In a retail environment where everything seems to be shrinking, is it any surprise that price-points have followed suit? Over the past couple of years, toys under US$10 have grown steadily as a category and were responsible for 43% of total toy sales in 2004 by the NPD Group’s count.

Many factors are contributing to this growth. Kids these days have a lot more spending money at a younger age and are also influencing their parents’ buying decisions at an increasing rate. Plus in a tight economy, US$10 still strikes parents as a reasonable amount to spend on a treat for their kids.

But much of the credit for the gain has to be attributed to the fact that lower-priced toy SKUs have been aggressively invading non-traditional channels, triggering a 25% to 30% increase in shelf space for these items, according to Hasbro VP of sales Kevin Murphy.

Retailers like Walgreen’s, 7-Eleven, Tower Records, Dollar General and Blockbuster have found that their customers are very receptive to the idea of picking up an inexpensive birthday present or anytime treat while they’re in-store looking for other things. And buyers are stocking up to meet this demand.

‘It’s a key price, partly because of mindset,’ says Murphy, likening it to a US$19.99 oil change that turns into a US$50 affair once you’ve picked up all the extras like wipers and air filters. ‘You’re not going to walk out of there with a US$40 or US$50 toy; you’ll go to a toy store for that.’

Murphy says Hasbro has seen a volume increase of about 300% in this category over the last two years, and a dedicated sales and product development team now serves these channels specifically. Malibu, California’s Jakks Pacific bought into the potential of the under-US$10 category several years ago, and in 2004, more than 70% of its product lineup fell into this niche.

Dollar stores, which are the fastest growing retail category in the U.S. right now, are a critical part of this business. Heavy-hitter Dollar General added 626 stores in 2004 (bringing its total count up to 7,321), and retail sales for the last five weeks of the year were up by 10.4% to US$1 billion over the same period in 2003.

While many dollar stores used to source cheap goods directly from manufacturing hubs like China, well-known brand names are becoming an increasingly important part of their buying plan. In fact, Murphy says Hasbro, which owns some of the strongest toy brands out there, has posted a fourfold increase in volume in this channel over the last three years. And this upward trend shows no signs of changing direction.

Grocery and drug stores have also glommed onto impulse items in a big way. According to NPD, these channels owe 80% of their toy sales to under-US$10 SKUs. ‘It’s incremental business that these stores simply didn’t have before,’ says Murphy. ‘They are very aggressive in Q4 at trying to capture the consumer’s toy dollars. They know their customer is going to buy toys somewhere; now they’ve figured out that by presenting the proper price-point and making it a convenient buy, they can get these sales.’

Lower-priced SKUs like Aquapets (US$10) and micro versions of its successful Spy Gear products have allowed Wild Planet Toys to bring in 25% more annual revenue through new channels including Tower Records and 7-Eleven. Samara Toole, VP of strategic initiatives, says the toyco is working on cracking into at least a dozen more chains for 2005, focusing on consumer electronics, drug and grocery. It’s important to note, she adds, that kids don’t compartmentalize their shopping by store the way adults are used to doing, getting their clothing from certain stores and music from others.

Toole says Wild Planet now takes price-point, package size and product type into account much earlier in the development process. For example, the Micro Spy Gear line, which was originally conceptualized as a promo premium, was able to find a home at Walgreen’s, where the full-sized boxed line was too big and high-priced for the chain’s toy section.

For spring, Wild Planet is expanding this range with a micro periscope, micro listener, motion alarm and voice scrambler. While size and price are the main things retailers consider when buying this type of product because they want to get the biggest return on the shelf space, they also look for well-known brands.

But Hasbro’s Murphy stresses that having the hottest license isn’t necessarily crucial in this space. What’s much more important is that consumers recognize the brand and feel confident in the item’s overall value.

Hasbro’s product development team for alternative channels focuses on retooling toys centered around the company’s tentpole brands to hit a lower price-point. So toys for My Little Pony, Play-Doh, G.I. Joe, Nerf and Playskool are repackaged into smaller playsets and individual packs, and product that doesn’t fit into traditional mass channels is refreshed. ‘Playskool for us is becoming a higher-priced brand at mass, and the lower-priced products that mass buyers can’t stock anymore fit perfectly in the drug, music or food stores.’

Jakks has also retooled many of its products as retail exclusives for those under-US$10 channels, rather than just selling overstock. The toyco regularly repackages items from its Flying Colors arts & crafts line and Cabbage Patch range, but it also creates smaller SKUs or uses cheaper materials to come in at a lower price. For example, a parafoil SpongeBob SquarePants kite in Jakks’ Go Fly a Kite line would retail for US$29.99, whereas a smaller version made of polyurethane might sell for US$3.99.