Toy makers focus less on price, encouraged by shoppers' willingness to splurge

When Spin Master Ltd. started peddling its Air Hogs Zero Gravity vehicle two years ago, retailers doubted whether parents would be willing to pay $59.99 for a radio-controlled toy - even if it climbed walls.

But the item ended up being a hit and was followed by the equally popular $79.99 Storm Launcher. This year, Spin Master is pushing a $110 Robo Copter that transforms from a robot to a helicopter.

"This just proved to us that if it is a great toy, provides a wow and introduces new functions, consumers are willing to spend the money," said Harold Chizick, vice president of global promotional marketing for the Toronto-based toy maker. "We just decided to step it up."

For years, the increasing power of discounters like Wal-Mart Stores Inc. kept the toy industry locked in fierce price wars. But the toy makers are encouraged by parents who last holiday were willing to spend $300 on Hasbro Inc.'s robotic Butterscotch pony and $249 for a Mindstorms NXT robotics kit from Lego Systems Inc. As the annual American International Toy Fair starts Sunday, the toy makers are getting bolder when it comes to pushing pricier, higher-quality toys.

Zizzle LLC., which did well with its $300 pinball machines last year, is adding more lights and sounds, and increased the price to $350, according to CEO Roger Shiffman. MGA Entertainment Inc., the maker of the popular funky Bratz doll, is coming out with toys that break the $150 barrier; last year, the threshold was $100.

Among the items at the fair, which features toys expected in stores later this year: Hasbro's $69.99 Squawkers McCaw Parrot, which repeats words and responds to touch; Mattel Inc.'s Fisher-Price guitar system, priced at $99.99, that plugs into the TV; VTech Holdings Ltd.'s $99.99 Gadget, which functions as a digital photo and video camera and music player; and Spin Master's $80 Wheels 'n Whistles foam coach.

"This game is about better quality," said Ronald D. Boire, president of Toys "R" Us's U.S. toy business. "It is not about plastic by the pound. We have been playing plastic by the pound for way too long." He said Toys "R" Us will be making a bigger push to carry higher-grade toys.

Consumers' willingness to spend on toys is helping to revive the toy industry, after struggling for several years with declining sales as kids opted for digital music players and video games.

Last year marked the first time U.S. traditional toy sales rose in several years, albeit only slightly, according to NPD Group Inc., a research company based in Port Washington, N.Y. Traditional toy sales - excluding game consoles and related items - eked out a 0.34 percent rise to $22.3 billion compared to $22.2 billion in 2005, and $22.7 billion in 2004. Meanwhile, the average ticket price for toys rose 5 percent in 2006 to $7.52, compared to $7.17 in 2005 and $6.97 in 2004, according to NPD, whose figures are based on a consumer survey.

Wedbush Morgan Securities analyst Sean McGowan and other toy analysts believe that NPD's figures understate the improvement. They cite that Toys "R" Us Inc., which is under new ownership and management, had its best holiday season in several years. Privately-held KB Toys, which emerged from bankruptcy in 2005, is also showing signs of improvement.

Business at the nation's top two toy makers is also strengthening. Mattel Inc. posted a 3 percent profit gain for the fourth quarter, boosted by a turnaround of its iconic Barbie line and strong sales of Fisher-Price toys, including the popular T.M.X. Elmo doll, one of the hottest sellers for the holiday 2006 season. Barbie sales increased 3 percent in the United States, the fourth consecutive quarter of domestic growth. Mattel is unveiling Chat Divas at the fair, Barbie dolls that move and lip sync to music hooked up to Apple Inc.'s iPod digital music player and can also chat on the phone.

Hasbro is expected to announce solid fourth-quarter results Friday.

"Two thousand six was the first year that I think there was definitely a lot of creativity and a lot less reliance on retro, classic toys," said Gerrick Johnson, a toy analyst at BMO Capital Markets.

Microchips have come down in price, enabling toy companies to make more advanced toys that are still affordable. Zizzle's Shiffman noted one of last year's toys - Lucky, a $39.99 interactive dog that obeyed 15 different commands - would have sold for $150 five years ago.

At least 50 percent of the toys that will be sold in stores this year will have some sort of microchip in them, according to Jim Silver, editor-in-chief of Toy Wishes, a trade publication.

But toy analysts say shoppers are still discerning. Playmates Toys Inc., which had a surprise hit with its $100 Amazing Amanda doll in 2005, failed to replicate its success last holiday season with Amazing Allysen because the interactive dolls were too similar, according to Silver.

And the threat of new hot gadgets is not going to go away. The toy industry has to keep coming out with innovative items, said Mattel president Neil Friedman.

"When we have great toys, the consumer comes back to the toy department," he said. "Can the toy industry and other industries co-exist? Absolutely. Consumers will buy what the child wants."

On the Net:

www.hasbro.com
www.kbtoys.com
www.mattel.com
www.toysrus.com
www.zizzle.com