The US toy industry is having little fun this holiday season.
Millions of toys have been recalled for safety reasons in recent months, while the US economy has softened as the key Christmas season opens.
Meanwhile, crude oil costs have shot up by some US$40 a barrel to nearly US$100 since the start of this year, meaning higher costs for makers of toys, as plastics accounts for about 40 percent of the average cost of a toy, the Toy Industry Association (TIA) said.
But because prices were set when orders were made six months ago, the toy producers are likely to swallow the price increases themselves, at least for now.
"Price quotes on toys are set almost a year ahead of release dates, so that this year's oil price rise may have to be absorbed by the manufacturers," the US-based association said in a report.
Moreover, labor costs in China, which produces 80 percent of the world's toys, are up sharply. In Guangdong Province, which has more than 5,000 toy manufacturing plants, labor costs have risen 20 percent.
For US makers and retailers, the weak dollar is also a factor since the yuan and other currencies have been rising against the greenback.
Toymakers say prices at the consumer level are expected to rise next year.
"Prices are based on a variety of factors, including cost of raw materials, cost of labor, currencies and innovation and play value of the toy, as well as testing costs," according to a statement from Mattel, the US giant that makes Barbie dolls, Hot Wheels cars and other toys.
"As we pointed out on our third quarter call earlier this month, we are looking at modest price increases for next year," the statement said.
Around the globe, the story is similar for the industry, which is expected to post sales of around US$70 billion this year, TIA said.
Manufacturers and distributors "cannot absorb the entire increase in costs, so these are passed on to the consumer one way or another in the final price," said Benoit Pousset, CEO at France-based Cesar SA, the leading global maker of masks and costumes.
Toymakers are also taking a hit from price pressures and safety recalls. Some 25 million toys have been recalled this year because of problems such as lead paint, small magnets and toxic chemicals. Many of the items were manufactured in China.
Some manufacturers will be looking at using wood or other materials, while others turn to more sophisticated products that command a price 10 percent to 20 percent higher. Some retailers will promote US-made toys that often bring higher profit margins.
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