Already Yesterday

It seems like only yesterday that the biggest concerns the American toy industry had revolved around where to establish a showroom building and how to hold a show in the absence of one. Surely, they were important concerns at the time—but these days I find myself looking back with nostalgia on those days for their relative simplicity. Today's issues are much more fundamental to the survival of the toy business as it currently exists than those of just two short years ago.

In the aftermath of the lead-related toy recalls by RC2 and Mattel almost exactly a year ago, the toy business now finds itself beset by several nearly unprecedented challenges: a steady stream of game-changing toy legislation enacted by state legislatures to fill a void still left by Congress' slow crawl towards signing new national children's product safety standards into law; an environment in China where prices are steadily rising as a result of increased safety testing and a shrinking pool of formerly limitless dirt-cheap labor; a U.S. economy where adults are too busy choosing between paying the utility bill or filling up the tank of their sport utility vehicle to spend much on discretionary purchases; and a long-term threat posed by slowing rates of childbirth in the major Western markets.

Not all of these issues are ones U.S. toy manufacturers can directly address. But of the bunch, that one I hear most about from toymakers is the rising price of doing business in China. The conversation invariably turns to questions of where next can the toy business go to find the most inexpensive workforce possible, as if saving another X cents per piece is surely the cure-all for what ails the business. “What do you know about India?” people will ask. Personally, I know next to nothing about labor rates in India, but what I do know is that in other industries hard hit by today's economy, questions like that aren't coming up as a path back to economic health—and I think there's a lesson in that.

Look at the automobile industry. Its struggles are far worse than those of the toy industry. With gas prices what they are, consumers are looking for cars that get better gas mileage and are avoiding those that don't. SUVs and pick-up trucks are languishing on dealers' lots for amounts of time unheard of in that business. But are the car companies sitting around trying to think up ways to make their least fuel-efficient vehicles less expensive? Automobile executives—excepting efforts to move existing gas guzzlers out of showrooms with all sorts of incentives—are looking to the future by boosting production of the cars that people now say they want and dropping those that are no longer in vogue. And they're doing it immediately. Toyota, for example, last month said it would stop producing SUVs at a plant in Mississippi in order to increase production of its Prius hybrid at the same location.

And how does this relate to what you do as a toymaker?

How about instead of trying to find even cheaper workers somewhere else than China, try making different toys. Or, if the economics of making your products in China no longer work, how about making them in such a way that your profitability isn't entirely dependent on facilities where people earn pennies per piece? How much money would you save if you figured out a way to produce toys affordably in Bentonville, Ark., instead of shipping them there from half-way around the globe? Would the result be different toys than those you would have made in China? I'm sure they would. Would they still be fun? I'm sure they could be. Would they look like what's on the shelves today? Maybe not. Would kids notice? I doubt it. Kids don't come out of the womb expecting their toy fire trucks to have lights and sounds, to be remote-controlled and to be able to mix a refreshing smoothie.

Very soon, many of you will be pitching or being pitched 2009 product lines. I'm sure the cost of those toys will be an issue. What I'd ask you to consider is instead of obsessing over how to do the same old thing cheaper someplace new, ponder whether your business could do better if you thought of a new way to do business. Assuming today's realities are “the new normal,” what worked in the past may no longer be of much use for guiding your future.