MGA Entertainment founder Isaac Larian has been in the toy business for 41 years, and in this long tenure, he says he’s never seen anything impact the industry as much as the coronavirus.
“This is the worst supply chain disruption I've ever seen in my life,” he told Yahoo Finance’s “On the Move.” “I'm in touch with our Chinese factories every night — we are going to have delays.”
China is by far one of the world’s largest maker of toys; the country manufactures about 85% of U.S. toys. The deadly coronavirus has killed more than 2,600 people in China, and also slowed manufacturing output. Many Chinese factories have completely stopped production as businesses grapple with the virus.
Larian expects that one of the company’s most popular toys, the LOL Surprise!, will be delayed by at least seven weeks. Production of his toys has dropped nearly 60% compared to last year because of the virus.
“That means we are going to miss Easter,” he said. “The situation is not good at all.”
The factory closures occurred in the first quarter, which tends to be the slowest time of the year for toymakers, but Larian is already worried about the fall — an all-important holiday — season. Right now, MGA Entertainment is only filling partial orders for retailers. The company depends on China for nearly 90% of its production. Right now, MGM’s factories in China are operating at about 20%, according to Larian. While workers are returning to factories, many of them don’t have the raw materials to manufacture the toys.
“I think the damage is done,” he said. “And I am not sure fall sales — I’m not sure we can recover frankly.”
The virus comes at an already-troubled 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.
Toys are just one industry seeing impact from the spread of the coronavirus. Tech giants like Apple (AAPL) warned of iPhone supply shortages because of having to close its Chinese factories. Other companies, including Starbucks (SBUX) and Estee Lauder (EL), have said on recent earnings calls that the outbreak will dampen demand for their products.
Valentina Caval is a Producer at Yahoo Finance.