Amazon.com Inc. is toy manufacturer MGA Entertainment Inc.’s third-largest wholesale account. That makes Amazon’s annual sales event, Prime Day, a big deal for the maker of some of the most popular toy brands, including L.O.L. Surprise!, Bratz Dolls and Little Tikes.
“Prime Day is very important for us. We do roughly 5% of our Amazon business on those three days—those Prime Days—it’s a big, big business,” says CEO Isaac Larian, referring to the two-day global sales event that spans multiple time zones.
Prime Day 2021 takes place June 21-22 and will be held in 20 countries this year, not including Canada and India, where events are postponed due to COVID-19.
And Larian says he expects online sales for MGA during the 2021 Prime Day event to be just as lucrative as ever. The challenge, however, is ensuring it has enough inventory to feed the increased demand. Supply chain challenges, backlogged transportation, increased costs and a shortage of labor have all contributed to what Larian calls a big mess.
“I’ve been in business for the past 42 years, and I’ve never seen it so bad. And I’ve seen everything,” he says.
Supply chain challenges for toy manufacturer MGA
The coronavirus pandemic caused a domino effect that is impacting many parts of its operations. For example, manufacturers that make containers and chassis (trailers used to transport containers between trucks, warehouses and ports) shut down for a period of time because of the coronavirus.
This slowdown in production, coupled with an increase in retail sales, caused a spike in the prices of containers, Larian says. A container should cost MGA $700-$1,200, but now costs $1,000-$16,000, he says.
Another hurdle for the toy business is increased costs, Larian says. Overall, its costs are up 23% year over year, he says. This comes from increases in transportation, labor and raw materials. For example, resin, a material used to make plastic in toys, is up 60-70% compared with last year, he says. For labor, MGA is struggling to fill jobs in its Little Tikes factory in Ohio. It can only supply 65% of the demand for those products because of a labor shortage, he says.
To offset its increases, MGA is raising the price of its products, but not 23%, Larian says, without disclosing the increase. He knows that consumer demand would go down if the toy price increases too much, and so MGA is absorbing a lot of the cost, he says.
“We are taking a hit to our bottom line,” he says.
Supply chain issues continue today for MGA toys
And issues persist today. A large share of MGA Entertainment’s toys is made in China. One of China’s busiest ports, Yantian Port, has been closed for the past few weeks to contain a recent COVID-19 outbreak. MGA has between 600-700 containers sitting in that port waiting to be shipped, he says. Yantian Port says it will be back to normal by the end of June, but it could take months for the backlog to clear, according to Bloomberg News. This worries Larian, as it takes about 90-100 days for a good to go from ship to shelf, he says.
Because of shutdowns and slowdowns across its supply chain, continued cases of the coronavirus and the time it will take for the global population to be vaccinated, Larian does not expect operations will return to normal until Q1 2022.
In the meantime, MGA is airfreighting its merchandise to have the inventory to supply consumer demand this holiday season. But those prices are beginning to increase as more businesses resort to air freight with growing demand and capacity dwindling. Even with an air freight alternative, he expects the merchant to have many out-of-stocks this holiday season.
“At the end of the day, we’re going to leave a lot of chips on the table,” he says.
He does expect some consumers to purchase their holiday gifts early this year. Some consumers are aware of these supply chain issues, which were also widespread during the 2020 holiday season, and will purchase their gift as early as June, such as during Prime Day, he says. MGA also uses marketing analytics software MikMak to help anticipate demand for its product and forecast its supply chain needs.
MGA toys history and future
MGA has been in business since 1979 and sells mostly through wholesale accounts. Walmart and Target are its two largest accounts. Together, Walmart, Target, Amazon and Best Buy Co. Inc. generated hundreds of millions of dollars in annual revenue for MGA Entertainment. Since 2015, MGA’s wholesales business has grown a double-digit percentage, and it still expects that for 2021, Larian says. He credits MGA’s continued growth to the manufacturer’s ability to continually innovate and create new toys.
Within the last few years, MGA did launch a direct-to-consumers website for its most popular brand, L.OL. Surprise! Sales on the site are “meaningful” and increased 50% year over year in 2020, he says. Larian expects the ecommerce site’s sales will grow another 50-100% this year. The manufacturer plans to launch several direct-to-consumer sites for its other large brands, like Little Tikes and Bratz Dolls, in the future. Currently, those websites are informational and redirect shoppers to purchase the products at one of its retailer wholesalers.
Amazon is No. 1 in the 2021 Digital Commerce 360 Top 1000, Walmart No. 3, Best Buy No. 5 and Target No. 6.
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