Dominance in pre-school segment up for grabs - pre-school toy market

Discount Store News, Feb 12, 1990 by Richard C. Halverson

Dominance in Pre-School Segment Up for Grabs

Increasing competition in the $1.1 billion infant and pre-school toy market is chewing into the commanding lead of Fisher-Price.

In response, F-P, a subsidiary of Quaker Oats, is returning to basics, after a disappointing foray last year into such products as battery-powered ride-on cars that it hoped would retail for $300 and electronic guitars for $80 to $90. In the process, F-P is trimming its new toy introductions to 80 in 1990 from 100 last year and shaving prices.

Little Tikes, a Rubbermaid subsidiary and ranking No. 3 or No. 4 in sales, also is shaving prices this year, by about 5 percent to 15 percent on up to 20 items out of 150 in its lines. More price cuts are slated for later in the year, said Neal DePersia, national sales manager. Price reductions were made possible in part by a decline in the price of plastics that go into most of its line, DePersia said.

No. 2 Playskool, a Hasbro subsidiary, enjoyed a "fantastic year" in 1989 and claims to have come close to matching F-P market share, which Playskool pegs at 29 percent to 30 percent.

Mattel also made inroads in pre-school on the strength of Disney-licensed toys it introduced in 1989. Mattel claims its pre-school sales doubled to $110 million last year from $55 million in 1988. At that level, Mattel would have enjoyed about 10 percent of the pre-school market, perhaps propelling it ahead of Little Tikes, long No. 3 in sales.

At Toy Fair 1990, look for F-P to introduce new toys in basic categories such as a wagon, tent, jump rope, football and an innovative ride-on fire truck that squirts water, said Bob Breeze, senior vice president and divisional merchandise manager for Lionel Leisure, which operates the Kiddie City toy chain.

F-P will enjoy a "healthier spring" in 1990, Breeze predicted, because it is "returning back to its natural base."

F-P attempted last year to expand its traditional age market by introducing toys for pre-teens, such as electronic keyboards and guitars.

"Music was disappointing for Fisher-Price, no question about it," Breeze said.

But 1990 looks good for F-P because of its concentration on basics, Breeze said.

Playskool had a "fantastic year" in 1989, Breeze said. Because of its success, Breeze expects Playskool to increase its spring TV promotions.

Vendors overall will increase their TV promotions this year, Breeze predicted, because "competition has gotten very, very fierce" as more manufacturers focus on the infant and pre-school categories.

Vendors such as Mattel will shift their TV promotions from generic advertising of its line to item advertising of what they hope will be blockbusters, Breeze said.

But as competition heats up, retail margins are eroding a bit on pre-school, he said.

Unlike other merchandise categories, prices on toys become sharper the more customers demand them, with retail prices dipping to near cost, or even cost, he said.

To average out margins, Lionel looks to vendors of imports, such as Illco, with its Sesame Street licensed line.

Without having to pay for TV promotion, toy vendors such as Illco can offer profit margins that easily are twice those of TV-promoted toys, Breeze claimed.

"The difference on some imports can be 20 points. Of course, you still have the quality difference between imports and, say, Mattel or Fisher-Price," Breeze said.

Even domestic vendors of non-TV promoted toys, such as Processed Plastics (Tim-Mee Toy), can produce better margins, he said.

Lionel merchandises infant and pre-school by manufacturer, Breeze said, following its traditional policy of showing breadth and depth, with end-cap emphasis.

In 1989, infant and pre-school toys sales totaled an estimated $1.1 billion, or about 9.7 percent of the toy categories that NPD follows through its Toy Retail Sales Tracking service. TRST records the sales of 10 sample retailers, including Child World, Target, Hills, Venture and Bradlees, that account for 20 percent of sales and extrapolates results for the entire industry.

"Fisher-Price is under unprecedented competitive attack from strong companies such as Playskool, Little Tikes, Disney [Mattel] and Sesame Street [Illco]," said Kevin Curran, director of traditional toy marketing for Fisher-Price.

Because of the faddish nature of toys for older children, most major vendors have seen a series of ups and downs, Curran said.

"Now they are more aggressively pursuing pre-school because it is a more stable market," Curran said. "Compared with a comparatively flat toy market overall, pre-school gained about 10 percent last year."

And retailers are devoting perhaps 10 percent to 15 percent more shelf space to pre-school because they enjoy steadier sales and profits for the category, Curran said. Pre-school picked up space at the expense of trucks, arts and craft and creative activities, he said.

F-P tries to price so that retailers can make a 35 percent margin, Curran said. But margins dip to as low as 20 percent on heavily-promoted toys that get sharply priced, he acknowledged.