Games theory: Glut of toys sparks massive discounts, pain for industry

The holidays ushered in historic bargain prices on toys – and 2023 promises even deeper discounts for consumers while delivering more pain for toy sellers.

Known for being recession proof, the toy industry is instead plagued by a perfect storm — cash-strapped consumers who have less disposable income for non-essential items and a glut of toys that steadily built up last year, reaching a tipping point around the holidays. 

Stuck with more toys than they can sell, retailers are cutting back on their toy purchases this year and manufacturers are making fewer items, experts tell The Post.

“For the first half of the year, if not the entire year, toys will continue to be deeply discounted and toy makers’ profit margins will shrink drastically,” said Isaac Larian, chief executive of MGA Entertainment, maker of LOL Surprise and Bratz dolls.

Overall sales revenue from toys dropped 3% during the holiday season after increasing by 3% from January through September, according to NPD. 

That’s a precipitous drop from pandemic years when toy sales grew by 22% year-over-year in 2020 and by 12% in 2021.

Retailers “bought so much [during that pandemic] that they are sitting on their own stockpiles,” Larian noted.

MGA saw its holiday sales decline by about 10%, the first drop in six years, Larian said.

Some saw the writing on the wall last year and began pushing for smaller, less expensive items that cost under $10 as the holiday season approached, The Post reported. The steep discounting began in early November, or much earlier than usual.

While online toy sales grew by 206% from Nov. 1 to Dec. 31 compared to a year ago, the industry had to rely on deep discounts, reaching a markdown peak of 34% off compared to 19% last year, to sell its holiday haul, according to the most recent data from Adobe Digital Insights, which tracks online sales.

Toys were more deeply discounted than any other category of merchandise. Electronics had the second highest markdowns with an average 25% discount, according to Adobe.

“This will be a tough, challenging year, certainly the first half,” said Jay Foreman, chief executive of Boca Raton, Fla.-based Basic Fun toys. 

The privately held Basic Fun – which makes products like Tonka Trucks and Lite Brite – expected sales growth of 15% in 2022 compared to the previous year, but saw an increase of just 5%, Foreman said.

“We have a lot of extra inventory now, but we expect it to be gone by the second half of the year, and anecdotally I’d say [the big retailers] will have a little bit more than they had hoped for,” Foreman said.

The toy buying cycle was disrupted in 2021 when a huge number of toys — particularly the prized large and expensive items — arrived too late for the holiday season, leaving retailers with more merchandise than they needed or wanted at the start of 2022.

Sky-high shipping costs were partly to blame for the late arrivals, with retailers and manufacturers balking at shipping containers that cost upwards of $20,000 a pop, driving up overall prices as well.

Shipping rates have since come down dramatically, but inventory levels have not.

“It looks like the first week of January in the stores right now,” Joshua Loerzel, co-owner of Sky Castle Toys, had told The Post late last year. “There are a lot of early price reductions that you wouldn’t ordinarily see until right after the holidays.”

Both retailers and manufacturers are being cautious now, Larian said.

“We aren’t making as much and they aren’t buying as much,” he said.