Retailers Hoping for a Holiday Shopping Miracle

Elmo Live retails for $20 more than the 2007 version.
Elmo Live retails for $20 more than the 2007 version. (Business Wire)
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By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, October 21, 2008

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. Yesterday, Mattel warned that more increases are likely for next year. 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 $466.13 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 has already 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 yesterday 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 yesterday in a conference call with analysts.

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.

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