The Cost to Manufacture Toys Should Decline in 2009

It looks like toy manufacturers and consumers may be looking towards some pricing relief in 2009. There are a number of factors that contribute to the cost of toys made in China (and that means most toys). Three notable ones that have affected toy prices over the last twelve months have been:

• The value of the Yuan versus the Dollar
• Salary demands by Chinese factory workers
• The cost of petroleum

The value of the Yuan versus the Dollar

The Wall Street Journal in a December 3, 2008 article entitled, “Yuan Drop Versus Dollar Marks Change in Outlook,” that “[a] sudden demand for dollars in China’s foreign-exchange market pushed the Yuan’s value down… and points to widening expectations that the Chinese currency is set to keep weakening.”

Prior to this the Yuan has been steadily increasing in value against the dollar. In fact, says the article, “[t]he Yuan rose about 7% versus the dollar this year through mid-July, before leveling off. Altogether, the Yuan had gained 21% since Beijing depegged it from the dollar in mid-2005.”

This is good news for US consumers and toy companies who manufacture in China as each American dollar is going to go further in purchasing power when buying products and services made in China.

Salary demands by Chinese factory workers

It was just last year when we were hearing about labor shortages in China. Now we hear about more than 50% of factories closing in the last year. This means that Chinese workers will have less leverage with factories so we can probably look for stability or a decline in average wages.

The cost of petroleum

Oil is now down $100 US from its record high of $147.27 US in July of this year. Demand will likely stay low for the foreseeable future due to the recession. In addition, according to the Guardian, high US oil inventories are helping to keep a lid on prices. 

So when will we see price decreases? I called an analyst I know and trust and he tells me that we should look for the impact of these factors in 2009. It will be interesting to see what prices look like in January’s Hong Kong show as compared to Dallas’s October show.