Fears of a toy shortage are overblown, Wall Street analysts say - but don't expect huge holiday sales

• Wall Street analysts say they "aren't as alarmed" about toy supply issues ahead of the holiday season.
• Bigger toy companies have prepared up to a year in advance for expected shortages and delays.

Consumers worried about the impact of supply chain issues on their holiday shopping plans might be spared the worst, as least if their buying plans include toys, some analysts say.

Early planning and stockpiling is already proving valuable for toy retailers, as the industry enters a supply-strained, high-demand holiday season, according to a report by investment banking company UBS. Demand has been "more resilient than anticipated" for toys, and companies like Mattel and Hasbro are reporting strong sales and outpacing Wall Street expectations despite supply chain woes, UBS wrote in the report.

"We believe toy makers have taken contingency measures to account for prolonged transit times, pushing some peak production timelines forward and securing more ports and transit lanes," the UBS report said. "And we believe top retailers have also taken measures to keep shelves restocked into November and December."

Simon Geale, executive vice president at supply chain consultancy firm Proxima, echoed the UBS the report, telling Insider that retailers have had significant practice dealing with supply disruptions from 2020 and many already had contingency plans in place since the beginning of the year.

According to Geale, many retailers forecast and prepare for such issues up to a year in advance, adding that he is already participating in meetings to discuss the 2022 holiday season.

"The biggest and the best contingencies that organizations have probably already done were that they started to buy early, getting the right sorts of products into stock early," Geale said.

Still, experts anticipate that consumer spending patterns, manufacturing delays, and distribution issues will have a "negative impact on total sales" according to the UBS report. Experts are still anticipating possible shortages in inventory due to high demand for toys that could outweigh supply capabilities, resulting in rising freight prices, squeezed warehouse spaces, and labor shortages.

Additionally, as the industry attempts to readjust to pre-pandemic levels, retailers may have less goods to sell, which can manifest as empty shelves this Christmas.

As a low-margin, high-volume good, toys have less freight options available to curb transport expenses, creating a bottleneck in the market. Companies will have to shave off toy lines that aren't as "hot" right now, said Steve Starobinsky, founder and CEO of toy advertising agency KID@HEART.

Starobinsky said large retailers like Target and Walmart that have been preparing accordingly for the 2021 holiday season are likely to have more stock for a smaller range of items, while smaller retailers without proper preparations in place will likely have less stock all around, leading to higher prices.

Ultimately, he said he believes the toy industry is resilient and "recession-proof," having survived the throes of the 2020 pandemic holiday season, but still recommends that Americans try to get their shopping done early this year. He added he expects several lines of toys may be discontinued, especially smaller trinkets or one-off purchases that result from impulse buying.

"This Christmas will be unlike others," Starobinsky said. "So getting a few presents, a few people checked off the Christmas list early, definitely won't hurt this year."