August 2005 | Vol. IV - No. 8
Seventy-one percent of all toys are made of plastic. Seventy-one percent! Why? Plastic is safe, easy to work with, and above all … cheap. Not anymore. Plastic prices are skyrocketing because of the rising cost of petrochemicals. What does that mean to retailers? Will plastic prices make toys too expensive, dooming the industry? As Sam Cooke sang: “A change is gonna come.”
Mattel Inc., the United States’ largest toymaker, posted second quarter narrowed profit margins and a look to loss in the following quarters. Why? "Record-high oil prices were the main reason for the drop-off in margins,” says chairman and chief executive Robert Eckert. And this was after Mattel had already raised prices on Barbies (and other toys) because of previous — and possibly continuing — oil price hikes.
When people think oil, they normally think of their cars, but those in the toy industry also know that plastic is made from “cracking” oil and natural gas. When the price goes up on the oil, so does the price of plastic. Some companies adapt.
Michael Rinzler, director of marketing in the boys toys division at Playmates Toys, explains that in their new King Kong playsets (as well as others), much of the peripheral plastic is being replaced with “very cool” cardboard “wherever we can. It’s simply too expensive to make them otherwise.”
Other companies, such as Processed Plastics (a company that manufactures plastic toys), end up being forced to take more dire actions. When asked how the rise in oil prices affected the company, an anonymous source in the main office states, “We’re in the process of liquidating.”
Soaring prices, less use of plastic, liquidation, bankruptcy, an exodus from the toy manufacturing game altogether: these things are happening right now. And it could get worse. Hurricanes disrupt the shipping of oil. Instability in the Middle East drives prices upwards. According to the U.S. government’s statisticians, oil prices are over 35 percent higher than a year ago. Energy Secretary Samuel Bodman says the government had "limited firepower to affect (the oil) markets."
What Can Retailers Do?
Forewarned is forearmed.
Be aware that plastic toy prices are going to rise. “But not necessarily immediately,” explains Tom Conley, president of the Toy Industry Association. “Price quotes on toys are set almost a year ahead of release dates, so that this year’s oil price rise may have to be absorbed by the manufacturers.” But that means next year, the prices will change — even if the price of oil goes down (which no one is predicting).
Look into alternative material toys. Wooden toys have gone high-end from the distant past when wood was ubiquitous. Plastic became cheaper. But now that plastic prices are rising? Tom Jacobs of Wood U, a wood-only toy shop, smiles: “Suddenly wooden toys are becoming cost competitive. They’re usually of a finer craftsmanship and more durable, too.”
Research your toy sources. Companies are being driven out of business by the costs of plastic. If you buy from a smaller company, double check their business health, look into how they are dealing with the rising cost in plastic.
Plastic is the heart of the toy industry, and plastic is becoming dearer. Change is coming. In toy prices. In toy manufacturing. In the toy industry itself. Keep one eye on the oil prices and the other on the toys. Change isn’t necessarily a bad thing.
Click here to read more about plastic.
Click here to read more about alternate toy materials.
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