NEW YORK (CNN/Money) -
Making toys is a fun business to be in and some toy manufacturers say they're trying to keep it that way -- even if it means taking on the "playground bully" Wal-Mart.
Last year, discounters such as Wal-Mart, Kmart and Target ignited aggressive price wars over the holidays that led to a massive industry shakeout, the effects of which are still being played out.
Wal-Mart, the world's largest retailer, slashed prices on hot toys for the holiday as early as October. Toy retailers, including Toys R Us (TOY: Research, Estimates) and KB Toys, followed suit.
The consequences were ugly. FAO Inc. -- parent of posh toy store FAO Schwarz -- fell into bankruptcy for the second time. Pittsfield, Mass.-based KB Toys filed for bankruptcy in January and said it would close nearly 400 stores.
More recently, Toys R Us said the company was exploring the sale of its global toy division as it tries to overhaul its business. Some industry watchers have even speculated that the retailer may be looking to get out of the toy business altogether.
After seeing the big boys take a beating at the hands of Wal-Mart (WMT: Research, Estimates), it's not entirely surprising that a few toy manufacturers, such as Roseland, N.J.-based Automoblox, are doing what they can to stay out of the crossfire.
"I'm not interested in taking the product to Wal-Mart," said Automoblox president Patrick Calello. "Our strategy is not to compete on price but to build our value and our brand. The whole notion that the consumer wants everything for less is not healthy. Wal-Mart fosters that mentality and I don't believe in it."
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| Automoblox's wooden toy cars ($30) are sold in select specialty toys stores or through Herrington catalog. |
At last week's meeting of the Toy Industry Association (TIA), Automoblox was one of 60 participants that showcased the "must-have" holiday toys.
The company is pitching a collection of sleek wooden sports cars with interchangeable parts, which Calello hopes will appeal to both kids and adults.
Priced at $30 each, the wooden vehicles are currently available via catalog and in a few specialty toy stores. Calello said he's also seeking out alternative sales avenues such as apparel retailer Gap (GPS: Research, Estimates) and bookseller Barnes & Noble (BKS: Research, Estimates).
Toy consultant Jim Silver, publisher of industry magazine Toy Wishes, said Wal-Mart's low-price strategy hurts some brands and erodes manufacturers' profits -- legitimate worries for makers of toys.
At the same time, Silver said Wal-Mart's importance to the industry can't be ignored -- it's the biggest seller of toys in the United States.
"In order for the toy industry to survive, companies will have to deal with Wal-Mart," said Silver. "It has to be understood that Wal-Mart doesn't make deals with everyone who approaches them. Ultimately it's Wal-Mart who chooses who will be in their stores."
"It is very tough for products to get into Wal-Mart and if they don't perform well, they're out," said Silver.
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| Little Kids Olivia take-along bedroom playsets will debut in select toy stores next month. ($14.99-$16.99) |
Providence R.I.-based Little Kids Inc., maker of bubble toys like the Quick Dip Bubble Blower, has a new line of licensed collectible toys for the holidays based on the children's picture-book character Olivia.
Like Calello, Little Kids president James Engle said his company is also actively searching for new channels of distribution.
How does he feel about Wal-Mart?
"When big companies take big companies' products and sell them below cost, it hurts everybody," said Engle. "We're hopeful there will be less cutthroat pricing this year because the one thing that we don't need is more retail casualties. We need more people to sell to, not less."
Even though Engle said the company will always court big chains, the new Olivia collection will be available exclusively at small independent toy and book stores this November.
For its part, the Toy Industry Association said it supports efforts by companies to break the norm and think in terms other than Wal-Mart, such as offering products exclusively at supermarkets, drug stores or even boutique coffee houses.
For instance, board game maker Cranium Inc. this year debuted its new Zigity game exclusively at Starbucks.
"We've launched some of our earlier products at Starbucks as well before we took them mass market," said Kimberly Pierce, spokeswoman for Cranium. "Cranium's philosophy is to reach consumers where they live, work and play, and not just where they shop."
"Toy retailers and manufacturers are trying a different strategy so that they don't keep coming back to the same places," said Reyne Rice, consultant with the association. "In some instances, it's a strategic decision. Toymakers need to expand their options in order to grow their market share. It's also a way out if Wal-Mart rejects their products."
In a comment e-mailed to CNN/Money, Wal-Mart spokeswoman Karen Burk said the retailer was counting on a good holiday season and that it would stay focused on delivering value to customers.
"We have very good relationships with our suppliers, working side-by-side to grow our businesses together and provide quality and value to our customers," Burk said.
"We also understand that it's a competitive marketplace and our customers count on us to have the 'hot' toys at the top of their holiday lists and to be the low-price leader in their community for those toys."
The consultant Rice said that while pricing will be in competitive holiday season, the good news for toy companies is that price wars may be more limited.
"We'll still see price wars once we move further into the season. The difference is that they may not be across-the-board but only on the highly promoted items," Rice said.
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