Nov. 15 (Bloomberg) -- Selling retailers on this season’s must-have toy, robotic hamsters called Zhu Zhu Pets, was like gambling millions in blackjack, said creator Russell Hornsby.

“This is a Christmas where a lot of people didn’t want to take big risks,” Hornsby, 56, founder and chief executive officer of closely held Cepia LLC, said in a telephone interview. “You’re gambling because you’re selling to kids. That’s a pretty fickle group.”

The bet is paying off. U.S. and U.K. retailers, such as Wal-Mart Stores Inc., Target Corp., Toys ’R’ Us Inc. and Tesco Plc, can’t keep them in stock. Target is limiting them to four per customer. Some parents are resorting to Amazon.com, where the critters sell for at least twice the $8-to-$10 price.

“It’s the hottest toy I’ve seen since I’ve been at Toys ‘R’ Us, and old-timers tell me this is one of the hottest toys in history,” said CEO Jerry Storch, 53. He has been at Toys ’R’ Us for almost four years.

A must-have toy may spur more foot traffic and purchases at retailers, and Zhu Zhu Pets is the first since Mattel Inc.’s 10th anniversary Tickle Me Elmo in 2006 to spark as much buzz, said Gerrick Johnson, an analyst at BMO Capital Markets in New York. He projects sales of $50 million this year.

U.S. consumers plan to spend 30 percent less this season, according to a survey by Port Washington, New York-based NPD Group Inc.

Growth Spurt

Target, Walmart and Toys ’R’ Us declined to say how many Zhu Zhu Pets they’ve sold this year.

“We are taking shipments in every week, but the little hamsters do sell quite fast,” said Melissa O’Brien, a Walmart spokeswoman. “Some are not even in the stores overnight.”

Cepia has 16 U.S. employees, most in its St. Louis office, and 30 in Guangdong province, China. It started with one Chinese factory that in August made 600,000 hamsters for U.S., U.K. and Australia markets, Hornsby said. Today, four factories churn out 220,000 a day, with plans to release about 50 new characters next year.

For now, Mr. Squiggles, Patches, Chunk, Pipsqueak and Num Nums, plus a bevy of accessories, will generate $350 million to $400 million in a 12-month cycle, Hornsby said. The hamsters move around and respond to touch with various noises.

Christy Sershon, a 39-year-old mother in Duluth, Minnesota, heard about them from her 3-year-old daughter, who asked for one after seeing it advertised on television.

“Once the commercials started, all the little kids couldn’t stop thinking about them,” said Sershon, who also has 5-year-old and 8-month-old sons.

Surprise Entry

With no major toy store nearby, and unwilling to pay $29.99 online, Sershon called friends in Minneapolis to see if Toys ’R’ Us had them in stock. It didn’t. She was finally able to buy three in a local Walmart in September.

“They flew under the radar screen,” BMO’s Johnson said.

Hornsby was also surprised. He founded his first toy company, Trendmasters, in 1989, selling it to Malibu, California-based Jakks Pacific Inc. in 2002 for an undisclosed amount. He started Cepia that year making battery-powered sprayers and designing toys on the side. Now, two of his three daughters, Natalie, 23, and Ashley, 29, work for the company.

He said he created Zhu Zhu Pets in October 2008, approaching retailers in January, when the economy made it tough to persuade them to commit. Toys ’R’ Us, a closely held company based in Wayne, New Jersey, and Walmart, based in Bentonville, Arkansas, said yes. Target, in Minneapolis, agreed in July.

Another Beanie Babies?

Walmart, the world’s largest retailer, lost 4 cents to $53.20 on Nov. 13 in New York Stock Exchange composite trading; it has slumped 5.1 percent this year. Target advanced 6 cents to $48.99, bringing gains to 42 percent this year. Tesco closed at 425.75 pence in London trading.

Hornsby said Zhu Zhu Pets have been compared to Beanie Babies, made by Westmont, Illinois-based Ty Inc., and selling for about $5 to $10. That would be “the platinum, the highest bar to reach,” Hornsby said. Forbes on Sept. 30 estimated the net worth of Ty Warner, 65, their creator, to be $3.2 billion.

Zhu Zhu Pets don’t have the broad appeal Beanie Babies had years ago, when collectors paid as much as $2,000, said Chris Byrne, a New York-based toy-industry analyst and content director at the trade Web site TimetoPlayMag.com.

“The cachet with Beanie Babies was they had a financial value that Cepia doesn’t have right now,” Byrne said. “Nobody is thinking yet they’re going to put their kid through college on buying this.”

Facing competitors next year, Cepia must build brand loyalty and keep the product “fresh,” Johnson said. “In the toy industry, if you have something that’s successful, competitors are quick to imitate.”

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

Last Updated: November 15, 2009 00:01 EST