By Nanette Byrnes Let's be honest: Toymaking is a tough business. Of the thousands of companies in it, only a small fraction actually sell more than $1 million of merchandise annually. Making a profit? Well that's even tougher.
Yet year after year, toymakers persevere, searching for the next Cabbage Patch Doll or Pokemon. So it wasn't much of a surprise on Feb. 9 when Patrick Feely, chairman of the Toy Manufacturers of America and CEO of Radica Games, boldly predicted that toy sales will increase 6% in 2001 over 2000. "We're an optimistic industry," Feely declared. Never mind that it's only February, and most toys are sold in December. Or that overall toy sales, including videogames, dropped $558 million in 2000, to $21.5 billion.
Actually, Feely has history on his side: The toy industry has never had two down years in a row, for a myriad of reasons. But there wasn't much optimism showing at the showrooms gearing up for this year's Toy Fair, the annual New York convocation of toy buyers that kicked off officially on Feb. 11. "It's not a very healthy industry right now," says Rick Goodwin, CEO of toymaker General Creation. "If I were to try to get into the business today, I probably couldn't do it."
CAUTIONARY NOTES. Those were strangely somber words coming from a former standup comic who actually had one of the few big hits of 2000 -- the 30-Second Cotton Candy Maker -- and who's company makes a product called Let's Go Potty Bear. (Among its other tricks, the bear sings a song with the lyrics "Poop poop pi doop.")
Helping to dampen the mood along New York's 23rd Street, the heart of the toy district, was an abundance of caution about the economy. Mattel, which only last year was showing its full lines on multiple floors in an entirely separate building, this year has limited its showroom to a highlights tour squeezed into the corner of one floor at Toy Fair headquarters. Dressed in a dark suit and striped tie, Mark Sullivan, senior vice-president for marketing at Mattel's Boys Entertainment division, looked out of place among the unopened boxes and workmen with buzz saws and hammers still constructing exhibits for Barbie and Harry Potter (see BW Online, 02/9/01, "Barbie Is Turning Heads on Wall Street Again").
Though rivals such as Hasbro and Bandai had already started showing their lines to big customers like Toys 'R' Us and Kmart, Sullivan says the Toy Show has become less important for Mattel this year. Now it's largely about showing highlights to the press and Wall Street analysts. That's because half of his Christmas orders are already in place for next year, and the rest of the major buyers will be flying to Arizona for Mattel's private shindig in a week and a half. "We're cutting our own path," Sullivan declares. Nearby, an actor with a plush version of Norbert -- the dragon in Harry Potter -- practices making the toy puppet giggle until he breaths fire. "It may even give some smaller companies a change to get more attention from retailers," Sullivan continues.
FEW SUCCESSES. That would be welcome news to the small manufacturers at this year's Toy Fair. As times have gotten tougher, smaller stores are being squeezed. Big buyers like eToys, which focused heavily on smaller manufacturers, have started to go out of business (see BW Online, 2/9/01, "Commentary: How eToys Could Have Made It"). At the same time, big buyers like Toys 'R' Us have greatly reduced the number of toys they carry in a typical store.
That means launching any new toy will be a harder, more expensive task than ever before, says General Creation's Goodwin. He figures that to get a big retailer interested in a product, a manufacturer has to be ready to spend $2 million to $3 million in advertising alone. And even with manufacturers kicking in the ad dollars, of the 20,000 new toys introduced in a year, he says only 400 to 500 actually make it to store shelves. High costs plus a poor Christmas have "a lot of companies going into Chapter 11," Goodwin explains, "and I hear about more everyday."
The lack of a big hit from last year's soiree -- other than the Razor Scooter and its knock-offs -- seems to have even the deepest pockets looking for a sure bet this year. The Hasbro showroom, which is just as large as last year's, is focusing heavily on licensed products. Though many toy insiders maintain that there hasn't been a breakout licensing hit since "Barney" the purple dinosaur made it big a decade ago, Hasbro is banking heavily on toys that tie in with movies or TV programs. From models of the Re-ak A-tak animatronic spinosaurus from this summer's Jurassic Park 3 to dozens of tie-ins with Hasbro's new partner Disney, you could barely take a step without falling over some licensed product.
MINI-BEETLES. The one thing saving the Toy Fair from feeling like a convention of dour CPAs are the toys themselves, which are always fun. Some are amusingly bizarre. Snubblegrass, a company founded by four Israeli Air Force veterans, is showing a line of toys, including the "Bio Security Capsule," that respond only to their owners' "bio signal," i.e. heartbeat or touch. You could see their appeal to preteens. Voice-mail pens offered by Toy Biz adapt cell-phone technology to create near-instant messaging up to 100 feet away.
For younger tikes, Mattel's Fisher Price division is offering a toddler-size battery-powered Volkswagen Beetle, complete with bud vase, which your 18-month-old can tool around in at 2.5 miles per hour for only $130 retail. Or for $25, you can get Tickle Me Elmo Surprise. It's his fifth anniversary, so now Elmo is ticklish in five places.
Will there be enough fun to pack the aisles and get sales up to Feely's prediction of a 6% increase? No one will know until December, but for the moment, toymakers seems to be playing down their natural optimism. Byrnes covers the Toy Fair every year for BusinessWeek