U.S. toy makers may have trotted out a laughing Elmo, a life-sized miniature pony and a digital camera for 3-year-olds this year, but the new products may not be enough to pull the industry out of a slump.
The U.S. toy industry rang up $12.7 billion in sales this year through October — down 2.4 percent from a year ago, according to market research firm NPD Group.
That puts November and December on the hot seat to pull in $9.1 billion in sales if the industry hopes to at least match last year's total of $21.8 billion.
That could be a stretch since NPD said November and December usually account for 33 to 37 percent of total year sales — not the 42 percent needed to match last year's numbers.
"It definitely looks like the industry might be down again this year," said NPD industry analyst Anita Frazier said on Wednesday.
Looking for a turn around
Toy makers entered the holiday season hoping 2006 would mark the year the industry started to turn around.
After being hit by years of pricing competition, slipping sales, higher costs and a struggle to evolve as electronics lured away once loyal customers, there were signs business could start to turn around.
Specialty toy retailers are on firmer footing this year, with KB Toys no longer under bankruptcy protection and Toys "R" Us operating under a new management team.
The industry also entered the holiday season with early buzz after Mattel Inc. released in September T.M.X. Elmo, which laughs when tickled. The doll is so popular it has been in short supply since the launch.
But challenges continue to hound the industry.
According to NPD, discount stores like Wal-Mart and Target Corp. are grabbing a larger share of toy sales, pressuring toy companies' ability to raise prices.
Two new video game consoles also were launched the week before Thanksgiving, taking away dollars that could have been spent on traditional toys.
"Children are losing interest in toys at younger ages and turning to video games, DVDs, iPods, Web surfing, MySpace and instant messaging for entertainment," ratings agency Standard & Poor's said in a report on Wednesday.
The traditional toy industry has suffered sales declines each year since 2002, and video games will be a permanent competitive pressure, S&P said.
NPD's latest sales numbers do not include November or the Thanksgiving weekend that kicks off the holiday shopping season.
On Monday toy executives were optimistic about how the weekend sales rang up.
"Through the weekend, I thought it was much more active than it had been in the last couple of years," said Neil Friedman, president of Mattel Brands, of the activity he saw in stores over the holiday weekend.
KB Toys said its sales were higher than a year ago, with strong sales over the weekend in board games, toys related to movies, and Speed Stacks — which involves stacking up and down Speed Stack cups as fast as possible.
"We are cautiously optimistic regarding holiday toy sales for 2006," wrote Citigroup analyst Elizabeth Osur in a research note November 26.
Rather than compete on price, specialty toy retailers are trying to compete by offering more products and trying to keep them in better stock than their competitors.
"We don't ramp up our space for the holidays and then ramp it right back down after the holiday," said Gerald Storch, chairman of Toys "R" Us, in an interview on Monday.
But Toys "R" Us is looking well beyond traditional toys to boost sales and store traffic. It partnered with Nintendo Co. Ltd. for the U.S. launch of its Wii video game console November 19, drawing thousands of shoppers to its stores.
"The toy industry is still trying to shake itself out -- figuring out how to deal with Wal-Mart, how to deal with Target," said FAO Schwarz Chief Executive Officer Ed Schmults in an interview on Monday.
"These next couple years are really going to be interesting."