Future Shock for Barbie and GI Joe

Classic toys are struggling to compete with the increasingly mature and technologically advanced diversions today's kids love

By Pallavi Gogoi

Kelly Wei, an 11-year-old, is browsing through new electronic-game releases in the popular R Zone section of the huge Toys 'R' Us (TOY ) flagship store in Times Square. Wei has never played with Barbie dolls and doesn't plan to. She prefers video and electronic games. "In the Smash Brothers game you can challenge people to fight and do exciting moves," says Wei, hugging a Pokemon game she hopes to get for the holidays.

With kids like Wei, Barbie just isn't as hot as she used to be. Nor are GI Joe and Hot Wheels. These traditional playthings are getting serious competition from the likes of Microsoft (MSFT ) and Sony (SNE ) and even Internet sites that offer games.

GROWN-UP ENTERTAINMENT.

  Statistics show that big brand-name toys don't sizzle like they used to. Barbie sales dropped 26% in the U.S. and sagged by 13% worldwide in the third quarter. Hasbro's (HAS ) core brands, which include GI Joe, declined 4.5% in the first three quarters of the year. Overall sales of toys, video games not included, are down 3% year-to-date, according to NPD Funworld, a consumer-products research firm.

Children are increasingly turning to more grown-up kinds of entertainment. Electronic games and lifestyle products are what they want. "You're dealing with 21st-century children who are hot-wired into an electronic system," says Robert Passikoff, president of Brand Keys, a New York City brand consultancy.

At the same time, technology has opened the door to a vast selection of games. Microsoft sold 2.4 million copies of its Xbox game Halo 2 on the first day of its release, Nov. 9. Electronic Arts (ERTS ) sold 2 million units of Madden NFL Football in its first five days on the market. Some analysts expect the video-game software business to grow by 10% in 2004, up from last year's $4.9 billion in sales.

SOPHISTICATED KIDS.

  It's not just video games that are taking the place of big-brand toys. "Kids are even forgoing toys and saving up for CDs or an iPod," says NPD's Michael Redmond. And preteen girls and boys, termed "tweens" by marketers, are using more of their money to buy not-so-childish products like makeup, jewelry, and body spray. To meet this demand, companies like Unilever (UL ) and Procter & Gamble (PG ) have launched brands like Axe and Red Zone. Claire's Stores (CLE ), a jewelry and accessories chain for young girls, has been a huge success.

Mattel (MAT ) and Hasbro are hardly ready ready to give up on their core brands. Bob Eckert, Mattel's CEO, plans to overhaul the Barbie brand, infusing her with an edgier lifestyle, and has launched a clothing line and an ad campaign promoting the made-over doll. "Our latest subline, Fashion Fever, is designed to rebuild Barbie's fashion-forward image with girls," says Eckert in a conference call with analysts after releasing dismal third-quarter earnings Oct. 13. At the same time, Hasbro chief Alfred Verrecchia plans to "work on" GI Joe to power up his image.

Yet some experts bet these efforts to save classic toy brands may be in vain. The latest research shows that the surge in technology use has resulted in a spike in children's knowledge development. So, at a younger age, kids have the intellectual capacity and digital dexterity to not only surf the Internet but also play games that are more complex.By Pallavi Gogoi

BEING AN ACTION FIGURE.

  At the same time, technology has opened the door to a mind-numbing diversity in game choices. "Children are an extremely well-informed demographic, and companies that deal with them have to accommodate that," says Dennis Perry, founding partner at The Youth Trust, a marketing services company that monitors youth behavior.

If they bother with them at all, kids stop playing with Barbies and GI Joes at younger ages. In a study, the Youth Trust's Perry found that parents still buy Barbie dolls and Hot Wheels cars for children under 5, but 46% of these kids like to play outdoors, while 17% are allowed to watch or play some video games. However, the choice of games shifts pretty dramatically as soon as the kids turn 6. In youngsters aged 6 to 8, 40% favored playing outdoors, and 30% preferred video games. Playing with toys dropped from 25% for kids under 5 to zero interest after the age of 9.

Take teenagers Johan Herrera and Derrick Burgos, who were also shopping for games in Times Square. Now 14, they have been playing video games since they were 2, and neither has ever played with action figures. Herrera says he's hooked on Grand Theft Auto: Vice City. Burgos likes Need for Speed Underground. "You can be whatever you want in these games. I'm not a criminal, but I can be one in the Grand Theft Auto game, and I love it," says the dimple-cheeked Herrera.

As Jason White, an associate editor at toy industry trade magazine Playthings in New York City, says, "Why play with an action figure when you can be the action figure?" White notes that video games for children as young as 4 are also becoming popular.

UPHILL STRUGGLE?

  Toymakers believe there's money to be made in dolls and other traditional toys. Some point to the success of Bratz, the flashy, multiethnic dolls with attitude, which have stolen market share from Barbie. But MGA Entertainment, the privately held outfit that makes Bratz, isn't banking on the success of these dolls on their own: It's extending the brand into bikes, CD players, and shoes.

Mattel's Eckert is bent on capitalizing on the popularity of TV's American Idol with a new line of Barbies. These dolls will be on the market in January, timed with the launch of the show's new season, he says. Still, some worry that while Barbie line extensions have been around for years, past successes will be hard to replicate in a world where the competition for kids' minds and wallets is so intense. "If people are buying New York Yankees Barbies, they're not buying the Barbie doll, they're buying the Yankees," says Brand Keys' Passikoff.

Giant toymakers will struggle to hang onto today's savvy, young, informed customer. Surely they realize that an American Idol Barbie won't be quite enough to lure young tech enthusiasts like 11-year-old Wei back to the doll aisle for long.

Gogoi is a writer for BusinessWeek Online in New YorkEdited by Amy Tsao

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