Toy firms fear crisis will cut into sales

Tensions between buyers and exhibitors flared yesterday at the Hong Kong Toys and Games Fair as manufacturers raised factory-gate prices by about 10 per cent to offset swelling costs amid fears that sales could fall.

Toymakers heavily exposed to the euro zone and United States warned that sales could drop 30 per cent this year, a scenario that could batter the industry even more than during the global financial crisis.

With everyone looking for the best deal, the one thing the two sides do not dispute is that the European debt crisis and the US economic slowdown will hurt demand.

The hostile market has prompted companies to introduce new products, including everything from toys made with environmentally friendly materials to robots controlled by smartphones and other devices.

The four-day trade fair runs until Thursday and features about 2,500 exhibitors - largely from Hong Kong and the mainland. Three concurrent fairs showcase stationery, baby products and licensed goods.

Tony Yeung, managing director of Kai Jal Industrial, said that for the past two years wage rises had been a challenge. 'But this year the outlook is complicated by other factors such as the euro-zone crisis and currency uncertainties. I will be happy if sales drop by [only] 20 per cent this year,' he said.

Yeung said sales could drop up to 30 per cent despite price rises being kept to a minimum for fear of scaring off European and American buyers.

Yuan appreciation and wage rises last year increased Kai Jal's costs by 30 per cent. This did not include factors such as higher factory rents, labour shortages, rising material costs, tougher toy safety requirements and stronger competition.

Ed Veale, the general manager of toy distributor New Concept Import Services of Australia, said the strength of the Australian dollar against the yuan helped offset higher factory-gate prices.

'Prices are rising all the time, which is a big concern,' he said. 'Everybody's profit margin [across the supply chain] is shrinking.'

The Australian dollar gained 5.23 per cent against the yuan last year. But the weak euro, which shrank 7.28 per cent against the yuan last year, was a source of pain for European buyers. The yuan rose 4.47 per cent against the US dollar last year and economists tip it to gain another 2-3 per cent this year.

A senior buyer at one of Portugal's largest retailing chain, speaking on condition of anonymity, said the group could not afford higher prices after the economic downturn.

'We want to buy better quality and fewer toys at the lowest prices,' she said. 'It is more difficult to buy this year than ever.'

Andrew Ng is the regional manager of toymaker Hape International (Hong Kong), which produces educational toys in Ningbo for export to the EU and US. He said factory-gate prices had been raised by 10 per cent, but the company had moved cautiously due to the sluggish market.

Among Hape's product lines are toy cars and games made of a sustainable bamboo, instead of wood. It is hoped that such products can help the company maintain market share in a sector increasingly threatened by electronic toys.

Ng said the group had improved its designs and packaging and reduced the production process.

Meanwhile, capitalising on changes in mobile technology, software developer Globalactive Technology is using Bluetooth wireless solutions to allow smartphones to control toy cars or robots. 'New technology is the future of the toy industry,' chief marketing officer Eddie Yu said.

1,930

The number of exhibitors at last year's edition of the toy fair

- The baby products fair turns three, while the licensing fair is 10