By Gary Symons
TLL Editor in Chief
The licensing industry should lower expectations for the coming holiday season, as retail sales fell slightly in October, and toy sales are down overall.
The US Commerce Department reported retail sales fell slightly in October by 0.1%. That’s not great, but the good news is that economists were expecting a greater decline, based on the impacts of inflation, higher interest rates, and higher credit card debt for US consumers.
More significant is the fact this is the first monthly decline in retail sales since March, and it comes as manufacturers and retailers are ramping up marketing for Black Friday.
The Commerce Department acknowledges that October’s decline in retail spending is possibly an early sign of a slowing economy, as US consumers face higher borrowing costs as they continue to rack up credit card debt.
In terms of sectors, it’s primarily the bigger ticket items that are driving the decline, as well as discretionary spending items like toys. Car sales fell 1.1% in October, for example, and furniture sales dropped by 2%, but spending at restaurants and supermarkets actually rose slightly by 0.3% and 0.7% respectively.
While retailers would love to see higher numbers, Fed chair Jerome Powell says the cooldown is good news in the central bank’s battle against inflation. Powell said economy needs to cool further to bring inflation back down to the target of 2%, and in comparison to many other national economies, the US is enjoying solid employment and wage numbers, giving it a relatively soft landing. As well, inflation continues to decline, down to an annualized rate of 3.2% in October versus 3.7% in September.
“Progress continues, though we still have a way to go” to get inflation back to its target, said Chicago Fed President Austan Goolsbee at an event hosted by the Detroit Economic Club on Tuesday.
In addition to the data from the Commerce Department, the private data firm Circana (recently formed from the merger of IRI and NPD) shows overall spending is likely to decline over the holidays.
“With consumers prioritizing their overall spending in the face of inflation and other economic factors, these macro-pressures are reverberating in many ways including toy sales,” a recent Circana report says. “U.S. toy industry sales revenue declined by 8% through September, compared to the same nine-month period in 2022. Unit sales were down 9% and average selling prices increased 1% during the same time period.”
The research firm says the toy industry in particular will see a major ‘rebalancing’ after a period of rapid growth through the pandemic. In fact, Circana says companies may want to reduce prices or focus on strategic sale pricing campaigns to make sure they aren’t stuck with excess inventory.
“After record-high sales during the pandemic, 2023 is a period of rebalance for the toy industry,” said Juli Lennett, the U.S. toys industry advisor at Circana. “This situation is further amplified by the fact that consumers’ budgets are facing more headwinds than tailwinds this year. For manufacturers and retailers, a well-thought-out pricing strategy can mean the difference between success and failure closing out the year.”
In terms of detail, Circana’s research shows that three of the 11 supercategories posted growth through September. Sales of building sets grew the fastest, up 5%, mainly driven by LEGO Icons. Next came vehicles, up 3%, led by Hot Wheels; and plush, up 1%, largely thanks to Pokémon.
Outdoor and sports toys continued to hold the top spot as the highest sales-generating supercategory, accounting for 20% share of toy sales; however, it was also the segment to experience the steepest declines, as unfavorable weather conditions earlier in the year likely hindered purchases.
It’s also worth noting that the outdoor and sports categories were among the fastest growing during the pandemic, as parents looked for ways to keep kids entertained at home during the period of lockdowns and restrictions. For that reason, it’s not surprising to see a pullback in spending in this category.
The top 10 properties through September included Pokémon, Squishmallows, Barbie, Star Wars, Marvel, Hot Wheels, Fisher-Price, LEGO Star Wars, Disney Princess, and NFL—collectively outperforming the overall industry.
The top gaining properties were LEGO Icons, Pokémon, Super Mario Brothers, Ninja Turtles, Hot Wheels, Disney Princess, Transformers, Miniverse, LEGO Speed Champions, and Lord of the Rings— with many of them tying into 2023 movie releases. In fact, the toy industry experienced some recovery in July, when movie properties helped ease the decline.
The good news is that when asked which products they plan to cut back on, toys landed at the bottom of the list of things consumers will give up.
“During tough economic times, parents will pull back on themselves before pulling back on gifts for their kids,” said Lennett. “As the holiday season gets underway, the joy of unwrapping a toy creates a special moment that families will not sacrifice.”
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