Christmas 1990 is a disaster.
That's the assessment of many toy industry observers, who say this is one of the toughest years they've witnessed in many decades.
Of the seven biggest companies -- Nintendo, Hasbro, Mattel, Tonka, Fisher-Price, Universal Matchbox and Lewis Galoob -- only one toy maker is sitting pretty: Mattel. Thanks to the ageless Barbie doll, Mattel has seen its profits soar 30 percent on sales of $1 billion during the first nine months of 1990.
For most of the others, though, the yuletide season has been fair to poor.
"This Christmas will hurt everyone -- it will be terrible for almost every toy company," said Larry Carlat, editor of Toy & Hobby World magazine, an industry journal.
Hasbro, for example, could lose the title of America's largest toy maker to Mattel as a result of virtually flat sales and profits. Tyco Toys Inc. expects its earnings to drop 18 percent, while Tonka Corp., famous for its toy trucks, and Universal Matchbox are both forecasting lots of red ink on their 1990 ledgers.
Meanwhile, East Aurora-based Fisher-Price isn't making predictions. Spokeswoman Carol M. Blackley would only say the local company is benefiting from a "back-to-basics" trend among consumers. "The vote isn't in yet on Christmas . . . (but) Christmas at large isn't robust at the retail level," she said.
Normally during the holidays, toyland's population is cautiously optimistic. But not this year.
"The retail climate is the worst I've seen since I've been in the industry," said Franklyn S. Barry Jr. of Orchard Park, a 20-year toy veteran and chairman of Worlds of Wonder, a California-based producer of high-technology playthings.
The toy industry has been hit by three storms simultaneously, which threaten to destroy vulnerable manufacturers and retailers, some analysts say. Here's a brief description of each and the damage reported so far:
Recession -- Even before Iraq invaded Kuwait in August, consumers were closely watching their pocketbooks and wallets. Now, they simply aren't spending.
A survey of 111 households by a team of Texas A&M University researchers found that parents this Christmas are spending more on clothes than toys. Some kids are so worried, they told pollsters they were willing to spend 10 percent more of their own money on toys to compensate for the parental shortfall.
Economists for DRI/McGraw-Hill also report that disposable income has dropped 4.5 percent during the last three months, when more than 70 percent of all toy dollars usually are spent. And a research team at the University of Michigan recently tracked the steepest quarterly drop in consumer confidence in at least 44 years.
Disarray among retailers -- Recognizing that consumer confidence is at its lowest level since 1982, chain stores like Toys "R" Us, Wal-mart, K mart and Target are keeping their inventories low. Many are expected to slash their orders of 1991 toys.
"People aren't ordering as much," said James C. Watt, vice president of sales and marketing for Hummingbird Toy Co. Ltd. The Arcade company expects to sell about 800,000 wooden yo-yos this year. That's about the same number as in 1989.
The nation's No. 2 toy retailer, Child World, disclosed earlier this month that it was on the verge of bankruptcy and would stop paying bills until Jan. 15. The retailing chain reported a third-quarter loss of $14.4 million compared with a loss of $4.1 million for the same period last year.
Child World's problems, combined with the financial woes of many large department stores, have fueled a price war. Each retailer has instituted deeper price cuts than its rivals.
Analysts say this unstable retail climate has made some bankers nervous about writing loans so stores can order toys for 1991.
No blockbusters -- The toy industry also hasn't produced a "mega hit" that would bring shoppers into the stores, said Carlat of Toy & Hobby World magazine. He explained that in the past playthings like Cabbage Patch dolls and Teddy Ruxpin created a consumer frenzy that had a ripple effect on the entire industry. Every kid asked Santa for those toys, so parents were willing to spend hours waiting in line to buy them.
In the last few years, however, toy inventors haven't come up with a blockbuster. Most of this year's popular toys were last year's hits.
For example, Toy & Hobby World's listing of the Top 20 products includes Nintendo, Teen-age Mutant Ninja Turtles, My Pretty Ballerina and Cabbage Patch Kids -- all of which have been on the market for between two and five years. And the ever-popular Barbie has been around for 31 years.
Fisher-Price reports its hot toy for 1990 is the Bubble Mower, which was launched several years ago. Jack Martin, a company spokesman, noted that the 1990 3-in-1 Tournament Table may not be selling the most units, but it has sold out in many toy stores. He also explained that the company's specialty, infant and preschool toys, generally are considered industry staples rather than faddish blockbusters.
"If this were the oil business, you'd say we've been drilling dry wells," Alan Hassenfeld, Hasbro's chairman, told his colleagues at a recent toy industry meeting held in Boston.
A local retailer added: "If they made a movie about Santa's workshop this year, it would be a sequel to last year and the year before."
Nintendo fad fading
The vision that the Ghost of Christmas Present has shown many toy executives is so dismal they are recalling the past and planning for the future.
Paul Valentine, a stock analyst for Standard & Poor's Corp., said the good news for many toy makers is the apparent decline of their archrival: Nintendo Ltd. of Japan. The video game colossus has predicted a 20 percent to 30 percent sales drop in 1991 for its current full-size systems and software games.
"The signs are unmistakable that the video game fad is peaking," Valentine said. "I think video game sales will drop 50-60 percent in the next two years."
Traditional toys like Monopoly and Scrabble benefited in the early 1980s when the last video-game craze faded. Thus, some toy manufacturers are counting on a windfall from the Nintendo slowdown.
But no one in the toy industry is counting the wizard of video-games out. Nintendo has projected sales of $4 billion this year -- a substantial cut of the industry's $13 billion in total sales.
Moreover, the company is working on more powerful systems that have elaborate graphics. And new video games using 16-bit microchips, instead of the eight-bit chip used in the current Nintendo system, may attract the next generation. Several 16-bit video games, including Sega, are already hits, despite price tags of $150.
Exporting holds hope
Toy executives also are looking for new markets overseas. "It's clear that the future of the toy industry is outside the United States," said John Amerman, chairman of Mattel, which expects to sell $500 million worth of toys in Europe this year.
"We had a 31 percent growth in international business in the first nine months," he said at a Boston toy conference held earlier this month.
Brimms Inc. of Tonawanda sells 10 percent of its classic metal kazoos, spinning toys and motor mats to foreigners, according to David Berghash, the company's vice president.
Sales in Australia, Great Britain and Italy are helping Worlds of Wonder dig itself out of bankruptcy, said Barry, whose Williamsville-based Sheridan Companies purchased WOW last year. He estimated the revamped toy maker will have $90 million in sales this year.
In the future, Barry says, one-third of WOW's sales will be generated in distant lands. He also explained that currently 40 percent of all toys produced by U.S. companies are sold domestically, with another 30 percent in Europe.
Gary Jacobson, an analyst with Kidder Peabody & Co., agreed that the toy industry should exploit every international opportunity. But he urged manufacturers and retailers not to give up on Uncle Sam.
"There's an echo of the baby boom going on," he said. About four million babies were born last year, and 4.1 million births are expected this year, according to Census Bureau data.
Many of these newborns are their parents' first children. So, those kids will get new toys instead of hand-me-downs. And that should bolster toy sales, Jacobson said.
Tomorrow is an important shopping day for many retailers. But some toy experts say they've given up on Christmas 1990 and are counting on next year.
"The overall dollars spent on toys this Christmas has got to be less than last year," said Valentine of Standard & Poor's. "I just don't see how they could equal last year."