Business - No must-haves Toys this holiday season

Alli McConnon

Christmas shopping typically begins on Black Friday, the day after Thanksgiving, and nearly every year certain "must-have" toys emerge that spur parents to camp outside stores and then, at the crack of dawn, to stampede inside for a chance to snag the coveted plaything for the Christmas tree. Think Cabbage Patch Kids, Tickle Me Elmo, and Nintendo's Wii. This year, as many consumers watch their homes and 401(k) accounts shrink dramatically in value, the must-have toy may go the way of the dodo, say analysts such as Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates. "The customer is so pressed for money, so scared, and so in debt," he says. "They are so focused on price that the huge must-have toys are gone."

Parents will still buy toys for their children, of course, but they may not muster the energy and funds spent in years past. "The toy industry is not recession-proof (BusinessWeek.com, 11/19/08), but historically it is more recession-resistant," says Julie Livingston, a spokeswoman for the Toy Industry Assn. "This year parents might buy fewer of the special high-end toys, but they won't give up toys for their children." Market research firm TNS Retail Forward surveyed 4,000 shoppers in October around the U.S. and found that a third planned to buy toys this year, down from 38% in 2007. Those that plan to buy toys will spend 12% less than they did last year.

When retailers can't count on pent-up excitement and demand for the "hot" item, they turn to one-upping each other with promotions, says Mandy Putnam, a vice-president with TNS Retail Forward. "Retailers have anticipated that toys might not be as popular this year so they're going to have to promote the heck (BusinessWeek.com, 11/11/08) out of what they have to get shoppers through the door."

Classic Toys Still Conquer
Trudy Lonegan, a mother of two boys in Chapel Hill, N.C., is one of the many parents scaling back on costlier items. In previous years, Santa brought her sons popular gifts like a Nintendo Wii or a Razor USA scooter. This year she's steering clear of high-end gifts. "We're planning a frugal Christmas," says Lonegan, 39, who works in sales for a human resources consulting company where her pay is variable because it is commission-based. To economize on her holiday gifts, she will go to Costco (COST) to get iPod Nanos for her sons or shop online where she can compare prices. Her husband, a woodworker, will also make gifts for their sons like hat racks and shelves for their sports trophies.

Certain classic toys such as Hot Wheels, Barbie, and Play-Doh will still be popular this year, but customers are likely to trade down within brands, predicts Eric Johnson, a management professor at Dartmouth and a toy industry analyst. Parents will go for the $10 Barbie instead of the Barbie Dream House or Jeep, he says. "We don't have anything like the Furbies that generated fistfights when the Wal-Mart opened on Black Friday a few years ago. There is nothing in that category."

The problem isn't a dearth of innovative toys or manufacturers marketing them aggressively to kids that want them, say analysts. But many parents have greater financial worries and fewer discretionary funds this year. That makes them less likely to go on eBay (EBAY), for instance, to pay more than retail for a hot toy. Peter MacDonald, an Irvine (Calif.) attorney who works in the mortgage industry and a father of three, sees the layoffs in his industry affecting holiday shopping plans directly.

Encouraging Financial Literacy
"Colleagues are thinking about making a house payment rather than buying big-ticket items," he says. In his own family, which celebrates both Christmas and Hanukkah, MacDonald is changing his strategy, too. He plans to buy "smaller-ticket items and less of them," he says. In years past, MacDonald would have purchased electronics and toys for his sons. This year "gifts for the boys will entail things they need to have rather than just want to have," he says.

Retailers hope analysts are wrong, of course, because hot toys generate excitement and drive traffic to the store. But Toys 'R' Us CEO Gerald Storch downplays the importance of any one toy, saying that the chain has "always believed that must-have toys are different based on age." The New Jersey toy retailer recently released research on toy categories that it anticipates will be hot this season. Among the new trends this year that tap into the financial worries of parents is a category the company has dubbed "$avvy Saver." Gifts like electronic ATMs and a toy safe to help kids "stow money and their valuables from any would-be thief" appeal to parents who want their children to be more financially literate, Storch says.

Wal-Mart Stores, the largest toy retailer by sales, set the focus on price for holiday toys back in October when it announced it would sell 10 of its most popular toys for $10 each. It followed by slashing prices on hundreds of other toys. Historically, the competition is around the $30-$60 price toy, says Johnson, the Dartmouth professor, but that amount has dropped to around $10 this year. Target (TGT) is also emphasizing its value toys in holiday television ads and in-store promotions. Toys 'R' Us, which emphasizes its selection in contrast to its discount rivals, has doubled the number of Black Friday "Doorbusters" it will offer more than 4,000 toys in the $10 category, says CEO Storch.

Bakugan Almost a Hit
Analysts say the closest the industry has to a breakout hit this year is Bakugan, a game based on a Japanese anime series that uses metal cards and magnetic spring-loaded miniature figurines. Toys 'R' Us was tipped off to Bakugan's popularity in its Canadian branches, Storch says. Wal-Mart put a Bakugan starter kit on its roster of $10 toys.

Still, while Bakugan has been selling well, Johnson says it has more to do with the price point being right than generating the same "passion level" as hit toys of years past. Furthermore, "Bakugan does not have the true cross-gender appeal of a true must-have like Tickle Me Elmo," wrote Gerrick Johnson, an analyst with Bank of Montreal Capital Markets, in a recent report. But even if toy sellers tickle kids' ardor with a new Wii or Elmo next year, a moribund economy could dampen actual buyers—the parents.

McConnon is a staff editor for BusinessWeek in New York.