Written by Richard Gottlieb.

2022 is over. Now we have to deal with 2023. And what can the toy professionals expect from the new year? Here are the predictions of toy industry expert Richard Gottlieb.

Supply Chain

China’s Zero Covid policy has been a catastrophe for the Chinese people. Three years of quarantines, neighborhood, factory, and port shutdowns, plus continuous testing and surveillance have made for a fed-up and frustrated citizenry. There is no way to compare the frustrations experienced by the toy industry to those experienced by the Chinese people. 

Yet, the same Zero Covid policy that has bedeviled China’s people has been a significant obstacle for the toy industry. Freight rates increased ten times over, and factories and ports unexpectedly shut down, making a smooth operating supply chain impossible. The traditional winter pilgrimage to Hong Kong and Shenzhen ceased to take place. Factories went unvisited, while buyers and sellers stopped meeting in person.

The good news is that things have improved. China has ended its Covid Zero policy, eliminating some barriers to international travelers, and the supply chain is getting back in gear. The supply chain is in much better shape, with once over-loaded ports now looking for business as container prices have fallen to near pre-Covid levels. 

Prediction: 

• Container prices will stay near current levels.
• The Chinese leadership will be absorbed with domestic policy as it works to calm down a restive population who just wants a dose of normality. That will be good for China’s relations with the rest of the world and keep politics out of business. 

Inventory

Due to the challenges of flowing freight in 2020 and 2021, toy companies and retailers reacted by bringing shipments in early and in quantity. The result was overloaded warehouses and worried CEOs. Consumers are delaying their shopping so expect a strong December and January after a weak November. This will reduce inventory, but there will be plenty of markdowns as we move into the new year.

The more significant danger for the toy industry is the anticipated customer product returns. The U.S. National Retail Federation has predicted $816 billion in returns after this Christmas. Yes, we have product returns every year. This year’s returns, however, will come on top of already heavy inventories.

Prediction: 

The combination of returns plus overstocks will create a near-record-setting number of markdowns and closeouts. Retail buying will be impacted as wary buyers look to space out their purchases to cut off the flow at the source if necessary.

Inflation

I have conducted several surveys on toy inflation. According to those surveys, inflation has been running between 10 and 15%. Among the causes has been a willingness on the part of Walmart, Amazon, and other large retailers to say yes to price increases after years of saying no.

Those days are over, and salespeople are once again having their price increases rebuffed. Here is a quote from The Wall Street Journal:

Another cause has been the increase in container rates. Happily, for the toy industry, the container price bubble has collapsed, and prices are back to pre-covid levels. In addition, petroleum, a critical component in plastic, has also decreased in cost.

Prediction: 

Toy prices will remain flat in 2023

Economy

Central banks are doing their best to stifle inflation by raising interest rates. By doing so, they are scaring the stock markets and worrying consumers. As of December 16, when I am writing this, the “Global Toy Experts Composite Toy Stock Index” is down 28% year-to-year.

Other worries include Russia’s actions in the coming months and China’s economy. China’s GDP is lower than anticipated. It could get worse due to the anticipated rise in Covid cases due to the government’s easing restrictions. Because of the Covid Zero policy, the Chinese population has failed to acquire herd immunity. That will result in employee absences due to sickness and further damage the Chinese economy.

Prediction:

It’s hard to foresee the world being able to dodge a recession. I, therefore, predict a slowdown starting in the first quarter of 2023. 

So those are my predictions for 2023. We’ll see how accurate I am.

About the author

Richard Gottlieb is the CEO of Global Toy Experts, founded in 1994, which provides consulting services to international toy companies.  Richard is also the publisher of Global Toy News, a web-based magazine founded in 2009, co-organizer of the annual Toy Talks Forum in Shenzhen, China and co-host of  The Playground Podcast.