Understanding Seasonal Trends in Toy Sales

A lot of toys are bought during December, and the news makes it seem as if Christmas spending plans are important news. Christmas and birthday are likely to be the two biggest reasons to buy toys for a child. “Canadian toy and games sales generated almost $7.3 billion in retail store sales in 2022”. Most are imported. These facts represent revenue, not profit! Profit is what enables a business to stay in business.

Consider the puzzle as a decision problem: if “most of their profit is earned during Christmas” then would toy makers make more profit by shutting down the rest of the year? Economics teaches that you should think about the margins and the opportunity cost principles.  

From the margins perspective, toys which are manufactured, but not sold, represent an inventory expense. That expense can be managed by producing less during slow seasons and increasing production during busy seasons. Certainly, retailers do this by hiring temporary staff during busy seasons.

It is also true that the “Christmas season” is becoming more vague than in the past. “Black Friday” sales this year seemed to start shortly after unsold Halloween candy was discounted. It may continue with the after-Christmas sales into early January, if too much stock is inventoried.

Economic theory predicts that toy businesses would shut down during slow seasons if the selling price were less “Average Variable Cost”.

Toy manufacturers do not seem too worried about the seasonality, for two reasons. First, it is an expected cost of doing business. Second, production can adapt to the seasons, since different seasons involve different types of toys (e.g., indoor vs. outdoor, educational vs. play vs. organized sports). Therefore, large manufacturers maintain a portfolio of toys: as in the stock market, diversification does not change the source of risk but it can lower the cost of risk.

Toy manufacturers and toy retailers need to be busy all year for a different reason: they need to be a trusted source for whenever a customer decides to buy a toy. Some types of retailers can open a kiosk in the mall during the month before the holidays and disappear in January, but only some types. 

Consider an analogy (especially if you are watching sports on Christmas Day). The game lasts an hour and the last minute heroics will be memorable, especially if your team was losing by a lot at the break. Scoring the winning point will make the highlight reel but it matters only if your team made enough of the right decisions to stay close during the rest of the game.

So, enjoy the season: you do not worry about when toy businesses make their money. The same worries afflict the all-inclusive resorts popular at this time of year: while busiest during the busy season, they survive by making good decisions all year long.