full markup just because I’m kind of embarrassed to be charging that much.”
Bruder’s Caso also kept the merchandise prices in check, partly benefiting from the strong dollar.
“We actually did not raise our prices much, we should have raised more, because we didn’t know how things would go this year in terms of the shipping costs,” she said. “I know that a lot of manufacturers had multiple price increases.”
