No one’s suggesting there will be nothing under Christmas trees this year, but container ship lines are finding little to celebrate as the holidays approach.
Containerized imports of toys fell 9 percent in September, the eighth straight month of year-over-year decline, and are unlikely to match 2010 levels, Journal of Commerce Economist Mario O. Moreno said.
The drop to 60,616 20-foot equivalent units followed a 9 percent year-over-year decline in August. Through the first nine months of this year, toy imports were down 7.6 percent. That’s a difference of 30,430 TEUs, enough to fill about a month’s worth of space on a string of ships with nominal capacity of 8,000 TEUs.
Toys were the second-ranked containerized import commodity in September, behind furniture. They’re an especially important part of the mix in the eastbound trans-Pacific trade, where rates have been sagging under weak holiday-season demand and increased vessel capacity.
Toy imports are being hurt by “subdued growth in national disposable income, resulting from stubbornly high unemployment and constrained wages, which are causing retailers to be extra careful with their inventory positions,” Moreno said. “Toys aren’t necessities, and the growing parsimony in this consumer-driven American economy is outweighing the need for non-necessities.”
Other analysts agree the economy is slowing toy sales. Uncertain demand is causing retailers to cancel orders or to restock at rates that lag expectations, Sean McGowan, consumer leisure and lifestyle analyst at Needham & Co., wrote in a commentary published by the Toy Industry Association.
“Retail inventories of toys were quite high at the beginning of the year. While inventory levels have been worked down, we do not believe the rate of inventory decline has been enough to increase retailer confidence,” McGowan said.
Consumer confidence has slumped to levels last seen in the 2008-09 recession, according to the Conference Board’s monthly index. The private research organization’s consumer confidence index in October slipped to 39.8 from 46.4 in September.
Besides forecasting consumer demand, retailers must figure rising prices into inventory strategies. During the last seven years, there’s been a minus-74 percent inverse correlation between containerized toy import volumes and toy prices, Moreno said. In other words, when toy import prices rise, import demand falls 74 percent of the time.
Price increases are being driven by increases in costs of resins, paper, memory chips and labor in China, and by the gradual strengthening of the yuan against the dollar. China was the source of 89 percent of containerized imports of toys during the first nine months of this year.
McGowan said manufacturing costs remain above a year ago, although the rate of increase has slowed. He said that bodes well for next year’s peak manufacturing season, which runs from spring through early August, but he expects Chinese factory operators to try to raise prices to offset their cost increases and recapture profit lost in concessions to buyers this year.
Moreno said rising materials costs and a stronger yuan could cause some shifts in sourcing, most likely to Vietnam. But he said China’s larger manufacturing base and infrastructure means any such shift is likely to be “small and slow.”
U.S. sales of traditional toys totaled $21.9 billion and have been relatively flat during the last decade, while sales of video games rose to $18.6 billion last year from $10 billion in 2003, according to data from NPD Group in Port Washington, N.Y.
Moreno said October was likely the peak month for toy imports. And toy manufacturers say despite tepid numbers this year, their fourth quarter sales got off to a good start. “I would say our customers are all feeling pretty positive about the holidays coming up,” Brian G. Stockton, Mattel’s chief financial officer, told analysts last month.
The calendar may give a last-minute boost to toy sales. McGowan notes there are 31 days this year between Thanksgiving and Christmas, compared with 30 last year, and the peak selling season spans five Saturdays, including Christmas Eve. “Historically, retail sales have been more likely to grow faster than the overall economy in years with an extra Saturday between Thanksgiving and Christmas,” he said.
Retailers don’t want to wait too long to find out where sales are going. Target and Macy’s announced last month they will open their doors in the evening on Thanksgiving Day.