A shopper wearing a face mask due to the coronavirus disease (COVID-19) pandemic searches Jan.
Mark Makela | Reuters
There may be fewer boxes under the tree this holiday season as toy makers grapple with the possibility of a massive shortage of everything from dolls and action figures to vehicles and puzzles.
The pandemic created a bottleneck in the global transportation pipeline that was later made worse when the Suez Canal was blocked in March. These delivery delays have hit almost every industry, including electronics, clothing, and groceries.
These problems are exacerbated by a new wave of coronavirus outbreaks in China. Meanwhile, stocks continue to accumulate, leading to production delays. With shipping containers tight – or worse, more than double pre-pandemic prices – toy manufacturers face tough decisions ahead of the industry’s most important sales season.
“We’re not seeing any panic over the flow of vacation goods just yet,” said Jefferies analyst Stephanie Wissink.
Wissink noted that toy companies are just entering the start-up phase of producing toys, which will be shipped for the holidays in September and October.
“If we see persistent restrictions into late summer, we’ll be a little more concerned,” she said.
The industry is currently seeing delays of two to three weeks, said Wissink. This is in line with a report by Davidson analyst Linda Bolton Weiser released on Friday, though Weiser said delays could be up to a month.
Weiser told CNBC that the toy industry has faced and persistent shipping challenges in the past. She noted that a few years ago there was a workers’ strike in the Port of Los Angeles that threatened the Christmas sales.
“Toy supplies run out, however [Christmas] went smoothly, “she said.” Toy companies could load their toys onto freighters and unload them the fastest.
Weiser said her last conversation with Mattel a few days ago showed the company was “still reasonably confident about sales growth for the year.”
Hasbro and Mattel representatives did not immediately respond to CNBC’s request for comment.
Toy companies are closely monitoring developments overseas and hope the pressures on ports ease as vaccinations become more widespread around the world, outbreaks are more isolated and more air routes reopen.
For the time being, toy manufacturers have not passed on any additional shipping costs to the customer, said Wissink. However, there is always the possibility that this will change if the shipping situation does not relax.
“We find that Christmas shopping is heavily geared towards giving, so price sensitivity is a little less,” she said. “But consumers will see a dramatic rise in prices, but we don’t expect that at this point.”
Both Mattel and Habro shares were trading more than 1% on Friday. Mattel’s stock is up nearly 9% since January and has a market value of $ 6.64 billion. Hasbro stock is down 3% year-to-date for a market value of $ 12.5 billion.