Economic headwinds and US trade policy are squeezing margins for the likes of Mattel, Hasbro and MGA, according to Newsweek, with higher costs being passed onto the consumer.
Financial results released last week by America’s largest toy manufacturers revealed the continued costs of the trade war and lingering uncertainty around tariffs.
Mattel reported a 6 per cent decline in second quarter net sales. Meanwhile, Hasbro reported a 16 percent fall in revenue for its core toys and games business. While this was almost offset by significant improvements in its trading card and digital gaming segments, the company’s net sales were nevertheless down 1 percent year-over-year as it reported a $856 million net loss for the quarter.
In their results and subsequent earnings calls, both companies cited the continued uncertainty created by tariffs, which continue to weigh on supply chains and inventory levels. Hasbro attributed its net loss in the quarter to a $1 billion impairment charge related to its consumer products segment and caused by the implementation of tariffs.
“We have already raised prices due to the tariffs and, unfortunately, the consumer will be paying for this. With small margins in the toy industry we have no choice but to pass along the tariff increases”
Toy companies are particularly vulnerable given the industry’s reliance on globalised supply chains and outsized dependence on Chinese imports, with around three-quarters of the toys sold in America manufactured in China.
Prior to the 90-day pause agreed between the US and China in May – which saw tariffs temporarily lowered from the previous rates threatened – the two companies are among those who said they may need to raise prices to offset the impact of tariffs. This led to toys becoming a surprising flash point in the debate over trade policy, and sparked a confrontation between the Trump administration and Mattel after CEO Ynon Kreiz said that the company had no plans to relocate manufacturing operations to the US.
Though both companies said that tariff-related headwinds had eased from earlier this year, price impacts are still set to take effect.
Mattel’s CFO, Paul Ruh, told analysts last week that only 40 to 50 per cent of toys would remain under $20 given the “pricing actions” tariffs had demanded. Meanwhile Hasbro CEO, Chris Cocks, told CNN earlier in July that toy prices may increase this autumn because of tariffs on Chinese and Vietnamese goods.
Isaac Larian, CEO and founder of MGA Entertainment, said: “We have already raised prices due to the tariffs and, unfortunately, the consumer will be paying for this. With small margins in the toy industry we have no choice but to pass along the tariff increases. The impacts have been far greater than anticipated by the industry. In addition to the increased import and export costs, the constant changes to the imposed tariffs have created a lot of uncertainty and nobody can run a business with uncertainty.”
Regarding the possibility of bringing manufacturing to the US to offset the impact, Larian said that MGA would do so immediately if it was possible: “It is just not possible to make certain toys in America. China is the factory of the world – no other country has the know-how and infrastructure of China to make toys currently.”
According to a CNN report, International Trade Representative for the Chinese Ministry of Commerce, Li Chenggang, said that both sides will: “continue to push” for an extension on the 90-day pause beyond the deadline of August 12.
