Aiman Akhtar, a sculptor and digital artist who honed his skills at Burbank-based Nickelodeon Group and Stoopid Buddy Stoodios, founded his independent toy company Fungisaurs Inc. in 2019 after turning a whimsical idea – dinosaur-mushroom “eco-characters” – into a hit at a local indie toy expo.

To launch his North Hollywood business, Akhtar raised about $21,000 on Kickstarter, matched it with his own funds and produced 16,000 mystery-box toys.

He soon began selling in more than 200 independent stores nationwide and built an app to bring the toys to life – all of which positioned Fungisaurs as a hybrid toy and entertainment startup within six years.

But now he’s contending with difficult economic and financial headwinds, thanks to soaring tariffs and thin margins – both of which soon have forced him to scale back. “Trying to build a toy business right now just doesn’t make sense,” said Akhtar. “The margins are tiny; tariffs made it impossible to keep prices accessible.”

Akhtar isn’t alone. Industry-wide – from the toy giant Mattel Inc. to the independent owners like Akhtar – toymakers have felt the string of higher tariffs imposed by President Donald Trump’s administration. But the repercussions of it all throughout this year – including rising production costs, volatile online algorithms and a retail landscape that increasingly favors corporate brands – have made it struggle for the smaller toy makers to stay in the game.

“Each toy costs us about $3 to make and ship from China, and we could sell it for $10 retail or $5 wholesale. When tariffs hit, that model just broke,” he said. “[Now] for me to make a profit, the toys would have to sell for $20 to $25. And who wants to pay that for a mystery box?”

Pooneh Mohajer, co-founder and chief executive of Tokidoki, has grown her pop-culture toy brand over the past 20 years. She launched the Mid-City-based company in 2005 alongside Italian artist Simone Legno after discovering his “cute character” art online.

“Tariffs have definitely impacted our business – that’s an understatement,” said Mohajer. “We’ve been terrorized since the fluctuations started happening.”

‘Uncertainty’ is the hardest

Despite challenges such as tariffs, shipping delays and shifting social-media algorithms, Mohajer says demand for “cute character culture” is still on the rise. Tokidoki also has expanded into animation, now featuring its “MermaCorno” property as a series on HBO Max and a companion Roblox game.

“The uncertainty is what’s hardest – operating under the weight of not knowing what will happen next,” said Mohajer. “It’s affected everyone, not just our industry.”

Oscar Moreno has been in the toy industry for 26 years, starting at Mattel in 1999. He worked there until 2014, when he was laid off.

He rediscovered his artistic drive through animation and created “Larvie, Teenage Fashion Maggot,” a bizarrely endearing character born from a web cartoon that went viral. Fans pressed him to make it into a collectible toy, leading to a successful Kickstarter campaign funded in two hours. Working solo, Moreno now designs, sculpts, photographs and markets every detail of his dolls – produced in China and sold mainly through crowdfunding and an eclectic novelty shop known as Wacko in Los Feliz.

Despite steep tariffs and shipping costs, he’s built a cult following online. Wacko this month hosted a three-hour toy signing for his loyal fans – only proving that even in a tough market, one person’s eccentric vision can still capture the world’s attention.

“Before this year there were zero tariffs on toys,” said Moreno. “Now it’s like, ‘Hi, it’s 150%.’ Are you out of your mind?”

Moreno spent three years searching for the right factory in China to produce his toys only to have his efforts upended by the recent chaos around tariffs.

“My factory’s baffled by American politics. We don’t have any precedent. There’s nothing to refer to; so we’re all just treading water,” he said. “I got a bill at the port for almost $6,000 in tariffs. For a one-person company, that’s startling.”

Toy giant: cautious but optimistic

Meanwhile, corporate toy companies like Mattel are cautious but optimistic heading into the holiday season and through 2026.

Mattel’s third quarter net sales fell almost 6% year-over- year to $1.7 billion, putting more pressure on the company for a strong holiday season. Also, the company reported net income of $278 million (or 88 cents per share) down from $372 million (or $1.09 per share) a year earlier for the third quarter. After adjusting for one-time items, including costs associated with restructuring and certain product recalls, net profit per share came in at 89 cents.

For the first time in three quarters, the El-Segundo-based toy giant has missed on both earnings and revenue expectations.

In a company statement released in October, Mattel Chief Executive Ynon Kriez said that “while our U.S. business was challenged in the third quarter by industry-wide shifts in retailer ordering patterns, the fundamentals of our business are (still) strong.”

Following its last earnings report released in May, Mattel announced that it pulled its annual financial targets. The company also said it would boost prices for some products in the U.S. to dampen the impact of higher input costs, because of the Trump administration’s tariffs on key trading partners.   

Kreiz told CNBC in May that the U.S. accounted for about half of the toy giant’s global sales, and by year end, less than 40% of its product will be sourced from China.

According to guidance from Arpine Kocharyan at UBS, going into the fourth quarter Mattel is seeing stronger sales momentum, with retail point-of-sale (POS) activity up by mid-single digits both in the U.S. and abroad. Retailers are showing more confidence in the toy aisle, taking on extra inventory in the third quarter as foot traffic improves and the key 60-day holiday shopping window gets underway.

Orders from retailers indeed have accelerated in recent weeks for Mattel, even as their own inventories remain slightly lower than last year’s levels. Mattel’s own inventory, however, is up about 12% year-over-year as the company positions itself to ensure steady supply and navigate potential tariff disruptions.

“Looking into the balance of the year, we expect a good holiday season for Mattel and strong topline growth in the fourth quarter,” said Kreiz. “We are reiterating our full year 2025 guidance and are advancing our strategy to grow our IP-driven toy business and expand our entertainment offering.”

Staying afloat vs. closing shop

For global players like Mattel, tariffs and supply chain hurdles are just line items to manage. For independent creators, they can be the difference between staying afloat or closing shop.

In a survey of more than 400 companies, the New York-based Toy Association found that nearly half of small and medium-sized enterprises (SMEs) said they may soon go out of business due to the ongoing U.S tariff policy. Among small companies generating less than $10 million in revenue, that represented about 46% of those surveyed; and it was about 45% of mid-sized entities making over $10 million who expected to close their doors.

The association’s survey, released in April, also found that 64% of small toy makers were canceling orders, while 80% of mid-sized firms expected to do so. And more than three-quarters of small toy makers (at 81%) planned on delaying their orders, while 87% of mid-sized companies planned to do the same.

Akhtar knows firsthand about the strain of making such business decisions.

“My investors weren’t understanding the math of trying to fund a second round of collectibles or a series two – it just didn’t make sense to them,” he said. “We’re no longer in stores; we’re just selling at expos now. It’s really not sustainable as a business model – it’s more of a hobby until I can secure funding again or tariffs go down.”

Until then, Akhtar is pitching an animated “Fungisaurs” series to Nickelodeon and developing digital experiences with Santa Monica-based Two Bit Circus, an experiential entertainment startup building arcade-style immersive projects.

“Right now, I’m focused on keeping the story alive through animation and interactive media until it makes business sense to bring the toys back,” said Akhtar.

For others in L.A.’s indie toy scene, the impulse to create playful collectibles remains irresistible – despite the obstacles.

Moreno still runs one crowdfunding campaign a year and has maintained Wacko as his main brick-and-mortar retail option.

“I have a lot of exciting ideas for the line, and I’d love to do some line extensions – there are a lot of components to it,” said Moreno. “There’s something special about it being a little elusive and obscure. That makes it fun.”

Brands like Tokidoki are taking a different approach – scaling creativity through global partnerships and media ventures.

“Collaborating with other brands is part of our DNA. We’ve worked with Hello Kitty, Godzilla and Monopoly,” said Mohajer. “We developed an animated series in partnership with Atomic Cartoons and Thunderbird TV.”

Tokidoki has also launched a global licensing initiative around its Roblox game. The company continues to expand by licensing its intellectual property across everything from apparel to handbags to cosmetics and novelty products.

Despite the challenges, Mohajer remains hopeful that creativity and community will carry Tokidoki – and the toy industry – through the turbulence.

“I’m just hoping for stability going forward – like everyone else,” she said. “We all need our fandoms and favorite brands to bring some light, joy and laughter into our lives.”