Toy makers tweak lines to offset rising import costs
By Anne D'Innocenzio
THE ASSOCIATED PRESS
02/16/2008

NEW YORK Next holiday, that toy that was supposed to talk for a minute will talk for 40 seconds, and that portable electronic quiz game will ask fewer questions.

Facing higher costs in China, the nation's toy makers are tweaking their new product lines and scaling back their offerings.

Despite those changes, consumers could face anywhere from a 5 to 10 percent price increase on many toys later this year, according to Eric Johnson, professor of operations management at Dartmouth's Tuck School of Business.

"You are going to see more $7.99 toys at the bottom instead of $2.99," said Michael Greenberg, the former CEO of toy maker Shelcore Inc. and now a toy industry consultant.

The topic is expected to be a hot issue at the industry's annual trade expo American International Toy Fair, which officially starts on Sunday and features holiday 2008 products.

The falling U.S. dollar against the Chinese yuan, higher energy costs and a new business code in China are forcing Chinese factories to raise prices for exports. The U.S. toy industry, which imports about 80 percent of its products from there, is among the hardest hit.

Manufacturers also face higher costs as the nation's biggest toy sellers are imposing stricter measures on their suppliers including tougher standards for lead content to get ahead of expected new federal legislation.

Wal-Mart Stores Inc. and Toys 'R' Us Inc., the nation's top two toy sellers, are setting a much tighter standard for the amount of lead allowed on surface paint for toys shipped to their chains on or after March 1. The companies are also phasing out chemicals found in PVC, or vinyl, that have raised safety concerns in products for infants and young children.

Still, the average toy price, about $7, remains relatively cheap because the bulk of toys sold involve card games and miniature cars impulse purchases that can be picked up easily at the local supermarket.

And makers argue that toys should still be a good value since prices have been falling for years down 4.7 percent last year from the previous year, according to the Consumer Price Index.

But any price hikes could further squeeze consumers, who are already paying more for food and gasoline, or manufacturers, who can only absorb so much without hurting profit margins.

"This is not a good thing for consumers," said Sean McGowan, a Needham & Co. analyst. "The deflation days may be over."

Across the board, toy companies are scrutinizing their lines, even eliminating some perennials if price increases are not justified. Toy companies are also adding accessories to action figure dolls and other products to justify price increases.

Isaac Larian, president and CEO of MGA Entertainment Inc., the maker of Bratz dolls and Little Tikes, said that he's cutting the number of toys for his holiday collection to 1,200 from 1,500. He estimates that Bratz dolls, priced at $20, will retail for $22, while a $55 Little Tikes toy car, which relies heavily on plastic, would see up to a 15 percent price increase at stores.

But balancing costs while retaining the toy's magic is tricky.

"It forces us to be even more imaginative," said Marc Rosenberg, partner and chief marketing officer of Zizzle LLC.

One of its holiday toys will now have 40 seconds of speech instead of 60 that was originally planned and will use the same speech in more than one place.



The natural progress of things is for liberty to yield and governmnet to gain ground.

Thomas Jefferson