Toy Industry Faces Challenges Amid Tariff Uncertainty
This summer, the U.S. toy industry has been under scrutiny due to President Trump’s tariffs on Chinese imports. There are concerns that if issues regarding price hikes, declining sales, and uncertainty aren’t addressed soon, the situation could worsen.
In June, national toy prices saw nearly a 2% increase, as reported by the U.S. Consumer Price Index.
However, industry leaders indicate that these price increases haven’t led to more sales.
Jonathan Cathy, CEO of Living Subjects, a toy manufacturer based in Los Angeles, mentioned, “Since the tariffs were imposed, we’ve seen a 10% drop in sales of our more budget-friendly items.” He added that once prices exceed a certain threshold, shoppers looking for value often stop purchasing entirely.
Isaac Larian, CEO of MGA Entertainment, noted that their popular Lol Surprise Dolls, which were once priced at $9.99, have now increased to $11.99. “Prices have risen significantly, and it’s affecting our sales. Consumers are feeling the pinch,” he said.
Larian and other toy executives don’t anticipate growth this year as retailers are placing smaller orders, wanting to gauge the outcome of the ongoing tariff situation.
Recent research from Circana indicated a 7% drop in toy sales in 2023, with further projections showing a nearly 1% dip expected in 2024, bringing total sales to around $42 billion.
During a two-day meeting in Stockholm, Treasury Secretary Scott Bescent discussed these issues with Chinese trade officials, concluding on Wednesday.
Bescent expressed some optimism, saying, “I think we have a deal in the works,” although he acknowledged that some technical details remain unresolved on the Chinese side. “It’ll get sorted out, but it’s still a work in progress.”
Originally, in April, Trump set a 145% tariff on imports from China but later reduced it to 30% the following month. A deadline of August 12 has been given to Beijing for signing a deal, which could potentially expand later in the fall.
As they wait for clarity, some toy manufacturers that can afford it are looking to establish new production facilities in different countries. However, unexpectedly high tariff rates—20% in Vietnam and 19% in Indonesia—have surprised many.
Jay Foreman, who heads Basic Fun, shared his thoughts on the tariffs in Vietnam, commenting on how much higher they are than anticipated. “We assumed the rates would stay lower,” he said.
Larian spent two weeks in Indonesia last month exploring factory options to shift production from China, but just after he returned, Trump instituted the 19% tariff, which led him to pause the project.
“There’s a lot of talk about Indonesia being the next big opportunity, but realistically, that possibility may still be years off,” Larian explained.
Currently, around 10% of MGA Entertainment’s products, like Lol Surprise and Bratz Dolls, are manufactured in Vietnam, but delays there are causing some companies to incur late fees.
Alan Dorfman, CEO of Super Impulse, a miniature toy company, commented on the deep roots many companies have in China. “Moving operations elsewhere is quite a challenge, especially for small businesses like ours,” he said.
Despite the chaos, the industry has been working hard to transport products from China to the U.S. during May and June, while both countries are negotiating trade agreements. They expect consumers won’t face a shortage of toys during the holiday season.
However, the lingering uncertainties surrounding tariffs, pricing, and inflation present ongoing challenges for the industry.
“There’s a chance we might face penalties from retailers if our products are late,” Dorfman noted. He stressed that in severe situations, retailers could refuse late deliveries altogether.
Toy manufacturers remain hopeful that lobbying efforts aimed at securing tariff exemptions, previously enjoyed during Trump’s initial tenure, will yield positive outcomes.
“Our focus this year is just to survive,” Dorfman admitted. “We’ve adjusted our expectations and hope to navigate through to next year.”
