Word: toy
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...Toy companies, of course, have long seen this coming. Mattel attempted to get into educational software in the late 1990s, spending $3.6 billion to buy the Learning Company. But "Mattel just didn't understand the software business," says analyst Gikas. The blunder led to more than $400 million in losses and cost then CEO Jill Barad, who had revived Barbie, her job. Under CEO Robert Eckert, Mattel got back to building basic brands like Barbie and Hot Wheels. But Barbie's sales slump--domestically down 21% this year through September--may also be a victim of kids growing older...
...deeper issue is that shifts in play patterns are forcing toymakers to fight for shelf space in a tightening market. Boys in particular seem to be abandoning traditional toys at earlier ages in favor of consumer electronics, trendy video games, PC software and the Internet. The notion that kids are growing more sophisticated and tech savvy, a trend called age compression, has bedeviled toy companies for at least a decade. While young children still role-play with dollhouses and Tonka trucks (and cheap plastic toys will always play their pacifying role on shopping trips), the market for action figures...
...runaway smash alone would not solve the woes of the toy business. Toy stores see little Christmas cheer in tackling the big-box discounters Target and Wal-Mart, and many are shutting down. Since last season's brutal price war--led by Wal-Mart--KB Toys and FAO Schwarz have closed roughly 600 stores between them. Toys are increasingly merchandised as impulse items at drugstores, supermarkets and even coffee shops. Starbucks has sold loads of the Cranium board game. KB, operating under bankruptcy protection, says it will close 164 of its remaining 820 stores in January. FAO now consists...
What really worries manufacturers is wobbly Toys "R" Us. The retailer recently put its toy stores up for sale and plans to focus on its fast-growing and less seasonal Babies "R" Us stores. Buyout firms are circling--quite the comeuppance for a company once feared as the Darth Vader of mom-and-pop toy shops (a helmet now worn by Wal-Mart). Analysts expect dozens if not hundreds of Toys "R" Us stores to close next year--funneling more shoppers to the discounters where they can just as easily pop a Harry Potter DVD in the cart and scrap...
...popularity of retro items like My Little Pony also suggests that when kids do want traditional toys, the classics resonate. "Kids love horses and playing with hair, and My Little Pony speaks to that," says toy expert Byrne. A recent survey by the consulting firm Funosophy found that kids 6 to 8 prefer toys over consumer electronics 49% to 30%. Trouble is, kids a little older (9 to 11) favor the electronics...