Basic Fun! Toys CEO: Tariffs would destroy our business

[00:00:00] Speaker 1: Welcome back to Squawk on the Street. Let's turn to the effects of tariffs on businesses in America. Our next guest company specializes in classic toy brands, you know them, Light Bright, Care Bears, Tonka, Lincoln Logs. He says the tariffs will, quote, destroy his business, and he would prefer to make his product in the U.S., but there are simply, quote, not enough production facilities and labor. Jay Foreman, Basic Fun Toys CEO, joins us now. Jay, thank you so much for joining us. You've sort of been with us along the way over these tariffs implementation since sort of the Trump administration the first time around. I guess just quite openly, where are we sitting right now with the tariffs and how they impact your business? Can you continue to operate in an environment like this? [00:00:40] Jay Foreman: Well, it's extremely hard because of the uncertainty. You know, we started February with an implementation of 10 percent, which we figured out a way to work. And then by the end of the month, it went to 20. And then, of course, on Wednesday, we're going to find out whether maybe they get rolled back, maybe an additional 25 percent gets added. So that uncertainty is really freezing business. Most of our customers are held up on their shipments and placing orders for now to see what's happening with the tariffs. [00:01:09] Speaker 1: And so what are you going to do? I mean, do you just live with crunched margins? Do you have to make changes to the toys themselves? Talk us through maybe with some examples, because I think so much of this is sort of pie in the sky for some people. It's hard to picture. But you have toys, right? We all know what a toy looks like. What does it look like now? What could it look like? [00:01:29] Jay Foreman: Well, so what happens is, for example, a toy like this. This is a Tonka truck. It's about a $10 toy. This toy will go to $12 with the current set of tariffs on it right now. And that doesn't sound like a lot, $10 to $12. But you have to remember that mom and dad, they're putting together a shopping basket. So it's not just this Tonka truck that goes in the shopping basket. It's all the other toys, all the apparel, all the accessories, back to school, everything. And those $1, $2, $5, $10 really start to add up for the consumer. And it really makes it difficult for folks that are struggling right now to make ends meet when you implement tariffs on these type of consumer goods. [00:02:09] Speaker 1: And so President Trump obviously has long said that part of the idea of these tariffs, A, is to make things fair, and B, to bring manufacturing back to the United States. And when we introduced you, we said that your thoughts are that you would like to do it, but you just can't. So where can you manufacture? Are there other options? Is the United States definitely out of the picture, even in the long term? [00:02:29] Jay Foreman: So I think so in general. I mean, one good thing that the toy industry has done is we've tried to solve a problem. The president's problem is we want zero tariffs on all products. You don't tariff us, we won't tariff you. The global toy associations around the world have just gotten together to agree, and we put out a statement, and we're advocating for zero tariffs on toys everywhere around the world. Toys are such an important product for children, for parents, for the development of kids, and we want to see toys remain value-oriented. So we're advocating for zero tariffs. Our entire industry, that's probably the first industry in the world that's advocating for zero tariffs across the board. If the auto industry, the tech industry, the farm industry would do that, we'd solve all the problems for the president. We're trying to do it in the toy industry. Now, the unique problem that we have is that there's really no manufacturing here. What I would contend to you is we want to be making caterpillar trucks here, John Deere trucks here, not small Tonka trucks, not little figures like this in America. I don't believe those are the type of jobs that the president is suggesting should come back to the United States. So we as an industry have to look elsewhere, outwards, for our production to be able to keep toys inexpensive and high quality. And that usually is foreign markets, typically in Asia. [00:03:51] Speaker 1: I know you went through the Tonka truck example with us, but we're showing the Care Bear video on the screen right now of one of the manufacturing facilities you work with in China because we've worked with you before to help tell this story and what happens with the cost of that bear from at the time that it starts at the factory through the transit price and then all the way through to the store, perhaps at a retailer where someone would buy it. Where are we right now with the cost of manufacturing that bear with the $10, 10% plus 10% and then where it lands in the retailer shelves? [00:04:21] Jay Foreman: Right. So traditional Care Bear, say a Care Bear like this, it's about a $15 retail. With 20% tariffs, because that's what's on the product right now, this toy will likely go up to $19.99. So this Cheer Bear turns into Grumpy Bear for the consumer when the prices go up because this tariff has to be passed along. In our industry, we really don't have high profit margins. And most of our customers, Walmart, Target, they work on pretty tight margins also. They give consumers a lot of value. So does Amazon and lots of other retailers. So the profit margins aren't there just to absorb this. So in the short run, a lot of businesses are going to absorb the tariffs. My business will have to absorb the tariffs. It'll cost us some profits. It'll cost us some money in the short run. But eventually, these tariff costs get passed along to the consumer. Certainly in consumer products, that's going to happen. I think you'll see it in the auto industry and lots of other industries as well. You know, it's very hard for us to imagine bringing production back to the United States for a Care Bear like this when there's still not one iPhone. This is a $1,000 iPhone. This is a $15 Care Bear. We're not going to be making this in America before we make this in America. Jay, I've got to ask you to look outside for our production. [00:05:38] Speaker 1: I've got to ask you really quickly before we go, because you sort of made counterpoints that we said we have to absorb the costs. And then you're talking about prices going up. So are the retailers that you work with, the Walmart, the Target, the Amazon, are they asking you to absorb that price? [00:05:52] Jay Foreman: Right now, everybody's sort of waiting to see what happens on Wednesday. If tariffs are moderated to some degree, I think you're going to see retailers hold their prices and vendors like ourselves try to absorb. If the tariffs remain low and light, we'll absorb them, we'll figure out. But if the tariffs come on and they start to become heavier, they'll have to get passed along to consumers. There's just no way around it. It's just something that happens naturally in this market. [00:06:23] Speaker 1: Great stuff, Jay. Good to know. The retailers right now with you are holding and waiting for October 2nd. Thank you, Jay Foreman, CEO of Basic Fun Toys.