With the start of the 2021 holiday shopping season, the question on many online toys sellers’ minds is—will they have enough inventory to meet all the consumer demand?
The 2021 supply chain snarls are keeping toy sellers nervous about fulfilling surging demand during their busiest time of year. In fact, for all of 2020, Q4 online toy sales made up about 46% of the category’s annual sales dollars in 2020, according to retail analytics firm 1010data.
For toy-brand manufacturer Fat Brain Toys, it’s even higher: The retailer generates 50% of its annual revenue in November and December, says president and co-founder Mark Carson. Meaning having enough inventory to sell is paramount.
“It’s going to be thinner,” Carson says about the online retailer’s inventory. “There are going to be select items we are going to flat run out of.”
41% of retailers said securing sufficient inventory to support demand is one of their top obstacles for the 2021 holiday season, according to a Digital Commerce 360 pre-holiday survey of 100 online retailers. This was the third most common response, after increasing costs (47% of retailers) and timely delivery, (44%).
While out-of-stocks and late shipments might be inevitable for the 2021 holiday shopping season, Carson is still confident that it will have enough inventory overall.
“We’ve got a lot of inventory arriving on a weekly basis, but it’s anywhere from 30 to 90 days late,” Carson says. “Some of that is hard to manage and it is a little bit unnerving. But we have lot of product arriving, and ultimately, we’re going to have enough to fulfill a really good holiday season.”
Staying in stock is one of the crucial issues online toy retailers are grappling with this holiday season. These supply chain challenges impact many facets of retailers’ holiday strategy, including marketing and discounting. Two toy consumer brand manufacturers—Fat Brain Toys (No. 713 in the 2021 Digital Commerce 360 Top 1000) and Exploding Kittens (No. 324)—share how they have prepared for this demanding holiday sales season and how they plan to make it a successful one.
Digital Commerce 360 projects that online toys sales from the top toy-focused retailers will increase 19.5% year over year in 2021. That projection is based on the expected sales growth of the 137 toys and hobbies retailers in its Top 1000 and Next 1000 databases, referred to as the Top 2000. This 19.5% increase is notable as this category collectively grew web sales 58.0% in 2020.
Online toy sales surged in 2020, as consumers clamored to purchase at-home entertainment during the coronavirus pandemic, which hit the United States in early 2020. The higher-than-normal demand during the peak of pandemic-related shutdowns in 2020 makes comparisons with 2021 problematic.
By month in 2021, Criteo finds that online toy sales have decreased year over year nearly each month in 2021 starting in March, when comparing to peak pandemic periods began. Criteo’s data is based on data from 3,500 U.S. retailers. Despite early holiday shoppers, toys sales are down year over year in October, Criteo finds. This could be because of supply chain issues and inventory availability, among other factors, says senior vice president Tim Rogers.
“Categories facing the greatest inventory issues, including toys, have seen a surge in pricing since as early as August,” Rogers says. “For toys specifically, on average the cost per unit has been going up 1.2% each week, which could be affecting consumers decision to purchase an item or wait until the price goes down. It’s also entirely possible that toys were just a more popular gift last year due to quarantines.”
Holiday sales for toys begin in October
Some toy merchants have already started to see holiday season sales pickup. Exploding Kittens—which sells through its own direct-to-consumer site and wholesales with large mass merchants including Target, Amazon and Walmart—says that by mid to late October, it already noticed a ramp-up in daily sell-through rates from its wholesale retailers, says Carly McGinnis, chief operating officer.
Fat Brain Toys has noticed the same, as sales were roughly flat year over year each month in 2021, but from October through Nov. 4, 2021, increased 40% compared with this same period last year, Carson says.
“Our D2C channels are more or less flat, but that’s saying a lot, and that’s strong growth over 2019,” Carson says. “The calendar turned to October and things have taken off like a rocket.”
Carson and McGinnis mostly credit this uptick to consumers hearing about supply chain issues from news reports and retailers.
“The message is, ‘Get out there and shop early. Toys may be in short supply.’ They have heeded that warning and really gotten out in droves,” Carson says.
From what Carson can tell, stores are decently stocked as of early November. But, if shoppers see any empty shelves, they may use that as an excuse to go online and check out options.
Holiday marketing and discounting strategies
Typically, Fat Brain would wait until Nov. 1 to start its holiday marketing campaigns, but not this year.
“I’m hesitant to talk about Christmas before Halloween, but this year we did jump on that a little bit,” Carson says.
This year, Fat Brain sent its digital holiday gift guide to its previous customers on Oct. 20, earlier than its typical Nov. 1. In addition, instead of sending the guide to both previous and potential customers at the same time, it waited to send out the catalog to a list of prospective customers until mid-November.
“I wanted to make sure our customer had first shot at our inventory,” he says.
Some marketing was subtle, such as an “early bird special” message and other messages were more overt, such as—“early birds get the toys.”
“Seed in the customer mind that, ‘I better not procrastinate, that I better get the order in right now,’” Carson says.
The Digital Commerce 360 survey of 100 merchants found that 59% of retailers started their holiday marketing campaigns in October or before.
Exploding Kittens, however, did not bother marketing for the holidays in October because it didn’t need to, McGinnis says.
“The demand is going to be there,” McGinnis says. “The other thing to keep in mind is that, unfortunately, when other shelves are bare, that’s another opportunity for us.”
Regarding discounting, both brand manufacturers plan to be less promotional this year than in years past.
Exploding Kittens says its Cyber 5 promotions will range from 10-30% off, compared with 50% off in 2020, McGinnis says. Fat Brain, too, will be less aggressive than its previous 15% off discount around Black Friday and Cyber Monday. If it does have that deep of a discount, it will only be for a shorter period, Carson says.
Fewer promotions will likely be a larger trend online toy shoppers see, says Sean Maharaj, managing director in the logistics practices at management consulting firm AArete.
“Ecommerce promotional discounts are going to be harder to come by,” Maharaj says. “We’re going to see less of that; It is a seller’s market.”
Toy inventory issues for big and small brands
Both Carson and McGinnis say they are cautiously optimistic about having enough inventory to fulfill the holiday demand. But it’s not been easy to get into this position by November, nor will it be easy to maintain.
Fatbraintoys.com carries roughly 3,000 SKUs, 800 of which it manufactures itself. Those 800 also make up the vast majority of its revenue and Carson is confident it will have enough supply of these products for the holiday season.
For the 2,000-plus other toys, however, Carson is unsure. For some of its suppliers, the retailer only has received 25% of the goods in its purchase order, whereas it should be about 85% in stock by this time, Carson says.
“We’ll sell what we got,” Carson says.
And it’s not just smaller brand manufacturers having inventory issues, as giants including Amazon.com Inc. (No. 1 in the Top 1000) and Mattel Inc. (No. 204 and maker of Barbie and Fisher-Price) have all had to navigate supply chain challenges in 2021.
An analysis of 100-plus toys and games SKUs on Amazon.com shows a steady decline in product availability from March 2021 through October 2021, according to data from ecommerce analytics vendor DataWeave. 80% of the selected Amazon.com toys and games SKUs were in stock in March, which dipped to only 61% in stock in June and only 56% in stock in October, according to DataWeave.
Each toys and games subcategory on Amazon.com differs, as the games & accessories subcategory mirrored the overall category trend. In contrast, the sports & outdoor play subcategory had their lowest in-stock status in June and July but have since rebounded, according to DataWeave. The vendor says it chose the 100-plus products it analyzed as ones that provided the best sample for an average category analysis for toys & games on Amazon.
For the total ecommerce market, Adobe Inc. says out-of-stock messages increased 325% in October 2021 compared with October 2019. In just October 2021, online shoppers encountered more than 2 billion out-of-stock messages online. Adobe derives its data from more than a trillion visits to U.S. retail sites and over 100 million SKUs in 18 product categories.
“With over 2 billion out-of-stock messages last month, consumers are beginning to understand the real impact of the supply chain challenges,” says Taylor Schreiner, director of Adobe Digital Insights. “Some have begun to adjust their holiday strategy accordingly, with parents shopping for toys earlier and some settling for gift cards this season. For those who have not yet started their holiday shopping, they will need to be prepared to be flexible.”
All the challenges throughout the supply chain contribute to inventory instability. Disruptions included facilities in China periodically shutting down because of COVID-19, backlogs at ports, congestion on the routes, backlogs at the destination port and delays in having the ships docked and unloaded. The delays in unloading ships then lead to delays in loading containers of products onto rail cars or truck trailers on their way to warehouses and distribution centers.
“Really all the way down the supply chain, it’s stretched to a breaking point for sure,” Carson says.
And fixing one part of the supply chain—such as allowing ports to operate overnight—only pushes the bottleneck further down the supply chain, as there will not be enough tuckers to remove that merchandise from the port, AArete’s Maharaj says.
Securing toy inventory
Larger brands have more options at their disposal to secure inventory than smaller retailers, Maharaj says. Established brands, for example, have decades of experience of in-depth supply chain planning, a significant presence in China, well-established relationships and a mature supply chain of raw materials, he says. Plus, they have the resources to build up inventory and charter their own vessels—which Walmart Inc. has done—or team up with other larger brands to commission ships together.
Large brands may also have the resources to air freight merchandise, as toys are not as dense as other products that would be difficult for air transportation, he says.
Smaller brands have to get more creative or just wait.
Running smoothly, Exploding Kittens should receive its merchandise from China in about 18-20 days from port to port, and 25 days from port to warehouse, McGinnis says. But in 2021, this has taken anywhere from 40-70 days and costs 600% more.
To get its goods from overseas and into its warehouse, Exploding Kittens has taken several measures. These include air freighting 5% of its merchandise as a backup, diversifying where it manufactures its goods beyond China and routing its inventory to alternative ports, such as Seattle, Houston and Tacoma, Washington, which are less congested than the Long Beach, California port.
Air freighting merchandise is usually 30-times more expensive than ocean freight, McGinnis says. However, because ocean freight is extremely expensive right now—McGinnis says the retailer is paying $35,000 for one container compared with a typical $2,000-$5,000 price tag—air freighting is only eight to 10-times more expensive than ocean cargo.
“It’s worth it not to be out of stock during the busiest time of year,” McGinnis says.
“Air freight is very attractive because you can get door-to-door within two weeks,” she adds.
In addition, both exploding Kittens and Fat Brain Toys put in their holiday orders in earlier than usual to give them some buffer.
For example, Fat Brain Toys put its holiday purchase order in with suppliers in July, about two months before it usually does, in the hopes of having its order at the front of the line.
It normally waits until September to have better visibility into sell-through rates for a product. This early strategy, however, seems to be working, and the products it selected are selling, Carson says.
While it may have fewer resources and less visibility into its supply chain than a multi-billion-dollar mass merchant, being small has advantages. Fat Brain Toys can be more nimble and make quick adjustments to what it shows on its ecommerce site or what it markets, Carson says.
For late merchandise from its suppliers, Fat Brain Toys has cancel-by dates. This means, if it hasn’t received the products from the supplier by a certain date, Fat Brain can cancel the inventory without penalty. Caron knows he will have “quite a few” of those decisions to make, which will not be easy. For example, cancel-by dates are usually in early December, when there are still some good sales days left in the season. But how realistic is it that it will have to sell 500 units of a particular product?
“It’s not uncommon to make adjustments, but there’s just going to be bigger adjustments to be made this year and a lot more of them,” Carson says.
Regardless of size, retailers that want to sell toys for the 2021 holiday season should already have that merchandise in its possession, hopefully in a port or be on the water, Maharaj says. If the product is still at a manufacturing facility in Asia now in early November, it’s likely too late for Dec. 25, he says. “If you are still trying secure product, it’s probably a futile effort,” he says.
For toy retailers without enough inventory to sell, he recommends promoting gift cards or digital toys, such as downloadable electronic games.
Unfortunately, retailers and analysts say that toy inventory issues will not get ironed out by Christmas 2021 and likely not for months into 2022.