Credit crunch hits the toy industry

Tight credit is having an impact on toy manufacturers and retailers. An October 21, 2008 article in the Financial Times entitled “Supply problems hit toy industry,” quotes Mattel CEO Bob Eckert as saying: “Retailers are reluctant to make inventory bets, and it will be difficult for some of our customers and vendors to obtain the funds they need to buy inventory and raw materials…”

In other words, the tight credit markets are making it harder for companies to borrow money. Chinese manufacturers cannot get the loans they need to finance raw material and labor costs. Here in North America and in Europe, retailers are unable to borrow the money they need to fund inventories for the heavy Christmas buying season.

Not mentioned in the article, but of equal importance, are the US manufacturers who are carrying heavy inventories in US warehouses and have given long dating terms to retail customers. The inability to borrow money makes them short for cash and as a result causes them to have difficulty paying suppliers. It is unlikely that offering discounts to retailers in return for paying early is going to work. What retailer wants to reduce their cash position when confronted with an uncertain Christmas selling season?

The mood in Dallas was, as I reported, surprisingly positive and confident. These underlying reports on tight credit are, however, an ongoing concern and need to be watched closely.