It's fair to say that 2020 was a pretty miserable year for retailers as a whole. But there was one silver lining: Retailers enjoyed a healthy holiday season. Because so many consumers diverted more funds to purchases and less toward travel and entertainment (we can thank the pandemic for that), retailers enjoyed a nice revenue surge coming off of a year ridden with bankruptcy filings and store closures.
But still, many retailers are now functioning in recovery mode, and they're counting on a strong 2021 holiday season to move forward in a solid place financially. So far, projections point to an uptick in consumer spending during the holidays. But whether there will be enough inventory to meet demand is the big question.
Right now, many retailers are grappling with inventory challenges stemming from supply chain issues. And toy sellers are part of that group.
A global problem hitting home
For months, retailers have seen massive delays in getting inventory due to hiccups in the global supply chain. Weather events, power outages, COVID-19 outbreaks, and labor shortages abroad have created a major bottleneck in the shipment of goods. And now, retailers not only risk falling short on inventory for the holidays, but they're also looking at spending more money than ever to bring it in.
Larger retailers are already taking steps to address this issue by contracting their own container ships to expedite product delivery. Players going this route include Costco and Home Depot. But smaller retailers don't have the resources to pay for shipping. And if they can't source products, they can't fulfill holiday orders.
Local issues abound, too
It's not just global shipping issues that are impacting retailers at present. The Port of Los Angeles, for example, has been dealing with congestion and delays since spring -- President Biden recently announced it will be open 24/7 to deal with the backlog. Throw in the impact of Hurricane Ida, which forced many local ports to shutter temporarily, and it's easy to see why retailers could end up scrambling this year.
For example, MGA Entertainment, the maker of popular toy offerings like LOL Surprise and Little Tikes, only had enough inventory to fulfill about 65% of its outstanding orders as of early October. The company had projected 50% sales growth this year but is now looking at just 18% to 20% growth.
Larger toy manufacturers are stepping up to try to resolve their shipping holdups ahead of the holidays. In September, Hasbro confirmed that it would be nearly doubling the number of U.S. ports it's using and adding new ports in Asia. But even major players like Hasbro acknowledge that inventory will inevitably be delayed.
The real estate investing takeaway
If toy sales are sluggish during the holidays due to limited inventory, toy sellers could find themselves at risk of shuttering. And that would be a very bad thing for shopping centers and malls, neither of which can afford to lose more paying tenants.
There's already a world of competition for physical toy sellers thanks to the likes of Amazon. And if inventory holdups divert business away from brick-and-mortar toy sellers during the holidays, the results could be catastrophic.
Of course, this challenge isn't unique to retailers in the toy space. Real estate investors will have to hope that retailers on a whole find ways to procure the products they need in time for the holiday shopping boom.