Video games power sales of other toys - Discount Industry Annual Report: Part 2: Merchandising & Productivity

Discount Store News, July 17, 1989

Video Games Power Sales of Other Toys

In toy merchandising, the major story of the year arguably would be Nintendo's introduction of its "World of Nintendo" boutique concept, and attempts by retailers to capitalize on the video games craze.

Nintendo said that about 6,000 stores that retail toys--or half the total of 12,000 establishments--signed up to open "World of Nintendo" boutiques within three months of its introduction in January.

Child World, for example, has committed itself to putting Nintendo boutiques in more than 100 of its 163 stores and plans to have them established in all stores by next year. Toys "R" Us is rolling out boutiques in all its stores starting this month. And Lionel Leisure, operating Kiddie City stores, also plans a chainwide rollout.

K mart is testing Nintendo boutiques in two stores, and has signed a letter of intent to install them in its American Fare hypermarkets in Atlanta and, this fall, Charlotte, N.C. Chains such as Target, Bradlees, Caldor, Jamesway and Ames/Zayre have either begun tests or are planning boutique floor plans, Nintendo said. The problem for many of these chains is getting enough Nintendo products to meet their customers' demand.

Venture has not jumped on the Nintendo bandwagon yet, but plans to be aggressive in video games in 1990.

Wal-Mart is considering boutiques for its three hypermarkets, but, as of yet, has not taken an aggressive position in Nintendo. The chain rejected the boutiques for its discount stores.

As an indication why Child World went for World of Nintendo, president and chief executive officer Peter Hayes said that when Child World stores have Nintendo products in stock, sales of other toys do well. Conversely, when stores are out of stock in Nintendo, sales of other toys suffer.

By signing up for Nintendo's merchandising program, discounters can at least hope they will gain an edge in obtaining scarce Nintendo equipment and games. At the least, the boutique system will help them get the most out of Nintendo licensed products.

Nintendo licensed products run the gamut from T-shirts to bubble gum. Parents even can buy Nintendo system cereal, from Ralston Purina.

World of Nintendo boutiques average 150 square feet, although Child World is devoting more than 400 square feet of floor space. Of that space, about 20 percent is devoted to licensed products, Nintendo said.

Retailers either can buy special fixturing from Nintendo or modify their own fixtures with Nintendo signage and adapters. Buying the whole package can cost up to $7,500 per store.

Stuart's, Hopkinton, Mass., expects to have Nintendo boutiques operating in its 21 stores by back-to-school.

"It's common sense, good merchandising," said Phil Brescia, senior buyer for toys and video games. "Everything [from Nintendo] that hit the floor last year sold."

Nintendo gave no assurances that it will give priority on supplies of hardware and games to retailers that sign up for the World of Nintendo program, Brescia said.

But Nintendo let it be known that it "will support the people who support" the World of Nintendo concept, said Anne Seagle, senior buyer for portable audio and video games at Best Buy, Minneapolis. Best Buy is testing a 175-square-foot boutique in one store.

"You're never able to get enough Nintendo" hardware and games, Seagle said.

"I hope to get more product by taking on the boutique concept," Seagle said. In its promo brochures, Nintendo states, "Nintendo will make its best efforts to supply World of Nintendo."

"It's to our advantage to keep Worlds full of product," a Nintendo spokesman said.

Indicative of the hold that Nintendo has taken on the toy market, the Toy Manufacturers of America began for the first time last year tracking video games as a separate toy category.

Nintendo projects sales of Nintendo entertainment systems at 8 million in 1989, up from 7 million in 1988 and 4 million in 1987. By year-end, 19 million, or 21.3 percent, of American homes will have a Nintendo system.

In Nintendo games, it expects to sell 50 million in 1989, compared to 34 million last year.

Nintendo products are driving the sales of other toys, even though Nintendo officially places itself as a producer of consumer electronics products, rather than as a toymaker. Nintendo introduced its World of Nintendo concept at January's Consumer Electronics Show in Las Vegas, Nev., rather than the February Toy Fair. In fact, it declined to display anything at toy show in New York.

Among conventional toys, Fisher-Price, Mattel and Playskool remained the top three brands for the fifth year in a row, in the DSN Top Brands Survey for 1988. Hasbro's Milton Bradley line came in fourth and Hasbro alone came in fifth.

Toy sales through mass market channels will hit $8.9 billion in 1989. Of that total, full-line discounters will generate $4.5 billion, catalog showrooms $0.7 billion, and specialty discounters $3.7 billion.

In terms of productivity at full-liners, toys will turn 3.1 times annually, generating an average gross margin of 26.8 percent.