The coronavirus comes at a bad time for the toy industry

Daniel Howley
Technology Editor

The coronavirus continues to impact industries with a strong presence in China from autoparts to technology. And the toy industry is no less vulnerable to the virus and its deleterious effect on global supply chains.

For the moment, the U.S. toy industry, which is hosting its 117th annual North American International Toy Fair in New York through Feb. 25, is holding out hope that the fallout from the virus, officially known as COVID-19, doesn’t hit toy shipments later in the year during the all-important holiday shopping season.

But the virus comes at a difficult time for the toy sector, with sales in 2019 off as much as 4%, according to research firm NPD Group, and the Toys R Us bankruptcy still reverberating across the industry.

“We’re still getting over the loss of Toys R Us, your dedicated big box store, and the store that took its chances on inventors and little products that one day became big products,” Steve Pasierb, president of the Toy Industry Association, told Yahoo Finance during an interview at Toy Fair 2020. “It’s a gap in the industry that we’re still trying to fill.”

And production slowdowns from the virus could only exacerbate the industry’s current situation.

Adding to the pain

According to Pasierb, the coronavirus outbreak and its associated factory shutdowns such as those by MGA Entertainment, which produces L.O.L. Surprise and Little Tikes, may begin to start hitting summer toy deliveries. But the bigger fear is that the epidemic causes manufacturers to scale to a degree that hampers holiday toy sales.

“The most important thing, obviously, is holiday deliveries, but we’re really, right now, focused on the workers and factory owners there who are an essential part of our business,” Pasierb said.

“We really don’t know where things are going to net out. Some of the factories have reopened, but are concerned about their upstream supply chain. Others are still closed, looking to reopen in March. So we’re in a timeframe now in the next 30 to 60 days where we really have to see what happens.”

Beyond the immediate fears related to the coronavirus, the toy industry is still grappling with the loss of Toys R Us, which filed for bankruptcy in 2017, before shuttering its stores in 2018. Last year, Tru Kids Brands, which bought the Toys R Us intellectual property after the bankruptcy filing, said it was reviving the brand with a small number of stores and an online business.

Target (TGT), Pasierb said, has captured some of the market share left behind by company, and teamed with Tru Kids Brands in October to share its online sales capabilities with Toy R Us’ relaunched website Toysrus.com. Walmart (WMT), meanwhile, is still the largest toy retailer in the U.S. 

Gaming is helping toys

It’s not all doom and gloom for the industry, though. In fact, video games, which were once seen as a major threat to toys, have become a source of growth for many companies. 

“The interesting drive has been that the video game industry, and gaming online has driven a lot of toys, everything from action figures to plush to game extensions,” he said. 

“And so what seemed like a threat early on has actually been a boon. And what we hear from this generation of kids is that they’re finding time to be digital and finding time to play like kids have always played.”

As for what the hottest toy of 2020 will be, Pasierb says he won’t know until December when toy sales start to gain steam ahead of the holidays. And the industry, Pasierb explained, needs that kind of toy, as it helps spur sales of other toys.

“It’s one of the things we missed [in 2019],” he said. “There was not that newsmaking one toy that drove people online, drove them to Walmart and Target. So we need innovation, we need invention, we need people to take risks, and this has not been an environment where people are willing to take risks. Creativity, invention, has been the heart of this industry for more than 100 years.”

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Got a tip? Email Daniel Howley at danielphowley@protonmail.com or dhowley@yahoofinance.com, and follow him on Twitter at @DanielHowley.

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