Retailers hope for a holiday miracle

Businesses are nervous as consumers are expected to cut back gift giving.

Washington Post

WASHINGTON — Toys cost more to make this year. Parents are feeling poorer than they did last holiday season. Can Santa work his magic?

Toymakers and retailers hope so.

Mattel and Hasbro, two of the largest toy manufacturers, have raised their prices this year because of higher costs of labor and materials. That has put pressure on retailers, which have already begun slashing prices on products ranging from doll strollers to Hot Wheels to drum up traffic in their stores. One industry report estimated that toy sales have been essentially flat over the past year.

“Christmas comes every year, but people don’t have to spend the same amounts that they spent last year,” said Gerrick Johnson, an analyst with BMO Capital Markets. “It’s tough out there.”

Shoppers are expected to make their lists and check them for price. According to data from the National Retail Federation, a trade group, shoppers are expected to spend an average of $466 this year on gifts for their family — $3 less than last year.

Parents may opt for one big gift for the entire family rather than several smaller presents, the group said. But Jonathan Samet, publisher of Toy Insider and several other trade magazines, said he thinks parents will be spreading their budgets across several less-expensive gifts. For the first time, he picked several products that cost less than $10 for his annual list of hot toys.

Those budget gifts include Bakugan Battle Brawlers, an action-figure card game, and stuffed animals from the popular online site Club Penguin.

“There are many consumers that are going to be more value-conscious,” said Anita Frazier, an analyst with market research firm NPD Group. “I think they’re going to be scrutinizing their decisions more, and there could be less impulse-purchase behavior.”

Apparently, toy-buying already has begun to change. Frazier said the toy industry’s sales in the 12 months that ended in August were flat at $22.2 billion compared with the previous year. But the average price of a toy rose nearly 6 percent, to $7.74, as manufacturers passed on their increased production costs and more expensive electronic toys grow in popularity.

Among those electronics are Hasbro’s FurReal Friends animatronic pets, which respond to touch and sound. For example, Biscuit, a golden dog, obeys simple commands and whimpers when it’s hungry — and retails for a suggested $179.99. The latest installment in Mattel’s popular Elmo series, Elmo Live, waves its arms and crosses its legs as it plays recorded jokes and stories. It sells for about $59.99, about $20 more than last year’s version.

Mattel said it was likely to raise its prices next year after increasing them by mid- to high single digits this year. Hasbro raised its prices in September as labor costs in China rose about 30 percent, executives said.

But the higher prices have done little to offset those costs, and profits at both companies were squeezed during the third quarter. Hasbro earnings fell 14 percent to $138.2 million, though U.S. and Canadian sales were up 6 percent. Mattel’s profits grew by a sluggish 1 percent, to $238 million, during the third quarter, and its U.S. sales rose 4 percent. Its expenses also included legal fees related to its lawsuit over MGA Entertainment’s Bratz dolls and last year’s toy recalls.

“Every year at this time some event arises that gives folks in the toy industry what I like to call the early fail jitters,” Mattel chief executive Bob Eckert said. “My bet is there will be a Christmas.”

But retailers don’t seem to be taking any chances as they brace for a bruising battle for shoppers’ wallets.

Wal-Mart threw the first punch when it announced last month that it was selling 10 popular toys for $10, including a butterfly Barbie, the Clue board game and the FurReal newborn animals. It also cut prices on 10 of the dozen toys on its annual hot list by as much as $10 a week ago.

“We continue to believe that the strong Wal-Mart value proposition is bringing more and more customers to our stores,” company spokeswoman Tara Raddohl said. “We are confident that the customers will continue to shop with us as we enter the holiday season.”

Retailers expressed hope that the toy industry will prove to be if not recession-proof, at least recession-resistant. Roughly half of all toy sales occur during the holiday season, and retailers were cautiously optimistic that parents would still be putting packages underneath the tree.