Kids don't seem to get just toys for Christmas any more. Instead, they become part of a fad.
A few years ago it was Cabbage Patch dolls. Then came Tickle Me Elmo, and of course the hard-to-find Beanie Babies—McDonald's restaurants certainly won't forget those Happy Meal toys any time soon.
This year, interactive virtual pets are all the rage. They account for three of the top five hottest-selling new toys for 1997, according to NPD Group of Port Washington, N.Y.
Will today's Tamagotchi, Nano and Giga pets become the Velveteen Rabbit to a future generation of youngsters? Probably not. But they offer some interesting insight into the competitive toy industry.
Which 1998 movie do you expect will be hottest — ``Superman V'' or ``Barney, the Movie''? You don't have a clue, right? Well, toy industry executives made that call months ago, and now they're waiting to see if those predictions were on the mark.
A lot is riding on such decisions. Royalty rates in the toy industry have skyrocketed in recent years, as entertainment companies have sought a bigger chunk of the profits generated by their creations. Lucasfilm Ltd. is a leader in this area, actually taking minority ownership stakes of two major toy makers in exchange for licensing rights for its three upcoming ``Star Wars'' films.
Although ``Star Wars'' products may be the equivalent of a sure winner in the toy industry, the steep royalty rates will limit the upside potential for licensees like Hasbro Inc. and Galoob Toys Inc.
That's just the beginning of the worries faced by toy industry executives. Also high on the list: wildly fluctuating currency rates that make it difficult to predict profitability. The toy industry is particularly vulnerable because so many toys are manufactured or assembled offshore. The strong dollar also hurts overseas sales and makes imported toys cheaper.
Toy makers' relations with major retailers aren't always friendly. Toys ``R'' Us holds a formidable share of the U.S. toy market — most observers estimate it at between 20 and 25 percent. The Federal Trade Commission recently ruled that the retailer was muscling manufacturers to keep them from giving more business to deep discounters like Sam's and Costco.
Added to that, retailers work hard to keep their inventories very low. This sometimes causes major delays in shipments of the hottest toys, as evidenced by the great Tickle Me Elmo shortage of 1996.
A deeper understanding of all these headaches probably doesn't make it any easier to face the long lines and traffic snarls associated with holiday shopping. But we hope it helps a little.