Tickle-Down Economics

Article excerpt

Halloween, now a strong second to Christmas in holiday sales, is in full swing, but retail toy chains are fervently preparing for December.

The frenzy surrounding Tickle Me Elmo, one of the decade's top-selling toys, was created not by its maker but rather by a surprise plug from TV's Rosie O'Donnell. The toy industry likely will need a similar boost this holiday season to help it avoid its first decline in annual retail sales in more than 10 years.

The complexities of predicting top sellers for the holidays a year or more in advance have taken a heavy toll on chains, most notably Toys `R' Us, the country's top toy seller. Crippled by outdated stores and a lack of hot products, Toys `R' Us saw its second-quarter earnings plummet 62 percent. It plans to close 60 stores worldwide and drastically renovate the rest.

The holiday season should determine whether the company holds on to its market-share lead. It controlled 18.4 percent of the total domestic market last year, according to market researcher NPD Group. Wal-Mart was close behind at 16.4 percent and gaining. Given the current restructuring of the New Jersey-based Toys `R' Us, many analysts are not optimistic about its short-term prospects.

"Toys `R' Us is going to lose a lot of market share, in our opinion, in the key fourth quarter because they appear to be buying very little new toy inventory," says Merrill Lynch analyst Peter Caruso. "So the stores look extremely tired."

The chain is not alone. Toy-retail sales were flat for the first eight months of 1998. "There does not appear to be an obvious toy or product line hitting the shelves this holiday season that could pull the toy industry out of its current sales doldrums," says Ed Roth, president of NPD's leisure-activities tracking unit.

The animated movies released this fall, including DreamWorks' Antz, Disney's forthcoming A Bug's Life and Nickelodeons Rugrats, may be the only hope for the industry. "There's been a lot of anticipation for those movies and toys from them," says John Reilly, spokesman for Kay-Bee Toy Stores. "The nice thing, though, is that there's been no one item that everybody wants." After experiencing Elmo shortages and the disappointed customers who result from them, the Massachusetts-based chain is hoping for several popular toys rather than just one item that captivates the nation.

"Licensing is a very important part of the toy business, but everybody's not pinning all their hopes on movies," says Terri Bartlett, spokeswoman for the TOy Manufacturers of America. "The fourth quarter is always important, and there is pressure to produce."

Two old standbys -- Barbie dolls and video games -- continue to sell well. Sony PlayStation and Nintendo 64, the most popular video-game systems, will release a steady stream of new titles. Mattel Inc., maker of Barbie, is pushing a Women's National Basketball Association Barbie endorsed by star player Rebecca Lobo. …

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