Hong Kong 2009: Day 1

I had just asked a seasoned sales representative about his expectations for 2009.   His eyes squinted, his body unconsciously went into a boxer’s crouch and his head and upper body began to weave back and forth. It was like watching a fighter shadow boxing. He wasn’t throwing any punches, he was however, dodging plenty of invisible ones that, from his reactions, appeared to be coming fast and furious. As he dodged and weaved he said, “2009 is going to be weird, particularly the first six months. We don’t know what is coming.”

I spoke to a number of people here in Hong Kong yesterday and I can think of no better metaphor for the toy industry going into 2009 than the above described shadow boxing sales rep. In short, the toy industry is like a seasoned boxer who is in the ring with an opponent he has never faced and he is going to see what that opponent has before he starts counter punching much less throwing round houses. 

If 2008 was about safety and inflation then 2009 is about access to credit and the push back on prices from retailers. Buyers are well aware that the cost of petroleum has plummeted and are not accepting price increases. In fact, they are looking for decreases. Manufacturers are responding that yes, the cost of petroleum is down but it has not yet shown up in their cost of raw materials. What is more, safety inspection costs are up dramatically. As a result, they are actually looking for small increases. 

Complicating all of this is wariness about whether another large retailer might file for bankruptcy protection. There are rumors circulating but nothing substantial and no one is taking them too seriously. These rumors do, however, have an impact with factories who, burned by KB, are growing cautious about extending credit lest they get burned again.

These two battles, pricing and credit, are going to be fought out this week; stay tuned!