Toy companies are delaying shipments and new product launches and struggling to fill retail orders as the coronavirus outbreak disrupts the industry’s supply chain.

Some toy factories in China, where about 85% of the world’s toys are made, remain closed and others operate at a fraction of their capacity, either due to labor shortages or difficulties obtaining supplies. raw materials and molds to manufacture their products, industry leaders and analysts mentioned.

Inside working factories, companies are installing dividers between workspaces and taking other precautions against the spread of the disease, which has claimed more than 2,700 deaths worldwide and raised the prospect of a global pandemic.

The disruption threatens the carefully orchestrated manufacturing and shipping schedule that delivers Barbie dolls and Nerf blasters to the shelves. Some large retailers are looking for alternative products to fill the gaps in their inventory and are considering delaying their shelves for the holiday season by a month.

The products are on display at Toy Fair New York on February 24.


Photo:

kena betancur / Agence France-Presse / Getty Images

This is the latest challenge for a toy industry which in recent years has faced the threat of tariffs and bankruptcies from key retailers, including Toys ‘R’ Us. Toy sales have fallen 4% in the States United last year, according to research firm NPD Group Inc.

“It’s going to put some businesses out of business if it lasts too long,” said Steve Pasierb, president and CEO of the Toy Association Inc., a trading group.

He said many toy companies have summoned war rooms with daily calls to their Chinese manufacturers for status updates. Some have said they could see their expected production drop by around 25% in the second quarter of the year.

Jay Foreman, general manager of toy company Basic Fun Inc. in Boca Raton, Fla., Said full production might not increase until April, and if the outbreak spreads much further, the holiday season might face some problems. “This will start to put a strain on the supply chain for the second half of the year,” he said.

At the Toy Fair New York this week, the impact of the coronavirus cast a long shadow over an event where hundreds of companies came together to showcase everything from Baby Shark toys to Baby Yoda toys. Big companies like Hasbro Inc.,

AT 1.35%

Mattel Inc.

CARPET 1.82%

and Lego A / S try to minimize the effect of delayed factory openings. They said they expected an impact on sales and supplies early in the year that could worsen if the outbreak continues.

Anna Mowbray, co-founder of Zuru Ltd., which makes X-Shot blasters and Bunch O Balloons water balloons, said her factories have reopened in phases in recent weeks. Zuru installed dividers between workspaces, added additional sanitation stations, and implemented other precautionary measures. But the company is understaffed due to travel restrictions in China and is currently only operating at 20% capacity, Mowbray said.

Coronavirus and trade tensions are testing the stability of global supply chains. While this has prompted some companies to consider loosing their ties with China, WSJ explains why leaving “the world’s factory” is easier said than done. Photo: China Daily via Reuters

Zuru, who is based in Shenzhen, had to cancel a new product launch for the year and is expected to generate tens of millions of dollars in revenue, Ms. Mowbray said. It also asks retailers to be flexible about the amount of product they initially ship.

“There are definitely going to be holes in the shelves,” she said. “There is a hole in the revenue for us because of this, and I think there is going to be less freshness.”

Hog Wild Toys LLC has reopened its factory in Guangdong, but it’s also only operating at around 15 percent of capacity, said Joshua Loerzel, the company’s vice president of sales and marketing. But up the supply chain, it is unable to get the tooling equipment needed to make new products because these producers face the same labor shortage.

This means that shipments of products like Tower Tennis, an outdoor paddle game, are unlikely to arrive at retailers as expected in April. Instead, Hog Wild will provide retailers with outdoor products that it imported late last year as it increased distribution to mass retailers.

“Fortunately, we had these products, so I directed buyers to the products we have,” Loerzel said.

He said some major retailers have sent emails asking for additional outdoor toys to fill shelves for spring and summer.

Some large companies have struggled to reduce their reliance on Chinese factories in recent years, with trade disputes recently creating the need for a more diverse base. Hasbro said it gets about two-thirds of its products from China and aims to reduce that figure to around 50% over the next few years. Mattel makes less than two-thirds of its products in China, and most of its two biggest brands, Barbie dolls and Hot Wheels cars, are made elsewhere.

Even if factories soon start producing toys faster, another challenge will be getting them out of China, as toys will have to compete with iPhones and other consumer products for transportation.

“If you think of all the consumer products and the floodgates that open, where are the toys? Said Mr. Pasierb of the Toy Association. “Even though they are producing, there is no airliner belly to climb on just yet.”

Write to Paul Ziobro at Paul.Ziobro@wsj.com

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