Toy retailers and manufacturers’ suspicions that their industry is in trouble have received overwhelming confirmation. According to a recent report from the NPD Group, a market research firm that tracks the industry, overall retail sales for toys grew by less than 1% for the period of January 1998 to July 1998.

Infant/preschool, games/puzzles, dolls and action figure toys all took major hits, while ride-ons and activity toys saw marginal growth. Plush and vehicles were the only two categories that enjoyed sizeable increases.

The action figure category was the biggest loser, with a 15% decrease in sales over the same period last year. Revenues for Hasbro’s Star Wars collection plunged by 52%, even though it remained the number one selling action figure line on the market.

The plush category grew 17%, buoyed largely by the sales performance of Talking Teletubbies, Winnie the Pooh, Bean Bag Friends, Bedtime Bubba and Sesame Street Bean Bag Plush. Hasbro’s top-selling Talking Teletubbies, alone, pulled in US$16 million, and Mattel’s Real Talkin’ Bubba and Jumbo Winnie the Pooh both saw triple digit increases.

The strong performance of non-powered cars and mini vehicles drove sales of the vehicles category up 7% over last year. Brands such as Racing Champions, Maisto International and Hasbro helped boost the licensed non-powered cars subcategory by 50%, and, with a 41% share, Hot Wheels continued to dominate mini vehicles, which grew by 21%.

The absence of a major toy hit, on the scale of a Tickle Me Elmo, and lukewarm consumer interest for licensed merchandise based on blockbuster pics like Godzilla and Small Soldiers are the main reasons why the industry remains in the doldrums, says Sean McGowan, an analyst at Gerard Klauer Mattison.

Another factor that underscores this year’s sluggish numbers is the high 10% growth that toy sales enjoyed for the same period in 1997.

‘In the first half of last year, we had a confluence of product that was unusually strong. There was the Star Wars and Jurassic Park lines that were both selling very well. Beanie Babies and Tamagotchis were still hot, as was Tickle Me Elmo. Today, basically, all the products that drove sales last year are gone or are way down,’ says McGowan.

Underlying both of these problems has been the increasing importance of the KAGOY (Kids Are Getting Older Younger) effect. With more of today’s kids turning away from traditional toys at an earlier age in favor of video games, retailers and manufacturers find themselves trading in product that has a rapidly diminishing appeal with its target demographic.

‘Toy retailers-if they specialize in toys-will have to start carrying more non-toy products, and the discounters will have to use other products to drive through customer traffic,’ advises McGowan.

In manufacturing, McGowan predicts the long-term effects of slow sales to result in even more instances of consolidation, like Hasbro’s recent acquisition of Galoob.

‘As the growth potential of the big companies within the industry decreases, manufacturers are going to have to acquire more companies in order to survive, both within the traditional toy industry and outside of it.’