Competition in toys is not child's play Retailers seek boost at holidays, as buyers have many choices

Retailing

November 29, 1998|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

This year it's Furby and Teletubbies -- and retailers can't stock the popular toys fast enough.

But whether or not such best-sellers will give the toy industry a much-needed boost remains unclear at the crucial end of a year in which sales are expected to creep up a modest 1 percent and no single, hot new toy appears poised to sweep the nation.

Many retailers are finding a need to generate their own excitement -- especially as toy retailing becomes more and more fragmented. Some are offering exclusive toy packages; others are distancing themselves from the mass market by stressing educational toys or one-on-one service.

With shopping choices ranging from Wal-Mart to Zany Brainy to the Internet, today's consumers are no more likely to shop Toys 'R' Us than a neighborhood toy shop. And Toys 'R' Us, like much smaller competitors, has felt the sting of the discounters.

Wal-Mart, Kmart and Target have all stolen customers by expanding with bigger stores and lower prices, at first drastically undercutting Toys 'R' Us to get people into the stores, then appealing to consumers' desire to find everything from toys to towels to tennis shoes under one roof.

"The discount chains have really used the toy business as a reason for consumers to come in and shop," said Brian S. Postol, a retail analyst with A. G. Edwards in St. Louis. "Most people realize they can go to Wal-Mart and buy toys, and find them at or below [other retailers'] price. So there's no reason to go to Toys 'R' Us."

Consumers are also finding they can avoid crowds and parking hassles and buy toys online. Manufacturers such as Mattel, Hasbro and Brio sell through sites such as eToys, while retailers Wal-Mart, Sears and even Toys 'R' Us sell over the Internet. Five years from now, online sales are expected to account for about 5 percent of all toy sales, consultant Forrester Research estimates.

One of the original "superstores," Toys 'R' Us had succeeded in capturing a growing share of a U.S. retail market once dominated by mom-and-pop stores; the chain's market share peaked at 21 percent in 1993, said Ed Roth, president of leisure activities for NPD Group, a marketing research company.

But its market share began slipping, to 18.4 percent by last year. For the past four quarters, the world's biggest toy retailer has reported lower earnings; the most recent, its third quarter, which ended Oct. 31, saw its profit tumble 57 percent before charges to $20 million.

The company shut stores and distribution centers and fired thousands of workers as it headed into the holiday season -- a period that accounts for 80 percent of its earnings. The company is also redesigning stores, broadening merchandise to stock more electronics and clothing through clustered sections called Media World, Kids Apparel and Deal World.

For Toys 'R' Us, the nature of competition has changed from the 1980s, when the chain went head to head with oth- er supermarket-style toy stores. The weaker chains have disappeared, and the mass discounters' buying power allows them to extract advantageous deals from manufacturers.

"Once they were gone, that left Toys 'R' Us competing with people like Wal-Mart, who are tough competitors and who are not going to go away," said Sally Wallick, a retail analyst with Legg Mason Wood Walker Inc.

In the Baltimore region, "Wal-Mart and Target have been opening more stores in the past two years," Wallick said. "Target has come in in a very big way. To the extent that all of those stores have toys, than naturally their share goes up as they open more stores."

Wal-Mart could actually overtake Toys 'R' Us this year in toy sales, analysts say. But the retail giant is leaving nothing to chance, stocking up on toys rooted in television or movies -- typical sure bets.

The anticipated top sellers: Teletubbies, the plush, talking dolls based on the PBS program; Rugrats dolls; action figures from "A Bug's Life"; and, through a partnership with Dreamworks Pictures, "The Prince of Egypt" gift packages -- two movie tickets, a compact disc, a collector's edition storybook and a limited-edition lithograph for $19.96.

But even those selections could be outdone by "Furby," the "animatronic" pet that dances, wiggles its ears and speaks "Furbish."

"That is a product that's sold out in most of our stores," said Laura Pope, a Wal-Mart spokeswoman. "As soon as we get it into our stores, the same day we're out of it."

Kmart

At Kmart, the toy department has grown more rapidly than the company as a whole over the past decade, said Joe Hofmeister, toys merchandise manager for Kmart.

"Toys at this time of year are tremendously important to Kmart, from a sales standpoint and from an image standpoint," he said. "It's one of the largest volume departments during the 60-day time period. More and more people tend to select discount retailers in the toy department to purchase their toys for Christmas."

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