Toy Retailers Victims of the Malachi Crunch

Posted by jim on October 22, 2008 under Consumer Experience, Economics | Be the First to Comment

For those who didn’t grow up watching Happy Days, the Malachi brothers were two demolition derby drivers whose infamous move was the Malachi Crunch.  Well, this year it’s not Fonzie who’s getting the squeeze, it’s the toy retailers.

Over the past year, manufacturers have seen rising costs due to the increasing prices of raw materials and labor as well as safety concerns.  But don’t feel bad for Mattel and Hasbro, the two largest toy manufacturers in the world.  They just pass the costs onto the retailers.  Normally, I would say don’t feel bad for the retailers, because we’ll just pass the costs onto the consumers.  But, not this time.  Consumers are scared.  The extortion of the American people on Wall Street and the lack of hope relative to the election of either presidential character, I mean candidate, is causing parents to panic and plan to cut back this year for Christmas.

So who really loses?  Again, poor Mattel, in the face of rising costs, “profits grew by a sluggish 1 percent, to $238 million“.  How about Wal-Mart or Toys “R” Us?  They are playing the same game as usual, loss leader items to lure you into the store and then charge more on other products.  This leaves two losers this year, the independent retailer and the consumer.

The independent retailer now has to shrink margins in response to low price demands and the increased costs from manufacturers.  As a result, retailers cannot take as many chances, so they do not buy as many “risky” items from smaller manufacturers.

The consumer loses big because they now have less choices.  Going to Wal-Mart and Target, the consumer is limited to only the toys that these stores carry – the “top sellers”.  In the interest of saving money, they settle for lower priced toys that their kids didn’t want.  Even when the consumer goes to speciality retail stores, there is not as much alternative product because of the risk factor for the retailer this year.  Certainly, this will put some small, independent retailers out of business this year, which will mean even less choice for the consumer in 2009.