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The Sunshine Economy

Teddy bears, bedroom sets and brand new cars — what's fueling inflation for South Florida companies?

Image of a Tonka Mighty Dump Truck
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Basic Fun, based in Boca Raton, makes and imports Tonka trucks from China. Higher shipping costs, more expensive material costs, and higher wages have fueled inflation for the company, rising the cost to make and sell the toy to American buyers.

How inflation is affecting South Florida businesses from furniture to food, new cars to even Tonka toy trucks.

Jay Foreman had an interesting question he wanted parents and grandparents, aunts and uncles to pose a question to the young children in their families: "What do they really want for Christmas this year or Hanukkah or any other holiday?"

It is Foreman’s job to anticipate the answer to that question. He’s the CEO at Basic Fun, a toy company based in Boca Raton. It makes and imports Tonka trucks, Lincoln Logs, Lite Brite and Care Bears.

"You'll get 100 different answers almost from 100 different kids," Foreman said.

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There is no must-have, rush-out-to-the-store, fight-the-crowds toy this year. Nothing like what the toy industry has experienced during past holidays.

Sure, there still are mass-marketed toys. Foreman’s company counts on a combination of nostalgia from parents or grandparents — and technology. He also knows its technology that contributes to the lack of a blockbuster toy.

"Everything is so fragmented from the media that the kids consume, commercials they watch, the influences they have, that it's so micro-targeted. There's nothing really that hot this year," he said.

But there is something that almost every thing has this holiday season — inflation. And no one asks for inflation for Christmas.

Prices for all kinds of items have been trending considerably higher for months now. Food and fuel prices are known to make big swings, but the higher prices have captured other categories — including things like new and used cars, furniture and toys.

Take Foreman's Tonka Steel Classics Mighty Dump Truck.

The toy usually sells for $25. Two dollars of Foreman's cost normally goes to shipping to bring the toy from China, where it is made, across the Pacific Ocean to the United States in time for the holidays. But this summer, the cost to ship each dump truck shot up to $12 — or half of the suggested retail price.

Toy Fair New York 2020
Larry Busacca/AP
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FR171730 AP
Jay Foreman, CEO of Basic Fun!, at Toy Fair New York unveiling new products from the company, including K'NEX Architecture, Tonka and Care Bears on Saturday, Feb. 22, 2020 in New York. (Larry Busacca/AP Images for Basic Fun!)

The cost to ship a 40-foot cargo container from Asia doubled to $5,000, and doubled again, and again during the key shipping months of July, August and September as American retailers stock up for Christmas.

"We weren't really necessarily able to up-charge our customers for the increase in freight because we quote our customers the price of the toys a year in advance," Foreman explained.

Instead, Basic Fun has had to eat the higher shipping costs, and hold back on stocking bulkier items that would be more costly to ship. Some of the bigger Tonka trucks and the jumbo plush stuffed Care Bears have stayed in Asia.

Keith Koenig did not hold back on bringing in lots of inventory for City Furniture, the company he co-founded and leads, despite soaring shipping costs.

"We have more inventory than we've ever had," he said. "We bet heavily and ordered heavily in the first and second quarter and the beginning of the third quarter."

How big was the bet? More than $100 million in inventory. City Furniture ordered so much that it became the largest importer at PortMiami.

Vietnam — an important country for furniture making — closed down much of its economy over the summer due to a surge of COVID-19 infections. So Koenig's bet has meant his stores have merchandise ready to be bought and delivered.

Keith Koenig
Brynn Anderson/AP
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AP
In this June 26, 2018, photo City Furniture CEO Keith Koenig, jumps onto a waterbed. (AP Photo/Brynn Anderson)

According to Koenig, a standard cargo ship container holds about $25,000 worth of furniture. Like Basic Fun, City Furniture's shipping costs quintupled earlier this year. And customers aren't blushing at the higher prices fueled primarily by higher shipping costs.

"We have found the consumer is more interested when they can get it, than if the price has gone up 10 or 12 or 15 percent," he said.

Furniture is one of the categories experiencing sustained inflation over the past many months. In November, bedroom furniture inflation was up 10% from a year earlier. It was up 14% for living room, kitchen and dining room furniture.

"Costs have gone up for everybody, along with raw material materials and furniture, foam, wood, et cetera. And the cost of labor has gone up." Koenig said his company has increased starting pay for sales associates from $14 an hour to $17 to $18 an hour.

While higher gasoline prices have added to inflationary pressures in recent months, one of the earliest and steepest surges in prices has been with new and used cars and trucks.

The price of a new car or truck was up 11% over the past year. A shortage of semiconductors for vehicles and the lack of supply of new cars pushed annual inflation for used vehicles up 31% in November, which represents a lower inflation rate compared to June.

"It's sad because we've never had a chance to sell more cars, but at the same time we can't sell any cars," said Mario Murgado, CEO of Murgado Automotive Group, which owns auto dealerships in three states including Brickell Honda in Miami.

Murgado's corporate fuel bill has increased $40,000 a month due to the rise in gasoline prices. Paying that higher bill comes at the cost of some investment plans for the time being.

"We have to take a careful look and see what things can be stretched a little longer or things we cannot and prioritize," Murgado said.

Same for Koenig at City Furniture. Business has been strong thanks to the booming Florida housing market. He's opening stores in the Tampa area and building a warehouse there,"but I'm going to slow down some of the expansion beyond that because of the more expensive future that I forecast for us all," Koenig said.

In a journalism career covering news from high global finance to neighborhood infrastructure, Tom Hudson is the Vice President of News and Special Correspondent for WLRN. He hosts and produces the Sunshine Economy and anchors the Florida Roundup in addition to leading the organization's news engagement strategy.