When Jay Foreman, CEO of toy company Basic Fun, wants to market a hot new product, he usually sends it to 50 to 150 influencers for promotion. But this holiday season, Basic Fun’s new Tiny TV Classics line of collectibles will go out to just 20. At a time when the global supply chain is getting squeezed and delaying merchandise, Foreman simply can’t spare the inventory. He also doesn’t want to advertise what he might not have.

“We’re holding the rest—I don’t want to get the influencers going and the merchandise is not in store yet,” says Foreman, whose Boca Raton, Florida-based company is behind other popular toys such as Care Bears, Lincoln Logs and Cutetitos. “The consumer views that [influencer] unboxing and they’re like, ‘Cool, let’s buy it now,’ and if it’s not there, they’re not going to look at that unboxing video again.”

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Basic Fun is one of a host of marketers struggling with COVID-related supply issues, shipping cost increases and labor shortages. The problems—which one expert describes as having been snowballing since COVID-19 first struck in early 2020— are creating a perfect storm ahead of the 2021 holiday season, affecting brands in a range of industries, including automakers, skincare companies, bag purveyors, home goods sellers and more.

The supply crunch is complicating advertising plans. Some brands are slashing their ad budgets as a way of mitigating increased shipping prices while others are relying more on digital marketing than TV so they can be more flexible as inventory arrives from overseas. Many are also adjusting marketing calendars—running holiday-related website refreshes earlier than ever to beat out the competition and encourage spending on what they do have in stock. 

The ad budget cuts could derail a recent ad spending comeback that has boosted the fortunes of ad agencies and media sellers that suffered in the early days of the pandemic. In June, Magna Global predicted that global advertising spending would grow by 14% to $657 billion in 2021. Magna estimated that in the U.S., net advertising revenue for media companies would reach a record high of $259 billion this year, a 15% rise over 2020. A spokeswoman did not respond to an inquiry about how the forecast might be affected by supply chain issues.

“If you were shipping $30 million of a line and you’re now shipping $25 million, you adjust [advertising],” says Jim Silver, CEO and editor in chief at TTPM, a toy and pet product-focused publication. “Budgets are going to be cut accordingly to amounts being shipped, but not eliminated.”

A nightmare situation

Many of the supply chain issues have been 18 months in the making. Early on in the pandemic, factory closures in China created the first production disruptions. Then, as the coronavirus moved east, any ships that were on the water were held in ports due to lockdowns. When stores shut down in the spring of 2020, brands cut production, thinking that demand would soften. But online shopping—coupled with the fact that consumers had excess money from not spending on things like travel—created demand that outstripped supply.

Now, marketers are scrambling to ship goods back to the U.S., but container space is at a premium—larger items related to COVID, such as air purifiers and PPE, and even popular items like stationary bikes and treadmills, take up more room. Container prices have increased by 600%, moving from $3,000 to $20,000 in some cases, according to brand executives.

“Money that could go to advertising now goes to freight companies,” says Foreman.

In addition, labor shortages in the U.S. have made it difficult to move goods once they arrive from ports. Many companies are looking for truckers to operate flatbeds to move items to warehouses and retailers.

“When you get an actual trucker to work and bring it to the warehouse, it could be weeks, the lines are insane,” said Jacq Tatelman, co-founder, CEO and creative director at popular backpack seller State Bags, on a recent episode of Ad Age’s “Marketer’s Brief” podcast. “It’s so challenging—it’s the one thing that has consistently kept me up at night for months now.”

For many marketers, ad budgets are bearing the brunt of the turmoil. Basic Fun had initially forecast that its holiday sales would be 30% higher than the 2020 season; now Foreman says that forecast is halved to a 15% uptick based on supply issues. Therefore, he expects to spend 50% less on advertising than what the company had planned to spend on a season where Basic Fun spends the bulk of its marketing budget.

“The demand is outstripping the supply which means the merchandise will sell through and we don’t have to spend as much,” he says. “Our advertising budget will be half of what it was forecasted to be.”

National Tree Company, a Cranford, N.J.-based seller of artificial Christmas trees and holiday décor, is dealing with similar woes. Chris Butler, the 60-year-old company’s CEO, says that despite strong demand for his products, his actual inventory will be down 10% this year compared with what the company had planned. While National Tree sells online at retailers like Wayfair and Amazon, Butler is now fielding calls from brick-and-mortar chains asking to buy items for wholesale since their own stock is depleted. Normally, National Tree spends “millions” on online advertising during the holiday season, but this year the brand will spend 75% less, according to Butler, who adds that the bulk of the advertising the company does will be online search with a little social media mixed in.

“We are going to end up spending money on products that we don’t have,” Butler says. “Those products are already in such high demand that you just don’t need to promote those.”

Passing prices to the consumer

Yet even as brands save money on ad spending, increased shipping costs are still forcing some brands to raise their own prices in order to stay in business. For example, National Tree raised its prices by 25% this year.

State also raised prices on adult items ahead of its back-to-school season this year to offset the shipping costs, Tatelman says, noting that the increase was done on a product-by-product basis and ranged from 5% to 12%. She expects to have to raise prices for kids’ products as well, even as State begins selling new adult products like fanny packs and diaper bags this holiday season.

“I’m going to be selective on what we raise prices on,” she says. “We’re being very strategic on that, but we do have to pass some of the costs on—we won’t survive if we don’t.”

With delays, State already had to offer some back-to-school items for “presale,” which meant focusing more on customer service for potentially angry customers wondering when to expect their purchases. It’s a process Tatelman doesn’t want to repeat for holiday and next year, so she is adjusting her calendar to account for delays by ordering merchandise earlier—yet that means marketing needs to be ahead as well.

“We have to make sure we have the money to pay for those things,” she says.

Some marketers are moving into more flexible forms of advertising in order to have better control if inventory is late. Spin Master, the Toronto-based toy company behind hits like Hatchimals and Kinetic Sand, is currently working with logistics carriers to try to move goods in earlier and get them onto store shelves, according to executives speaking on the company’s most recent earnings call. The pandemic taught the company to be digital-first with marketing, and Spin Master has spent the time building in-house capabilities to “enable insight, speed and agility,” says Laura Henderson, executive VP, marketing. “This transformation has prepared us well to be nimble in our response and adapt our marketing to the changing retail dynamics and preferences of our core consumer, reaching them with the right message, at the right moment, in the right medium.” She notes that several of Spin Master’s campaigns this fall are 100% digital.

Elaine Kwon, a former Amazon executive who co-founded e-commerce firm Kwontified, says there are a lot of “competitive conversations” happening regarding holiday marketing right now, which will result in earlier advertising as brands try to convince customers to buy now or risk losing out on out-of-stock products. Holiday refreshes, which involve a holiday-themed makeover with specific banners and images on websites and social media accounts, are occurring as early as September for some brands hoping to get the consumers in a holiday-buying state of mind. Such refreshes usually take place in November, Kwon says, but are earlier because of the inventory shortage. Brands are trying to sell what they have to avoid losing out to rivals.

“They’re trying to target and get consumers to think about things before the holiday period truly begins,” she says. “They fear that if they do not do this they’ll fall behind.” 

Kwon also predicts that brands will be offering fewer seasonally appropriate products and limited edition items as another result of the supply chain disruptions. Instead, brands will market the tried and true bestsellers that they always have in supply. For example, skincare brand Tula is currently selling two limited-edition kits and seven kits that while marked as “new,” are also bestsellers. In previous years, Tula has sold numerous holiday-specific, limited-edition kits, Kwon says.

“You’re going to see a lot less curated, limited-edition products, a lot more of this is our number one best seller last 10 years this is what we have in stock,” she says. “We’ll see a more narrow general section of products available.”

Automakers also under pressure

In the automotive industry, agencies and dealers are wrestling with how to manage ad budgets amid serious vehicle shortages caused by a scarcity of microchips that are used in car parts. “If you don’t have cars to sell, you don’t need to advertise them,” said one ad agency executive who works on automotive, speaking on condition of anonymity.

Chip suppliers were forced to curtail production in the early days of the pandemic. But demand later surged from a range of industries, including electronics products such as laptops and gaming consoles that were in high demand from people working from home on lockdown. The situation has caused major automakers including General Motors, Toyota, Stellantis and Ford to slash production. Data firm IHS Markit recently cut its global vehicle production forecast by 6.2% in 2021 and 9.3% next year. Auto brands continue to push out broader marketing campaigns touting new vehicle launches, including Toyota, which this week rolled out a new campaign for the 2022 Tundra pickup truck that it described as the largest U.S. ad campaign for a new vehicle launch in Toyota’s history. Ad spending cutbacks are more likely for locally-focused ads aimed at getting people to dealers for sales events. So-called Tier 2 and Tier 3 advertising is big business for ad agencies, especially come holiday sales season.

“I have to imagine that the year-end sales events, the Black Friday and holiday year-end offers are going to be fewer and farther between,” says Joe Kyriakoza, VP and general manager for Polk Automotive Solutions at IHS Markit, noting that "I do think ad spending is going to be stunted versus what the projections are."

John Luciano, the managing partner of a Volkswagen dealership in Amarillo, Texas called Street Volkswagen, says “everything that goes in the door goes out,” noting that the dealership as of early this week had 23 new cars on hand compared to the normal 200. He says he is getting good deals on local TV and radio buys as other dealerships cut back. Street has kept its spending at normal levels but shifted messaging to plug offerings like vehicle service or to recruit new workers. “It’s an opportunity while the noise is down for me to actually get my name out there,” he says.

See now, buy now

Many toy and holiday retailers are focusing on a “See now, buy now” marketing message to encourage customers to shop early or risk empty shelves. National Tree’s Butler says his customers usually purchase products right after Thanksgiving or in early December.

“It will be slim pickings at that point,” he says. “We’re using PR to urge customers to buy now, buy as early as you can.”

TTPM’s Jim Silver says consumers should not wait to buy items they see now for holiday, particularly parents seeking must-have toys. He also says most of the supply chain issues are affecting smaller companies versus larger brands such as Mattel or Hasbro which own their own factories, manufacture domestically, or command a larger share of the production chain.

“Smaller, mid-sized companies are feeling it more—you always take care of your larger customers first,” he says. “Larger retailers will have bigger in-stocks than smaller retailers.” Silver estimates that the disruptions will affect only 4% of inventory for some larger companies versus 40% for smaller businesses.

Of all the advertising channels affected, experts think influencer programs might see the biggest losses. Like Basic Fun’s Foreman, many retail executives don’t want to waste products that could be sold to the consumer.

“We’re finding that collaborations with influencers are being pulled back or they’re not focusing on one product,” says Kwon, noting that influencer marketing messages are instead around lifestyle and brand rather than specific items. “They don’t want that one product to go totally out of stock.”

As for those Tiny TVs, an ad campaign to announce their arrival is now scheduled for October and November, two months later than planned.

“We may end up pulling the campaign,” says Foreman. “We’re going to sell out anyway and I can’t bring any more in. Why spend the money?”

Contributing: E.J. Schultz

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