The CEO of Fat Brain Toys shares why he’s highlighting its tariff-driven price increases and what’s next.
Fat Brain Toys is highlighting the impact of tariffs on its prices to its shoppers.
On its product detail pages and shopping cart page, the toy retailer specifically highlights how much it has increased the product’s price because of the tariff.
Fat Brain Toys is a mid-sized online toy brand that manufactures its own toys and sells hundreds of other toy brands, such as Legos and Melissa and Doug. It has two physical stores and wholesales its branded toys to boutique toys shops and mass merchants. The majority of its revenue is from its own branded toys, which are all manufactured in China, said Mark Carson, CEO and co-founder of Fat Brain Toys.
That means the U.S. government’s initial 20% tariff and then additional 145% tariff on Chinese imports applies to Fat Brain’s products. After Carson and his wife and business partner spoke with friends and family about the situation, they realized that everyday consumers did not understand the impact of the tariffs and who would be paying them.
“We’ve been spending a lot of time just trying to educate family and friends and we’re like, we really need to make sure our customers know that we don’t want to raise the prices. This isn’t something that we want to do,” Carson said.
Fat Brain increases prices product by product
Instead of a blanket price increase across all products, Fat Brain has taken a “surgical” approach, marking them up as much as it thinks the shopper could bear, but not the full amount, Carson said.
“In all of our scenarios, we’re not fully covering the costs of the tariffs that we’re paying. We’re really just trying to recoup some of that,” Carson said.
About 85% of its products have increased in price, with lower ticket items increasing the most in price. On the shopping cart page, consumers can see the dollar amount increase on each product, with some products increasing as little as a quarter.
“Once you move from some of those key price points of $19.95 to a $22.95, that’s going to eat into sales right away. And if you go from $24.95 to $28.95, that is going to hurt sales.” Carson said. “On this first round, we took a lot of time to really get comfortable with which items needed to increase and took as few increases as possible. If we got to stick with the 145%, there’s some hard truths coming.”
Customers have not given Fat Brain any feedback since it implemented the price increase and upfront language.
“We’re not trying to be political with this,” Carson said. “It really is just a matter of trying to spell out why the price increase or what the price increase is attributed to.”
Beyond its on-site language, the brand is not highlighting the tariff increases in its owned marketing channels, such as email or social media. Carson also said it plans to decrease its prices/remove the price increase if the tariff goes away.
The short-term impact of tariffs at Fat Brain Toys
When President Donald Trump announced the initial 20% tariff on Chinese goods in January, Fat Brain Toys already had 10 shipping containers on the water. Its successful holiday season had just concluded and it need to restock its shelves. The brand had to pay the tariffs as soon as its products arrive at the port, so its cashflows immediately took a hit, Carson said.
Now, a few months later, the brand is still uncertain about its ordering strategy for the rest of the year. The brand typically does its holiday purchasing by the middle of May, but it is currently “in a holding pattern.”
“We keep joking that hope is not a strategy, but hope is our main strategy right now,” Carson said.
The company knows it can’t raise its prices high enough to support a 145% increase — or else its sales will plummet — which means it has to “get creative,” he said. For the holiday season, that likely means ordering its best-selling products and not taking any risks. For example, Fat Brain Toys likely won’t be developing and manufacturing new toys this year, nor will it be purchasing a new toy wholesale from a different brand that doesn’t have a proven sell-through track record.
Fat Brain also is paying the higher tariff cost from toy brands it purchases from. Each brand varies in how it is handling the tariffs, with some implementing a blanket increase on a set date, while others are showing a new price on invoices.
Long-term impact of the tariff for toys
Since the increased tariff, many toy brands have paused ordering their goods from China while the situation is in limbo. This will likely cause similar supply chain issues that shoppers experienced during the pandemic, such as empty store shelves, Carson said. Then, if and when production normalizes, there will be a surge in orders and shipping container rates will increase, and the whole cycle kicks in again.
Fat Brain Toys recently solicited quotes to manufacture its toys in the U.S. Quotes are 5.5-times higher than its current costs, which is less feasible than paying the tariff, Carson said.
It could look at other countries without as high of tariffs as China to manufacture its toys. But that could be risky, Carson said, as it’s anyone’s guess on if the U.S. could implement more tariffs on additional countries. Plus, it takes months to produce the tooling needed to manufacture a toy.
“It’s not something that you can just snap your fingers or send to the 3D printer and out pops a toy,” Carson said.
China and its expertise in manufacturing toys is the best option for now, while the brand waits to determine its next move.
“It’s just that uncertainty is really, really difficult for us to make any long-term plans,” he said.
Network
