by Doug Desjardins
In any given year, toy manufacturers count on Christmas sales for about 40% of their annual revenue. And this year, retailers are helping them reach that goal with a prolonged price war that began back in October. 
The competition this year is more intense than ever as Wal-Mart and Toys “R” Us, the #1 and #2 toy retailers respectively, have lowered prices on hundreds of toys to drive customer traffic. In October, Wal-Mart announced it would offer 100 toys for under $10 during the holidays only to be outdone by Toys “R” Us, which will stock more than 1,000 toys for under $10. Toys “R” Us also released a holiday circular in early November loaded with coupons and advertising a “Big Holiday Toy Sale” with offers ending on Nov. 25, the day before Thanksgiving (the second round of sales is expected to be even more promotional). And Midwest super-center chain Meijer has stepped up its toy promotions, cutting 30 percent from its prices and beating Wal-Mart, Target and Toys “R” Us on price for many hot items.
In the past, price wars were bad news for toy suppliers because they usually resulted in lower revenues and profit margins. But times have changed. Toy sales have been flat or down every year since 2002 and fell 3% to $21.64 billion in 2008, according to the NPD Group. Toys sales were down 2% during the first nine months of the year and are expected to drop 1% for the holidays.
Suppliers are doing their part this year by providing more low-priced product. Mattel has priced 80% of its toys under $30 and Jakks Pacific has done the same with a majority of its toys in the $10 to $30 range.
One of the biggest problems for consumers and retailers this year may be supply. After being caught with excess inventory during the holiday season in 2008, retailers cut back on orders to make sure they wouldn’t get caught by surprise again. As a result, they are warning customers that hot items like Zhu Zhu Pets - mechanical hamsters priced at $9.99 - and the flexible fashion dolls Barbie Fashionistas are already in short supply and are running out fast.
“Inventories are so tight that anything in high demand will be promoted with the notion that if you want it, you’d better buy it now,” said toy industry analyst Chris Byrne, adding that “if you don’t get them (hot toys) by Dec. 1, they’ll probably be gone.”
Resources
Meijer Wins Battle of the Toy Books
U.S. Industry Toy Sales Generate $21.64 Billion in 2008
Robotic Hamsters Sell Out at Wal-Mart
Before Black Friday: Where the Holiday Deals Are Right Now
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