Toy shortages expected for holidays
Executives: Additional safety tests and inventory cuts could mean that the hottest toys sell out weeks before Christmas.
NEW YORK (CNNMoney.com) -- Some of the year's hottest toys could be sold out weeks before Christmas, industry watchers warned.
That's bad news for parents. But its really bad news for the $22 billion U.S. toy industry, which has been struggling with stagnant growth.
Holiday gift-buying in the final two months of the year account for as much as 80 percent of the industry's annual profits and sales.
Beefed-up product testing following the recent spate of toy recalls is putting a crimp in the flow of inventory to store shelves, said Chris Byrnes, an independent toy consultant.
As a result, Byrne suspects that the retailers will be hard-pressed to restock the most-popular toys by December.
Neil Friedman, president of Mattel Brands at Mattel Corp (Charts, Fortune 500)., said retailers always strive to catch up to demand for the must-have toys. But this year, the extra safety checks implemented by toymakers will add to the supply crunch in the weeks ahead.
"We are working to smoothen out the supply flow for holiday shopping," Friedman said.
Aggressive price-cutting will also fuel the supply crunch.
Discount retailers commonly use toys as loss leaders. They chop prices on popular items to lure shoppers into their stores, hoping customers will buy higher-margin items like consumer electronics and home furnishings.
Jim Silver, editor and co-publisher of Toy Wishes magazine, said he believes Wal-Mart made a mistake by cutting prices so early.
"When you cut prices that deep, Wal-Mart will probably get a good [sales] month in October but could be sold out of the hot toys by December," Silver said. "That happened to Wal-Mart last year, when its sales in December weren't that great."
Wal-Mart spokeswoman Melissa O'Brien said the company doesn't discuss its inventory positions, but she added that it wasn't concerned about a toy shortage in December.
At the same time, O'Brien said Wal-Mart was closely monitoring its inventory levels. "Everyone remembers what happened last year when with T.M.X. Elmo. We'll try to avoid that," she said.
T.M.X. Elmo - Fisher-Price's 10th anniversary Elmo doll - was one of the hottest toys last Christmas. Most stores, including Wal-Mart, faced big shortages of it early in the season.
"It's true that manufacturers are doing more toy testing but we've worked hard to plan our holiday supply," O'Brien said.
Marc Rosenberg, chief marketing officer of privately-held toymaker Zizzle, said he won't be surprised if many parents - and kids - are disappointed this year.
Zizzle's "Spotz" toy scored a place in the 2007 Hot Dozen toys list picked by Toy Wishes magazine.
"Every year retailers are buying toys more and more conservatively," Rosenberg said. "This is an ongoing problem for the industry."
But Toys "R" Us CEO Gerald Storch said he's confident the retailer will have enough stock of the must-have toys.
He also said that Toys "R Us would match some of Wal-Mart's price cuts but won't engage in a price war.
"We are different from Wal-Mart and other major toy sellers because we are in the toy business year-round," Storch said. "These other companies increase their shelf space in October and shrink it after the holidays."
"I think we'll have a very good year versus last year," he added. "We are carrying more products than last year from over 30 countries. We have more toys that are exclusive to our stores. While we do believe we will sell out of the hot toys, we pride ourselves in restocking quickly."
Storch declined to detail the chain's strategy for "Black Friday," the day after Thanksgiving that unofficially jumpstarts the Christmas shopping race.
"We will have some special door-busters," he said. "We'll open early but I won't tell you exactly when."