This Year's Holiday Hit Toy: Zhu Zhu Pets

Remember the Cabbage Patch Kids craze? The Tickle Me Elmo frenzy? Meet their 2009 brethren, Zhu Zhu Pets. The quintet of electronic hamsters has been the runaway hit of the recession-hobbled holiday season so far. The furry little, wheeled critters scoot around a Habitrail-like track, spin in a hamster wheel, and drive little hamster sports cars. The battery-powered pets coo and squeak and have a little artificial intelligence—knowing to make teeth-brushing sounds when they enter their little bathrooms, for example. "They're so real—without the mess," chirps a television commercial. They are also flying off the shelves, with many of the nation's largest retailers already out of stock. The critters were designed to sell at retail for $9.99 each but they have recently been selling for as much as $40 on (EBAY) and (AMZN). "Nobody saw these little hamsters coming," says Chris Byrne, a toy reviewer at the Web site Zhu Zhu's Path to MarketThe $20 billion toy industry has been declining for years, as kids increasingly trade traditional toys for video games and other consumer electronics. The recession has been particularly hard on toymakers such as Mattel (MAT) and Hasbro (HAS), as skittish retailers held back on orders this year. The success of Zhu Zhu Pets, though, shows that with a little humor at the right price, even a tiny toy company can have a monster hit. The pets are made by Cepia, a seven-year-old outfit in St. Louis. It's the second toy startup for company CEO Russell Hornsby, a Mattel veteran who says his first company, Trendmasters, went under in the 2002 recession after his bank cut his funding. Trendmasters was acquired by rival Jakks Pacific (JAKK). Cepia's other products include the less successful Glo-e line of teddy bears, which have lights inside them, and the DigiWidgets desktop robots. Hornsby, 56, says Zhu Zhus were inspired by his own family's pet hamster (which, regrettably, isn't around to bask in the fame: It got eaten by the family cat). The toys were just a prototype as recently as last November. The company tested them with focus groups of kids at Wal-Mart (WMT) and Toy "R" Us stores in Phoenix this past May. The company even changed the product name from Go Go Pets right before the September retail launch. Ramping Up Production to Meet DemandAfter the sneak peak in Phoenix, Toy "R" Us committed to a sizable order. Company spokesperson Kathleen Waugh says the retailer isn't selling them through its Web site or advertising them in flyers. For this year's Black Friday sales push, though, it's letting the media know it should have "thousands" of Zhu Zhus in stock. Purchases are limited to one per household. "It's so hot we're going to use them to drive in-store traffic," Waugh says. Rival Wal-Mart, meanwhile, got a big shipment in late October and advertised Zhu Zhus in its weekly circular for Sunday, Nov. 8. Some stores put the pets out too early, though, and customers weren't allowed to purchase them, spurring rumors that Zhu Zhus had been recalled. In early November, Hornsby hopped on a plane to spend the next two months in China boosting production of Zhu Zhus. He convinced the four plants the company has under contract to increase their output from 70,000 pieces to 120,000 pieces per day. Hornsby says retailers that were initially hesitant to commit to Zhu Zhus are now paying extra to air-ship the hamsters to the U.S. The toy's phenomenal success is proving bittersweet, Hornsby says: "It's a big hit; with it comes lots of anxiety. It's heartbreaking to go to the stores and see people wanting [a Zhu Zhu] who can't find it."

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