Not long ago, the toy world was buzzing about how computers were going to change the face of the industry forever. But after a couple years of flashy toys with electronic add-ons, many innovative tech toys are now struggling for market share.

The problem is that most mass-market and toy retailers have no shelf space set aside for these types of products, which also don’t tend to fit easily into existing store schemes.

Oregon Scientific executive VP Steve Jackson says he runs into this roadblock all the time when trying to place his company’s computer peripheral toys in the big-box outlets. ‘The mass retailers can’t decide if they should go in software or in computer accessories, which doesn’t really include toys since it’s more about mouses and things like that. They also don’t want to put them in the toy aisle because they’re afraid consumers will not recognize that they’re computer peripherals.’

So Oregon products like the WavDJ (US$120), a mixing board and DJ toy that hooks up to the PC, have been relegated to catalogues for retailers such as FAO Schwarz and JCPenney. The fact that the WavDJ has sold more than 20,000 units since its late 2001 release despite this less-than-visible retail placement is testament to the toy’s coolness – and its untapped potential.

Adding to the conundrum is the fact that computer retailers haven’t traditionally been interested in buying toy SKUs since their main demographic tends to be tech-savvy males in their 20s and 30s.

It’s not the first time Oregon has hit this distribution wall. The company released Drive Across the Americas (a software program with a steering wheel that hooks up to the PC and allows kids to practice driving through 3-D graphics of cities like New York and L.A.) in 2000, and because it failed to sell the product into its targeted mainstream retail channels, Oregon phased out the item after two years and 20,000 units sold.

Even companies with market-leading brand recognition have run into trouble with innovative tech toys. In 2002, Lego introduced its Spybotics line of interactive robots (US$60) that can play simple games like Capture the Flag and Laser Tag. ‘When we had the opportunity to show the robots in action, people were very impressed,’ says Jeff Ardis, Lego’s brand manager for tech toys. ‘But it’s difficult to communicate on the shelf exactly what the product does. In some cases, we couldn’t get around that.’

When mass retailers like Wal-Mart placed the Spybotics products with other Lego SKUs, the sell-through was much lower than anticipated. Toys ‘R’ Us was able to find a place for Spybotics in its ‘R’ Zone interactive gaming section because shoppers there were already in the mood for products with a tech bent. Ardis says sell-through jumped up about 35% in Toys ‘R’ Us compared to stores where the Spybotics were merchandised by brand.

However, TRU recently decided to move the line back into the toy aisle, says VP of merchandising Wayne Yodzio. Because the ‘R’ Zone is really about video games and the margin is so much lower on tech toys, he says the space required for the Spybotics didn’t justify their existence in the section.

Other companies have found that the challenge of communicating tech toys’ capabilities to the consumer is more trouble than it’s worth. In 2001, Intel released a line of smart toys called Intel Play that included a webcam and a digital microscope. Yodzio says the line perfomed very well, with its more popular SKUs achieving a 70% sell-through rate. But Intel was forced to put so much money into educating customers about what the products did that the venture proved less profitable than anticipated and the company decided to sell the toy line to Prime Entertainment after only a year at market.

Lego branched out from its usual marketing MO to educate consumers about Spybotics’ features and capabilities via infomercials and spots on the Home Shopping Network, but disappointing sell-through levels continued. Spybotics performed better in specialty stores like FAO Schwarz and Zany Brainy, where staff tends to be more knowledgeable about stock. ‘We do much better in stores where service, rather than price, is the strongest point of difference,’ says Ardis. ‘We need a better partnership with retail, whether that encompasses in-store signage or training associates about product features.’

It’s not easy to convince retailers to put much promotional priority on tech toys, which tend to generate low margins because of their high manufacturing costs. Developing products with software apps is probably 10 times as expensive as developing non-tech items, says Oregon Scientific’s Jackson.

But there is some light at the end of the tunnel for tech toy manufacturers. The consumer market continues to demand increased technology – largely of the wireless variety – in the products it buys, and it’s getting cheaper to produce these items. Yodzio says digital cameras are a great example of cheaper technology boosting sales, and as a test run in the fall, Toys ‘R’ Us will carry Hewlett Packard cameras ranging in price from US$49.99 to US$199.99 in 50 stores. The chain will also stock Polaroid digital cameras for younger kids (US$49.99). In the ‘R’ Zone, HP will be providing marketing support and staff training for its higher-end models.

‘This may open the door for Toys ‘R’ Us to sell other tech toys, but it’s not something we’re just going to jump into,’ says Yodzio. ‘We have to do it strategically and focus on good sell-through. We’re known for Barbie and LeapFrog, so it’s an educational process for the customer to learn that we also sell this type of product.’

Ardis says Lego’s next goal will be to create free-standing toys connected to the Internet through a Bluetooth chip or similar technology. ‘When we look at trends in the market, the growth potential for tech toys is big – we see a huge upswing in the next five to 10 years,’ he says. ‘But there’s going to be a very big difference between the toys that are selling simply because they have elements of technology in them, versus technology adding to the value of the play experience.’