This holiday season, toy shortages are an “absolute inevitability,” according to Jay Foreman, CEO of Florida-based toy manufacturer Basic Fun.
A combination of tariff-induced production cuts earlier this year and cautious purchasing behavior from retailers could create a scenario where the most sought-after toys are unavailable, Foreman told Retail Brew.
“The consumer is going to see empty shelves,” he said. “People are going to be chasing merchandise, at least the merchandise they want.”
That last word is key: want. Unlike toilet paper and baby formula, which experienced shortages during the height of the Covid-19 pandemic, toys are a discretionary purchase subject to the whims of trend-seeking consumers. And when it comes to keeping shelves stocked, ordering the right item is as important as ordering the right amount.
“It’s not like there won’t be toys on the shelves, but I think those toys are going to be a much lower selection and assortment,” Greg Ahearn, CEO of The Toy Association and former chief marketing officer at Toys ‘R’ Us, said. “And I think the quantity of toys backing up those products on the shelves are going to be low.”
This could mean a holiday season with less variety overall and shortages of the most in-demand products—a lethal combo for toy manufacturers that even in a regular year have to make a bet on what consumers are going to want come Q4.
“You don’t really know what the sales velocities are going to be until you get into late September, early October, where you’re getting early reads on things, but if you’re going to chase it, you’ve got to make the decision now, literally in July–August, to get that ramped up last bit of inventory,” Ahearn said. “It’s all future betting.”
Ripple effects: But future betting is even more difficult when the global trade environment is changing month to month.
Ahearn said the current difficulties go back to April, when President Donald Trump announced a 145% tariff on Chinese imports. While that number has since settled on 30%, pending further trade negotiations, the spike in import costs caused many toy manufacturers to power down their production lines.
“The entire industry was on pause for 60 days of prime manufacturing,” he said. “There’s only a certain amount of product that you could force through a supply chain when you’ve missed about 60 days of manufacturing.”
Now manufacturers are playing catch-up, but they’re doing so in a highly uncertain economic climate, making it so many small to mid-sized companies are hesitant to experiment with new product lines, according to Ahearn.
No extras: Unlike many toymakers though, Basic Fun kept its production lines rolling. “I’d rather go out of business with a warehouse full of merchandise or a factory full of merchandise than go out of business because I have nothing to sell,” Foreman said.
The challenge for Basic Fun is instead hesitancy on the part of retailers, who Foreman predicts are not going to “gamble on extra inventory,” in part because “they’re not feeling overly excited about where the consumer is right now.”
In Ahearn’s view, “If you’re a mass retailer, you don’t want to have a significant overhang of inventory within the toy category when you get to December 26.”
Instead of ordering ahead of time, Foreman added, retailers could wait to see how the season plays out, then put pressure on vendors to replenish their inventory if consumers surprise them on the upside. This usually wouldn’t be a problem, but pricier imports means manufacturers aren’t in a position to keep extra inventory for this just-in-case scenario.
“There’s always going to be stuff to buy, even if the shelves are half empty,” he said. “It’s just, is it going to be anything you really want?”
Deconstructing the product: This puts manufacturers in a bind for which there are few easy solutions. One option Basic Fun is considering is what Foreman calls “deconstructing the product to reduce costs where possible.” What that means specifically is cutting back on add-ons like extra packaging or free batteries, which lowers costs but then has the downside of reducing the shelf appeal of the product.
What about substituting imports for US-made goods? After all, that is the stated goal of Trump’s trade policy.
“There’s really no value in moving out of China,” Foreman said. “They have things that we want and need. We have things that they want and need, and this concept of decoupling is pretty much off the table.”
The cost of domestic labor is simply too high, he explained.
“There’s no way to be able to set up some of these light industrial manufacturing facilities here in the States, because…if you did, you would have to pay [workers], which would double or triple the cost of the product here,” he said.
This report was originally published by Retail Brew.
This story originally appeared on Fortune
