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Tough economy leads to trying times for toy makers

Among popular items this holiday season are retro toys such as Teenage Mutant Ninja Turtles, Furby and Lego, he said. The shopping period can ring up as much as 40 per cent of toy makers’ annual revenue.

Marko Metzinger/Studio D/AP

The sluggish economy has resulted in fewer investments in developing new toys and a lack of must-haves this holiday season, threatening to leave retailers with the sharpest toy sales declines in more than three decades.

North American toy sales are falling by an estimated 5 to 6 per cent so far this year, as few new innovative toys come to the market and consumers in the recovery mode shell out for a trip to Disney World rather than another Barbie doll.

As a result, Gerrick Johnson, toy analyst at BMO Nesbitt Burns, expects "another difficult and disappointing holiday season for the toy industry," he told a BMO analysts' conference call on Thursday.

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The toy industry's trouble isn't new, but it's more pronounced this year as tech giants launch more game apps for tablets and smartphones that draw children from traditional toys, while toy makers have been loath to invest too heavily in innovations in shaky times.

And while industry leader Mattel Inc. reported strong third-quarter results, helped by healthy sales of its Monster High Dolls and Fisher Price toys, rival Hasbro Inc.'s performance was hurt by weakness in toys for boys and preschool children.

Retailers are taking a cautious approach, having significantly lowered inventory levels in the U.S. and Canadian markets, Deborah Thomas, chief financial officer at Hasbro, told a recent analysts' conference call.

Mr. Johnson predicted that the estimated $21.2-billion (U.S.) of annual U.S. toy sales will fall by 3.5 per cent in 2012 – and 2.5 per cent during the crucial holiday season – producing the sharpest drop since he began tracking toy sales in 1980. He said the trends are similar in Canada.

Other analysts also forecast a tough year in the sector. Year-to-date, toy industry sales were off by between 5 and 10 per cent, Michael Kelter, an analyst at Goldman Sachs, said during a recent Mattel conference call in mid-October. Mr. Johnson estimated that those sales have dropped 5 to 6 per cent so far this year.

Retailers are racing to lure toy shoppers with more promotions, price-match policies and layaway plans. The main problem? "A lack of cool toys," Mr. Johnson said. "We see no products at this point that would be true must-have items, like the Zhu Zhu pets were a few years ago … Over all, manufacturers have been very cautious about research and development."

Toy makers take 18 to 24 months to develop a product, and little of this work was being done in the past two years in the tough economy, he said. "Any risky projects were likely shelved and only safe bets were brought forward. In the toy industry, safe usually means boring."

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Among popular items this holiday season are retro toys such as Teenage Mutant Ninja Turtles, Furby and Lego, he said. The shopping period can ring up as much as 40 per cent of toy makers' annual revenue.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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