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This $60 Plastic Egg Just Cracked the Holiday Toy Market

Is the Hatchimal craze a Christmas one-off, or can the fever last?
Source: Spin Master Corp.

Wheezing, the furry purple creature rolls past my keyboard, away from the mess of plastic eggshell it just pecked its way out of. I press its tummy, and it pivots, squawking and flapping its green plastic wings. Suddenly, there's baby talk. It burps and chortles before settling down again, awaiting further interaction. Its eyes flash neon green and blue.

This Furby-like doll is a Hatchimal, an animatronic toy created by Spin Master Corp., and it has ascended to a rare level of holiday retail success. You probably can't get one. Nobody can. 

Every few holiday seasons, a toy becomes so popular that waitlists emerge, fist fights break out, and resellers take to hawking it for double its retail value. In the late '90s, it was Tickle Me Elmo. More recently, it was Zhu Zhu Pets. Now it's the Hatchimal, which retails for $60—a splurge for a toy, but one well-suited to the holiday season.

The craze has given Spin Master—which, with its Build-a-Bear Workshop and Etch-a-Sketch, is no stranger to blockbuster toys—one of its best product launches ever. Stores have created waitlists for Hatchimals. The toy's website urges shoppers to seek out rain-check programs to get one in January. Blogs track where desperate parents might still find a rogue Hatchimal.

"Consumer demand has far exceeded ours and retailer expectations," Spin Master's chief executive officer Ronnen Harary said on his company's third-quarter earnings call last week. "For a time in October, Hatchimals was the single biggest-selling toy at Amazon and Walmart in any category."

hatchimal02
Source: Spin Master Corp.

The key to the Hatchimal's success is, well, that it hatches. Play with its large plastic egg, and the Hatchimal inside will react, gurgle, and start pecking its way out. Put it down, and it stays quiet and intact.

The Hatchimal was inspired in part by the popularity of online unboxing videos. (Search "unboxing" on YouTube, and you'll get more than 52 million results.) "We thought, 'Wouldn't it be cool instead if you opened it, something itself would come out?' That evolved to the idea of an egg," explained James Martin, the company's senior vice president for marketing.

To keep kids playing with it, his toy development team added three life phases through which the Hatchimal progresses; how quickly depends on how much it's played with. After it's done, it can be reverted to the baby phase—that gurgling, giggly period I witnessed as it zoomed around my desk. 

But before mine hatched, I'd turned the egg over to a co-worker's children, who made quick work of getting the toy inside to use its beak to peck its way out of its plastic shell. So manhandled, the Hatchimal was out within half an hour.

The hatching process fascinated the kids. The toy was all right, too, but their interest waned once it was out of the egg. 

"Think about the magic that happens with Hatchimal: It fits in a 30-second commercial perfectly," said BMO Financial Group toy analyst Gerrick Johnson. "It's a virtual pet; you still have to take care of it. But the hatching—that's the money shot right there." 

Although the toy industry has had access to Hatchimals since they made their debut at February's New York Toy Fair, the public met them only when Spin Master launched the product last month, accompanied by a deluge of YouTube videos, social media campaigns, news reports, and television commercials on Nickelodeon and Disney. 

Since then, the toys have flown off retailer shelves and sold out online, as parents contemplated the price—six times the average cost of a toy, which is around $10, according to the Toy Industry Association—and added it to holiday shopping lists.

"This is something that we would only see during the holiday period," explained Johnson. "Anything that's expensive like that, $50 to $60, it's very, very seasonal. It's one of those things that parents say, 'You want that? Maybe you'll get it for Christmas.'"

With Hatchimals vanishing from shelves and available only on the resale market, Spin Master is flying in more from its factories in Asia. "We made the decision to air-freight in because demand is so extreme. We spent two years developing this item, and we really, really want to get it into consumers' hands," said Martin. "No one could've predicted these [unit sales] numbers." The company would not share those numbers. 

The decision to airlift the toys instead of shipping them by sea will get them on store shelves by the holiday season, but it also makes for considerably higher costs that cut into the company's profit margin. Johnson said that could indicate Spin Master knows Hatchimals might peak this December. If a toy's creators were confident it would last the test of time, would they bother cutting into profit to put it under the tree? 

Hatchimals' longevity—if not their holiday sales—will be determined, in part, by their play value, an industry term for how much time a child spends playing with a toy compared with how much it costs. (Lego, for instance, has a much-envied play value: A large box of blocks can run $100 but entertains children for hours, making the cost worth it.)

But in the insanity of the holiday shopping season, parents can toss play-value considerations in favor of a child's pleading request. "You always hear about play value," said Johnson. "Play value matters, but in situations like this, there will often be an item that doesn't have $60 worth of play value that will still do phenomenally well."

He pointed to Tickle Me Elmo, an adorable but limited-use toy—you tickle, it laughs. The Hatchimal, Johnson said, could be similar: It's entertaining, but it doesn't offer infinite hours of play.

"It's cool, it's interesting, it's got great technology, and it's clever. But is it fun? Eh. It's fun the first time. Is it fun after that? I don't see it having a lot of longevity. I see them racing to get it to stores because they probably know the life cycle on this." 

To combat a holiday peak, Spin Master is already working to expand its Hatchimal lines, developing new additions that Martin said are testing better with focus groups than the original did. "There are going to be 12 months of Hatchmania in 2017," he said.

Although Hatchimals were originally intended for girls, the market has deemed them unisex, boosting sales further. And the toys, with their surprise revelation, have an unexpected collectibility that's helping drive unit sales.

"People are actually collecting or buying numerous Hatchimals and having numerous ones," Harary said. "People are searching for specific colors and specific species." 

As for my own Hatchimal, an eager colleague has tried to claim it. Spotting the pink box on my desk, he rushed over.

"Where did you get that?" he asked. "My kid needs one for Christmas."

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