Toy sales are slowing as recession fears loom

Yahoo Finance Live anchors discuss the U.S. toy industry as recession fears continue to grow.

Video transcript

BRAD SMITH: US toy industry unit sales, they declined 6% this year from January to April, according to a recent report by the NPD Group. The toy industry feeling the effects of a challenging economic cycle, as recession fears loom. So what's in store for the sector moving forward? Sozzi's Take hits the toy chest today. Sozz.

BRIAN SOZZI: That was my pet-- my bear in that picture. If anyone was wondering, his name is Ticker. But look, we're been all morning long focused on the potential of a recession, what people are spending and what they're not spending. And I would say this NPD data, which runs from January to April, and it's the most recent data-- just came out-- another way of looking at it is year to date-- is a red flag for the state of the toy industry, which had been doing well through the pandemic.

You look at unit sales, like you mentioned, Brad, down 6%. Average selling prices up 7%. So what is essentially happening, the likes of Mattel, a Hasbro, a Funko, their costs for producing all these toys, they have gone through the roof, in large part because of supply chain bottlenecks. They are now in the mode of pushing through price increases for consumers on a category that has historically been very price just sensitive. And you're seeing consumers perhaps starting to pull back.

And again, that's a red flag, because as you know, we're not too far removed from the holiday season. It's going to come quick. It's going to come fast. Everybody's going go out there and buy some toys. That said, there are some bright spots here in this data. Collectible sales up 28% year over year. Within that, traditional plush toys up 43%, led by Squishmallows, which we talked about recently, because they're sold and they help the quarter out of Five Below. Disastrous quarter by Five Below. But one of the bright spots for them were these Squishmallows. Just fascinating, simple to make.

BRAD SMITH: Squishmallow, bullish indicator.

BRIAN SOZZI: Yeah, very bullish. But also, Funko Pop. Well-- and you like this. I know you're a LEGO guy.

BRAD SMITH: Big time.

BRIAN SOZZI: Building sets up 7% year to date, led by LEGO Star Wars and traditional building sets. So LEGO sales are doing well. But overall, my take is this. It's going to be hard, I think, for a lot of these Mattel-- the likes of Mattel and Hasbro to push through even more price increases on consumers, that as they get over the head with inflation and food and gasoline prices, it's going to be hard, I think, for them to put forth a robust holiday shopping season. Of course, there you see my pet bear, Ticker, frowning.

BRAD SMITH: It looks like a teardrop tattoo as well.

BRIAN SOZZI: Oh, wow, wow, boo.

BRAD SMITH: Killing the toy season.

BRIAN SOZZI: That's brutal.

BRAD SMITH: Yeah.

BRIAN SOZZI: That's brutal.

BRAD SMITH: All right, so-- all right. So--

[LAUGHTER]

LEGOs, yeah, as you know, I'm a huge LEGOs fan. All right, so what does this spell out? I mean, merchandise right now, even if households are pulling back on some of that spending, then what categories are they going to lean into? What is, like, the most resilient of the toy category, does it seem?

BRIAN SOZZI: It seems to be those very-- at least from a toy perspective, those very approachable simple toys, like a Squishmallow. It's an attractive price point. It's somewhat affordable. And it brings you what appears to be endless amounts of joy and relaxation, maybe any one of these things.

BRAD SMITH: OK, we've got to talk about Mattel, Barbie. I mean--

BRIAN SOZZI: Ryan Gosling?

BRAD SMITH: Ryan Gosling.

BRIAN SOZZI: Yeah, look, this one caught fire. And there's--

BRAD SMITH: From the movie, we should say.

BRIAN SOZZI: Yes, this is a-- there is a stock angle to this because we've talked to Mattel CEO, Ynon Kreiz, at length. And he has been-- he has put a whole bunch of new movies in the pipeline, looking out over the next few years. Now this Barbie movie, you could see Ryan Gosling there, showing off his chiseled abs, looking like an old school Abercrombie and Fitch model.

But that movie is supposed to hit later-- that is supposed to hit later this year. And there's really no resemblance between myself and Ryan Gosling, but still, it's nice to imagine. That Barbie movie is supposed to hit next year. And it could lead to strong sales for Mattel, because it is out there, making this movie, putting it out there, but also, obviously, dolls and various other figurines and sets.

BRAD SMITH: You use the Peloton Bike. Do you think he uses the Peloton Guide?

BRIAN SOZZI: I think he's using some stuff from GNC, maybe a little Peloton Bike, and maybe that Beyoncé diet.

BRAD SMITH: Can we do the side by side picture again? You got to make the same facial expression.

BRIAN SOZZI: You're going to make me do it.

BRAD SMITH: There it is. There it is. That's close. That's--

BRIAN SOZZI: That's why they pay us the big bucks, Brad.

BRAD SMITH: There we go.

BRIAN SOZZI: We can do that in real-time.