Irena Choi Stern is a stay-at-home mom with three kids, 7, 4, and 21 months--so she should have a pretty good bead on how the toy industry is doing this Christmas. So what's the chatter around the sandbox? Forget the lousy economy, tight consumer credit, and the fact that bankers and brokers in her Manhattan neighborhood are getting laid off right and left. "I mingle a lot with other moms, and I don't know anyone who's cutting back," she says. "People are doing without a new coat, but they're just not going to buy fewer toys for their kids at Christmas."
Funny thing. In a gloomy holiday season, the $12.5 billion U. S. toy industry is having a great year. Since January, Kidder, Peabody & Co.'s index of toymakers' stocks has more than doubled, making toys one of the year's best investments. Big companies such as Mattel Inc. and Tyco Toys Inc. reported record third-quarter profits. They see new highs in the fourth quarter, too. Unlike last year, when nervous retailers started canceling orders in November, "I've been watching our orders go up every week," says Michael J. Lyden, senior vice-president for business development at Tyco. Adds Gary S. Baughman, head of Little Tikes Co., a Rubbermaid Inc. division: "We've been operating 24 hours a day, six and seven days a week."
How is it that toys are doing so well? It's partly that even financially strapped parents still want plenty of toys under the Christmas tree. But there's more to it than that. Exports, especially to Europe, are booming. Plus, notes Mattel Chief Executive John W. Amerman, there has been "a topping off of the video craze," leaving more dollars for traditional toys. Kidder analyst Gary Jacobson estimates wholesale sales of traditional toys this year will bounce up 7%, to $9.4 billion, while sales of Nintendo and other video games will run flat at $3.1 billion (chart). Many parents who bought Nintendo's $100 8-bit game are balking at $200 for the new 16-bit machine. "It's too high," gripes Denise Cordova, a Downer's Grove (Ill.) homemaker, "and the price of the game packs is too high, too."
On top of all that, there's lots of pent-up demand. Sales were weak during the first half of the year, as parents held off buying because of the war and the recession. But kids, notes Sharon Duffield Levy, a Denver mom, don't understand recession. She was driving a car pool the other day when talk turned to gifts. Suddenly, she says, the mood in the car was, "I want, I want, I really want."
What kids are likely to get are dolls, trains, and a host of other low-priced, traditional toys. Sales of Mattel's Barbie dolls and accessories are expected to climb 8% this year, to $800 million. Hasbro Inc.'s Cabbage Patch Kids are making a comeback, with 1991 sales poised to top $100 million. Tyco expects to move 4 million of its $15 Magna Doodle drawing toy, up from 3.2 million last year. Even the venerable Etch A Sketch is doing so well that it is expected to help pull its maker, Ohio Art Co., into the black after two years of losses.
NIGHTMARE? Video-game makers aren't out of the race. Nintendo Entertainment Systems, which accounted for about 90% of video-game sales last year, expects to sell 4.5 million of its older, 8-bit games. But that's 37% fewer than last year, and most of the action is in higher-priced machines mainly bought by older kids and adults. And Nintendo has stiff competition. In September and October, their first two months on the U. S. market, 500,000 of the new Nintendo 16-bit machines were sold. Pretty good, except that Nintendo has to sell 1.7 million more by Christmas to meet its 1991 goal of 2.2 million. By contrast, reports Tom Kalinske, president of Sega of America Inc., demand for his competing $150 Sega Genesis 16-bit machine is so strong, "every phone call I get is a retailer beating me up" because Sega can't ship enough games in time for the holidays. Sega expects to sell 1.6 million units of its new game this year.
How long can the toy boom last? Little Tikes' Baughman cautions that there's still the possibility of "the toymaker's nightmare"--a sudden sag in holiday sales and lots of January discounting. Yet he and most analysts predict that eventual economic recovery and a host of new products expected at the industry's February toy fair will stop the Grinch from stealing 1992.