Video games, plush prevail in otherwise ho-hum year

Discount Store News, March 8, 1999 by Laura Liebeck

Despite the success of Furby and yo-yos, there was little excitement last year on toy shelves, and sales remained at 1997 levels. This year, though, things are looking up, and sales should shift out of neutral now that "Star Wars" is back on the scene.

The first in the next trilogy of George Lucas films, "Episode 1: The Phantom Menace," is due out in May Licensed product based on the film is expected to thrust sales into warp speed. Other licensed product expected to help build 1999 momentum includes "Thy Story II," Scooby-Doo, pro wrestling and Nascar, as well as licensed products based on such hits as Teletubbies, Winnie the Pooh, the classic Disney and Warner Brothers characters and assorted techno toys. Licensing agreements for Furby and other popular toys should help propel sales to new heights this year.

The Toy Manufacturers of America, however, remains conservative in its 1999 estimates. Peter Eio, TMA chairman and president of Lego, is projecting a lower-than-usual 2% to 3% gain in traditional toys in the United States this year, with a 3% to 5% increase when video games and PC software are factored in to the equation.

According to TMA, wholesale shipments of traditional toys dipped $41 billion below 1997 to $15.2 billion in 1998. Yet demand was still good, as unit sales rose 1.6% to 3.37 million units.

Video games was a bright spot for retailers, with sales up 20.1%. which helped boost total toy industry sales by 4.2% to $20.3 billion in wholesale dollars, or to about $27 billion at retail. Another winner in 1998, with a 19% sales increase, was plush. It was led by Beanie Babies, Furby, Bounce-Around Tigger and Teletubbies. Hot Wheels and Matchbox cars drove sales of non-powered cars by 28%. Action figures failed to win much attention in 1998, due to the absence of hot movie characters and dolls, which have remained depressed even though Spice Girls and Rugrats dolls were popular.

The largest declining category was virtual pets, part of the "other" toys category. Toys such as Tamagotchi and Giga Pet plummeted to $45 million in manufacturer sales in 1998 from $206 million in 1997, when they were all the rage.

As usual, discount stores continue to lead in toy sales for retail outlet. According to The NPD Group, which gauges the market for TMA, 4 1.6% of all toys sold in the United States are purchased at a discount store. National toy outlets, such as Toys "R" Us and K * B Toys, remain in the No. 2 spot with a 23.2% share.

The race for leading retail outlet continues to captivate retailer's attention, especially after Toys "R" Us faltered in 1998 as Wal-Mart continued its surge. Wal-Mart's eagerness to unseat Toys "R" Us as the No. 1 outlet for toys in the United States is being closely watched, but the winner won't be declared until March 15, when NPD releases its retail report on 1998. Wal-Mart is widely expected to unseat TRU, but two percentage points separated the chains in 1997, which may be too much to overcome in one year. The chains could be tied for 1998, and then Wal-Mart will pull away in 1999.

According to NPD, Toys "R" Us was still the leading retail outlet for toys in 1997, with an 18.4% market share, down from 18.9% in 1996. Toys "H" Us' market share has been on a steady decline for years, having peaked at 25% early in the 1990s. In 1997, the most recent figures available, Wal-Mart's market share in toys was 16.4%, up from 15.3% in 1996. Kmart is third with an 8.2% share, followed by Target, 7.1%; Consolidated Stores, 6.1%; JCPenney, 1.5%; Hills, 1.2%'; Service Merchandise, 1.1%; Ames, 1.1%; and Meijer, 1.1%. Due to the Ames/Hills merger in December 1998, the consolidated chain will rise to No. 6 with a market share of 3.3%.

Overall, of the nine toys categories specifically identified by the toy industry-with video games monitored separately-manufacturer shipment dollars grew in four categories and declined in five. Aside from plush-which was up $1.6 billion in manufacturer sales and up 17% in units, to 303 million-the other gainers were vehicles, up 5.8% in sales to $1.6 billion and up 17.8% in units, to 411 million; games/puzzles, up 1.8% in sales to $1.51 billion but down 1.2% in units, to 245 million; and activity toys, up 0.5% in sales to $2.10 billion and up 0.3% in units, to 682 million.

Sales of action figures nose-dived 13.3% in manufacturer shipments, down to $907 million from $1.05 billion in 1997, and plunged 17.2% in units, down to 154 million from 186 million, due to the dearth of hit movie or TV characters. The category called "all other" was down 5.2% in manufacturer shipments to $3.27 billion and declined by 1.4% in units to 1.08 million, thanks to a spectacular decline by virtual pets. In fact, of the 16 subcategories in "all other," nine declined in 1998 when compared to 1997, including audio/visual toys, electronic learning aids, hardware, software, sports activity, musical instruments, trading cards and accessories, mini figures/scene sets and virtual pets. Recording gains were water/pool/sand toys, children's furniture, guns/weapons and accessories, water guns, swing sets/gym sets and accessories, and miscellaneous toys. Preschool playground was even with last year.