As holidays near, cute and collectible reign among toys; can they duplicate Zhu Zhu success?

By Mae Anderson, AP
Tuesday, September 21, 2010

Cuteness likely to rule the holiday toy roost

NEW YORK — It’s getting crowded in the race to succeed Zhu Zhu Pets as the next hot holiday toy.

From plush dolls that harmonize to tiny people and animals stored in bubbles in toy vending machines, collectibility and cuteness are off the charts for this year’s toys.

But with so many toys vying to win “Most Adorable,” it remains to be seen if any will duplicate the runaway success of the Zhu Zhu Pets, toy hamsters that squeak, zoom around on wheels and sell for just $10.

For toy sellers, making the right picks early is crucial so they have the right mixture of toys at the right prices to lure gift givers to buy. The right bet can mean the difference between being in stock or out of the year’s must-have playthings in a season that can account for the bulk of a toy retailer’s annual profit.

Toys R Us, which came out with its “hot toy” list on Tuesday, is betting on a few contenders for the cute crown. Those include Blip Toys’ Squinkies, tiny figures that fit inside a toy dispensing machines and come in 16 packs for $10; Mattel Inc.’s $12.99 Sing-a-ma-jigs, colorful plush dolls that harmonize; and $19.99 Pillow Pets, stuffed animals that convert into pillows.

The holiday season is crucial for toy makers, which can make up to half of their annual revenue during the fourth quarter. While toys are relatively recession-proof, because parents cut back on themselves before their children, they are still affected by a down economy.

The NPD Group, which does market research, said toy revenue was flat because of discounts during last year’s holiday quarter, but the industry sold 4 percent more toys. For the year, revenue edged down 1 percent to $21.47 billion.

BMO Capital Markets analyst Gerrick Johnson expects that to reverse this year with a 2 percent gain for the year.

For the most part, toy prices will remain low, Needham & Co. analyst Sean McGowan said, because toys new this season were likely developed during the recession.

Rather than being made more expensively and then discounted, “they’ve just been engineered and sold at lower prices without sacrificing margins,” he said.

But there are some signs that the total focus on low prices, ever-present over the past two years, is easing. Toys R Us plans to open 10 temporary stores for its higher-priced FAO Schwarz brand. And for the first time Hasbro is offering an “Ultimate Gifts” line, including a $299 Furreal Friends Butterscotch pony and a $119.99 Scrabble premier wood edition, online only.

Still, the majority of toys this year will be under $25, particularly collectibles.

Cepia LLC introduced new lines of Zhu Zhu pets this year, including hamster babies and a Kung Zhu set of hamsters that battle in an arena for boys. Still, most do not believe the lines be the stellar sellers they were last year.

“Supply had definitely caught up with demand on Zhu Zhu pets,” Johnson said.

Hasbro is pushing Furry Frenzies, animals that skitter around, that retail for $8 each.

Another cute collectible: Zoobles. The line includes brightly patterned creatures that fold up into a ball but pop open when placed on top of a magnetized stand. They sell for $5.99 for one and $9.99 for a two-pack. They’re made by Spinmaster, known for its Baukugan Battle Brawlers game that uses similar balls that pop open magnetically.

While it is too early to tell if there will be a true breakout this holiday season, analysts are already taking note that Zoobles have been scarce on store shelves.

“I was in a bunch of stores last week, and I couldn’t find any (Zoobles) actually in stock,” said McGowan.

Squinkies have been scarce as well. Bill Nichols, president and co-founder of Squinkies maker Blip Toys in Minnetonka, Minn., said he was inspired to create Squinkies by dispensing machines found in grocery and convenience stores. Squinkies toy dispensers double as play sets for Squinkies, which each come in a plastic bubble.

Nichols said it is exciting how fast the toys have caught on since their debut in August.

“Everybody has been saying we captured lightning in a bubble,” he said.

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