Spotted Online – Chinese Currency Devalued and Toy Prices
Over the last week in business, news of the sudden depreciation of China’s renminbi has led to speculation and discussions on what that means to the US economy and manufacturing. I’ve been extremely busy lately (between the office flood, preparing 2016 releases for print, and a trip to Minneapolis the free time hasn’t been there), so all I’ve managed to piece together on the Chinese currency situation is that the decline is official.
Fortunately, Global Toy News has posted thoughts on what this means to toy prices. Between this and wsj.com’s US consumer prices article it’s easy to think that this decline will spell an immediate drop in toy prices, but realistically I don’t see that happening.
Keep in mind that I am not an economist, and all that I know comes from reading and experience, but the conclusion that Richard Gottlieb makes in his Global Toy News post doesn’t align with my experiences and the reality of manufacturing contracts. Gottlieb writes:
“Bottom line, it seems that if you are making toys in China you can count on a small decline in prices in the short term.”
This may be true for some but at the office we negotiate long-term deals with the factory and revisit pricing at a few specific times each year. We run enough business through our manufacturing partners that both sides benefit from regular workflow and communications, and something like a fluctuation in pricing doesn’t affect us on a day-to-day basis. Will the sudden depreciation of China’s renminbi affect our cost at some point? Maybe, depending on what other factors are at work, but it’s not an immediate thing.
And please note that Gottlieb’s post specifically addresses manufacturing costs, not costs at retail. Again, long-term deals impact the prices of toys — for some manufacturers, MSRP is set six months or more before a toy reaches shelves — and it’s unrealistic to think that a change in the economic situation today will drive the MSRP of toys down tomorrow. Price reductions rarely happen that rapidly. Increases? Well, that’s a different story.
Related articles
- China’s devaluation was overhyped. Don’t panic, yet. (washingtonpost.com)
- China Devalues Its Currency as Economic Slowdown Raises Concerns (nytimes.com)
I think you’re spot on here. Why would a company lower their toy prices (especially since they’d have to hike it back up when the renminbi recovers) when they could just pocket the difference? This and Gottlieb only says it’ll amount to a “small decline in prices.” This’ll net someone a nice year end bonus.