In 2011, I started a toy business. I fear my toys are about to become a lot more expensive.
We make sports themed baby toys – Little Sport Star Little Sport Star. It has taken 6 hard years to get off the ground but at last, we seem to be making progress. We have enormous success in the United States in stores such as Walmart, Kohls, Barnes and Noble and Toys R Us.
My business has had some success in Europe, but it is a challenging market, more complex than the US because Europe consists of different languages and cultures. However, through the European Union, at least we have one set of rules. These set of rules are called the Single Market.
Here are six ways Brexit will affect my toy business:
The Pound
Making toys is relatively straight forward. 80% of the worlds’ toys are made in China. China has an incredibly skilled workforce that makes great toys. Most Chinese factories want to be paid in US dollars so my industry is very open to currency fluctuations.
In particular, my business is very exposed to the price of the dollar against the pound. After Brexit, the cost of manufacturing toys went up 20% simply because of the weaker sterling.
Our Brand
There are several ways to protect a brand. Foremost, entrepreneurs need to create a great brand that people remember. I want all new parents to know the Little Sport Star label and to trust it.
My Trademark and the inventions that belong to my brand are my core products. For example, I know that no-one can copy my activity gym in Europe. I have registered the design and my “Little Sport Star” Trademark is my intellectual property. They cost me a lot of money. I paid a Patent Attorney to register them but I know that no one can develop a similar range of toys called Little Sport Star in Europe.
As part of the European Union, I have registered my “Intellectual Property” with the European Intellectual Property Office. Intellectual Property is just part of the common set of rules that we share with other European Countries – the Single Market.
I am waiting to see what happens with Brexit to see how this will impact my brand. If we leave the single market then the UK will have to decide how to treat brands that are currently registered in Europe. One possible and likely scenario after Brexit is that a separate set of intellectual rules may apply to the UK.
Safety
Safety is fundamental to my toy brand. My toys are fit for your children because they are well made and they have been rigorously tested by independent auditors. Checks cover all risks that a baby may incur whilst playing. In Europe, the appropriate toy standard is EN71. I pay independent auditors a lot of money to check that all my toys meet the EN71 standard.
The tests for EN71 are tough. They are also uniform across all of Europe. If it is good enough for Ireland, it is good enough for Germany, and France and the UK. The beauty is that I only have to pay once for the test. The one test means I can sell my toys across Europe.
As much as 25% of the manufacturing cost of a toy that costs you £10 in a shop, maybe safety testing.
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It is a significant part of the price. One efficiency that I get is if there is a common standard across several markets. Currently, there is one standard for Europe and another standard for the USA. I do not want another standard for the UK.
Common standards are also part of the single market. Post-Brexit, the best case scenario is that we will continue to apply the same set of standards. Any deviation from a common European test may mean that I will have to test my toys to European standards and then pay for a different test for the UK.
I am not opposed to stricter standards, provided they are uniform and the same. I will be watching carefully to the Brexit discussions because the more testing I have to do. I just don’t want to duplicate testing.
Free movement
My intellectual property is registered across Europe and my safety standards are European, so I benefit from the free movement of goods. This is the opportunity to ship my toys wherever I want to in Europe without border tax or additional customs duties. As it stands, I can ship my toys from England to Italy or Luxembourg. I can ship them knowing that a customs official will not impose any form of tariff when the toy reaches their destination within Europe.
By contrast, if I ship to Australia, then the toys will be pulled over by Australian customs, and a tax will be imposed on the goods as they enter the country. There is also the cost for handling the goods whilst the customs officer does his paperwork.
Free movement isn’t actually “free” – it is just free of tariffs.
My biggest cost in Europe, and it is a big cost, is logistics. Relative to the cost of my toys, logistics costs almost the same as the manufacturing costs. It’s crazy.
Brexit Opportunities
The Single Market gets bad press but it is actually ok for me. For a business owner, it is very convenient to have one set of rules for the whole of Europe. To think that having a different set of rules for the UK could be better just seems illogical. I just don’t think it is a bad deal. No one can explain why no deal can be better than “a bad deal”?
There is an alternative. What if we had no rules (yes, we sometimes refer to it as red tape)?
I fear that standards would slip which is not something my industry wants to encourage.
On the other hand, if want a different set of rules for the UK, it will cost my business more legal fees, more accounting fees and probably customs duties to export.
Made in the UK
Some of you will be thinking that it will make more sense to make toys in the UK. I hope that one day this is true, however, we currently do not have the skills to make the toys to the same quality as our Chinese counterparts, and our workforce is also a lot more expensive. 80% of toys in the world are made in China. That’s a lot. Our labour force is not just a little bit more expensive, we are very expensive compared to China. Because we don’t make toys, we don’t have the skilled workforce.
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I know that anybody who has a business that manufactures overseas will have the same concerns as me. Extra costs and bureaucracy really do impact our profitability and existence. I hope that when people vote to leave the single market, they know what that means.
What does leaving the single market mean for children toys? They will become more expensive. Are toys different to anything else made in China? Absolutely not!
Brexit is an opportunity for the UK made industries. For industries that rely on overseas manufacturing, such as toys, expect to pay a higher price.
