LOS ANGELES – Alex Kessler grew up in the toy industry.
As a youngster, he watched his father Brian Kessler’s company, Maui Toys in Youngstown, grow into a successful business that initially designed and manufactured most of its products domestically. Moreover, his grandfather, Milton Kessler, patented an early version of the Hula Hoop, laying the foundation of a family business that inspired Brian’s creativity and innovation, which in turn influenced his son’s pursuits.
Today, Alex Kessler is president and CEO of Kess Co, a Los Angeles-based toy and game company that operates a distribution center in Youngstown in a far different environment than his father and grandfather once knew. While some of the company’s products are still manufactured in the United States, other segments of the business rely on manufacturers based in China and other foreign countries, Kessler says.
These market dynamics have shifted dramatically, as tariffs sow chaos and uncertainty through an industry that is among the most vulnerable to current U.S. trade policy, he says.
“From a micro level, we could work around this,” Kessler says. “From a macro level, it’s kind of scary.”
In March, the Trump administration announced it would levy tariffs as high as 145% on goods shipped to the United States from China, toys among them.
The following month, the U.S. paused the new import taxes on China and other countries for 90 days as trade negotiations continue.
As it stands, goods shipped from China to the U.S. face a 30% tariff. At press time, negotiators had announced a “framework” for a new trade deal.
“Thirty percent is better than 145%, and it sounds better, but it’s hard to price retail,” Kessler says. Tariffs of 145% were simply unsustainable, he says, and although reducing the penalties to 30% is less harmful, it creates more volatility and forces companies such as Kess to search for alternatives. “We have manufacturing in Mexico, our second largest international supplier after China,” he says. “What we can we’re bringing back to the U.S., and we’ve invested in that. But it’s more about the chaos. Things change on a dime.”
That makes it very difficult to plan critical shipping and logistics over the long-term, Kessler says.
The company essentially has two business lines: outdoor summer seasonal play products such as Hula Hoops, kick balls, bubbles, hoppers and jump ropes; and tabletop board games that feature popular characters such as Sonic the Hedgehog, Megaman, and other anime subjects, which are manufactured overseas.
In a perfect scenario, Kessler would contact the manufacturer in China and place an order, for example, for board games the company has designed and are already in the factory’s systems. The production cycle could take between 45 days and another 30 days before the products reach the United States. “Then it takes another 10-to-20-day time frame to get from there to Ohio,” he says. “That’s when things are going as smooth as possible.”
Toy companies need to plan months in advance to stock retailers’ shelves in time for the summer season and major holidays, Kessler says.
“The good news is the bulk of our core business for this summer is already out the door,” he says. However, more uncertainty looms as tariff issues could complicate logistics and supply chains, causing delays in product deliveries.
YOUNGSTOWN ROOTS
Kess Co was founded in 2016, after Maui Toys was sold to a large publicly traded company based in Santa Monica, Calif.
“Around 2012 or so, my dad sold Maui Toys to a company called Jakks Pacific, a massive toy company,” he recalls. Alex at the time was working with Maui’s product development team, while his father launched SBL Venture Capital LLC, a firm based in Los Angeles that invests in sectors such as consumer goods, the cannabis industry, entertainment and other sectors. “I got an understanding of what made us great,” he says. “One of those things was manufacturing our stuff domestically.”
After the acquisition, however, Jakks Pacific announced plans to move all manufacturing out of the country and exit Ohio. “I left when they made that decision,” he says.
Once the Kesslers were freed from a no-compete clause, Alex started Kess with Kickstarter investments.
Brian Kessler, founder of Maui Toys and CEO of SBL, says Kess is not as exposed to tariffs as other toy manufacturers, since a substantial amount of its revenue is generated from products manufactured in the United States.
“Maui originally started 100% manufacturing in Youngstown,” he says. He recalls visiting retailers whose buyers would rave about the company’s product quality but bulked at the price when compared to similar toys manufactured overseas.
“My buyer would go, ‘Brian, you make the prettiest jump ropes in the whole world, and if I could only pay the same price for what I buy from China, I’d buy from you,’” the elder Kessler says.
Kessler says fighting the international market after three years became futile.
“In the end, we couldn’t compete on cost,” he says. “Anything that was small assembly work went overseas,” while products that could be manufactured in large quantities through quasi-automation or light assembly stayed domestic.
“Alex has used the exact same philosophy with Kess,” he says. “For example, every one of the company’s Hula Hoops – a major seller for Kess – are produced in the U.S., Brian Kessler says. “They’re big and bulky and take up a lot of space, so importing them becomes tricky,” he says. Manufacturing them domestically, on the other hand, is advantageous.
RIPPLE EFFECTS FROM TARIFFS
Still, the toy industry is reeling in the wake of the international trade war. According to a survey conducted by The Toy Association, nearly half of the 400 respondents said they would go out of business within weeks or months in the face of a 145% tariff on Chinese goods and 96% of American toy companies are small and midsize businesses.
The survey showed the initial shock of the 145% tariffs caused 81% of small companies to delay orders, while another 64% reported they have also canceled orders. At the same time, 87% of midsize toy companies responded they were delaying orders, while 80% reported canceling business. As such, the organization is calling for a tariff-free global exchange throughout the international toy industry.
“Toys are essential products for childhood development and early education, and our industry works tirelessly to ensure these products remain safe and accessible,” Kathrin Belliveau, The Toy Association’s chief policy officer, said in a statement in March. “Working with toy associations around the world, we are reaffirming our aspiration for toys to remain tariff-free globally.”
Most American toy companies are almost completely reliant on China as a manufacturing base, Brian Kessler says. It’s likely any tariff will cause the price of toys to increase.
While Kess Co reduces its exposure to tariffs by manufacturing some products domestically, tariffs can still sting across all industries, he says. “The manufacturing base has reduced in size over the last 30 years,” he says, noting there is not enough capacity to immediately pivot and manufacture products domestically to avoid trade penalties. Much of the hardware for equipment may come from overseas, and tariffs could impact the price of machinery. Costs to manufacture goods domestically would also rise, he says.
“There’s no option that we know of that doesn’t have an impact on price or quality,” Brian Kessler says. “People are trying to mitigate it and doing their best. But generally, people are going to see a change in products toward lower quality or an increase in prices over the coming months.”
Pictured at top: Alex Kessler, president and CEO of Kess Co., based in Los Angeles.