October 22, 2008
Toy Story 2008
It’s not even Halloween yet but numerous retailers, including Walmart, KB Toys, Target and Meijer, have made it clear that price is more important than ever for this Christmas selling season and none intends to cede the low price ground to the competition.
Walmart started off by announcing it was lowering the price on 10 top toys, including Barbie and some Hot Wheels sets, to $10.
M. Eric Johnson, a Dartmouth College professor, told The Wall Street Journal that Walmart’s announcement marked a departure from past rollbacks.
“It feels more laser-focused, strategic kinds of moves to drive behavior, but not the good, old Wal-Mart that cuts prices everywhere,” he said.
KB followed Walmart’s announcement by saying it was dropping its price on 200 popular toys to $10. Target also sought to project a low price image by dropping prices on selected toys it sells that were on the Walmart list.
Just this week, Meijer announced it was cutting prices on 300 popular toys sold in its stores.
David Stickney, merchandise manager for toys at Meijer, said in a press release, “While we know this is one of the toughest economic climates our customers have faced in recent years, everyone at Meijer is working hard to help customers save money and still be able to enjoy the gift-giving aspect of the season.”
Discussion Questions: Will retailers sell toys differently this holiday season than in past years? Can retailers, for example, afford to use toys as a loss leader?
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When retailers talk about lowball pricing there is often one major element that lurks behind the scenes: that manufacturers will be squeezed in a way that will lead to more job cuts and more components and products coming from overseas, namely China.
There is only so low they can go on the hot items. There is no margin to play with and selling at a loss doesn’t make sense if you think customers will tighten spending. Retailers will be more aggressive with more promotional vehicles like extra points for those with loyalty programs, bogos, free giftcards with purchase, etc.
With no new console coming out this year, it will be interesting to see how TRU and others will position gaming systems. I just hope allocation on the PS3 and Wii improve because they are going to need those sales to make projections this year!
The pricing approach IS different, although even in the past, WM’s “rollbacks” haven’t been across the board; they were limited to specific products. Ten items in a very large assortment is indeed a new approach, and one worth paying attention to.
The immediate response of Target, Meijer and KayBee is unfortunate, as is the predatory nature of aggressive market share pricing in this economy. As others have pointed out, the toy business was impacted the most by the oil shock, and prices have not readjusted to reflect the lower current status (nor could they…today’s oil turns into Christmas 2009 toys).
I too predict fall out on both sides of the industry. While I believe that consumer spending may be up a slight bit for toys, I do not think that there are “must have” toys out there now whose popularity overwhelms the impact on disposable income. In short, while toys and kid related items may be the least impacted for Holiday, they WILL be impacted.
Historically, economic times like these see a shift from toys to essentials at Holiday. Clothes, books, school supplies and other essential items tend to be reclassified as Christmas presents. Look for that to occur, although on a small scale.
Overall, I applaud the laser approach by WM, but only in comparison to the alternative of across-the-board price promotion. Foot traffic will be down. The selling season will be rocky. Reactive pricing will occur. The industry, to the best of its ability, really should try to stay the course. The only “winner” to an aggressively promotional Holiday will be those companies in the best financial condition. Hi WM.
There are no good intentions here, in my opinion. It’s the equivalent of “chip dumping” which the Japanese used to do back in the 80s. Toys were never high margin products in the first place. Driving the margin to near zero won’t make a dent in WM’s bottom line, but it will definitely kill off others.
What a great time to refocus on the true religious meaning of Christmas and lessen the emphasis on the commercial aspects.
Walmart is very smart to use toys as loss leaders this year as they are in the best position to do it. Target and Meijer are able to do the same thing but stores like Toys “R” Us and KB Toys will have a real problem. I find it fascinating that Walmart is reducing selectively instead of across the board. I am interested in seeing how this strategy will play out this year. It may give their competitors an opening to exploit where they had none with the broader price reductions. I agree with the comments about squeezing the toy manufacturers and it makes me glad that I’m not a toy seller calling on Walmart and the rest.
I think the real winner here is going to be Walmart. Beyond just their ability to market through name recognition, they are best suited to take advantage of using toys as a loss leader. Unlike other specialty retailers, Walmart can take benefit from non-toy related purchases to boost their bottom line.
While I have never been a big fan of competing on price, sometimes it’s the only thing left that gives people a reason to buy from you.
Retailers will compete this year, but I don’t think they’ll shave their margins too aggressively, for two reasons. Adults will buy gifts for children, even if they skimp on themselves. Parents may choose to have an austere Christmas but will get lots of enjoyment out of watching their children open presents. And the number one toy-related search term on Google is Elmo Live. There will be hot sellers this year, and scarcity argues for list prices.
Just like the retailers, toy manufacturers are also expecting a challenging Christmas selling season this year, but their response is somewhat different from that of toy retailers. Manufacturers have been and will likely continue to take price increases to cover rising raw material costs. For example, the two leading suppliers, Mattel and Hasbro, see themselves faced with tight margins, have experienced not-so-great third quarters (operating income up 2% and 3% respectively and net up 1% and down 14%, respectively), and see the need for price increases. Retailers, for their part, have seen inflation and a poor economy put a dent in consumer spending and are addressing the situation relative to toys with some very aggressive price reductions and deals. Even specialist toy retailer Toys “R” Us is saying that it recognizes that consumers’ budgets are stretched, that it has thousands of toys for $10 and under, and this it is instructing its store associates to help customers “find the right toys that best fit their budget.”
The net result of retail price competition combined with manufacturer price increases will likely the shedding of some retail blood, and profits from toy department will be challenged. Since profits from toys can be important for many retailers’ bottom lines during the Christmas selling season, much will depend on each merchant’s merchandising skill. Laser-like pricing from Walmart is an interesting development. The only thing in retailers’ corner is the likelihood that the last thing parents will cut from their budgets are Christmas gifts for their children.
Retailers will get creative with their promotions and sales. They will use some toys as loss leaders to drive traffic and spend. For instance, 6-8 AM sells or totally buy sells, spend $200, get this toy for $10, etc. The bargain shopper will have a field day. With Christmas spending being minimized, there will be an aggressive push to get a portion of it.
Walmart can certainly afford to use toys as a loss leader, especially if it is selective in its choices. Part of the goal is to gain market share (which Walmart has been doing all year), and the other part is to drive traffic into the stores to buy other merchandise, perhaps at higher margins. A specialist like K-B Toys, however, is in a double bind: To be competitive, they need to have the “right” price on the right toys, but they have nothing else to sell once the customer is in the door. Watch for some post-holiday fallout in this industry.
The road to the bottom is paved with good intentions. Low-ball pricing could exacerbate many weak retailers both big and small. This is not news, we’ve heard this every holiday season for the past several years–when it was “good times”–that “price will be king.”
Walmart will clean up because of its scale and ability to ride loss leaders. Killing the competition is the target, it is just sad that it’s all about price and the whole supply chain suffers.
Suppliers in Asia suffer with high inflation, high export prices, dampened demand and increased price pressure from clients. Desperation and fear of failure leads to cutting corners.
Is it a surprise that products hit western markets with dangerous, toxic components? Not really when the focus is only on price.
For 50 years, brand name toys haven’t had any margins at Christmas. And most “toy” dollars are really electronics. Since when did brand name electronics have any margins? And when will we read a press release from any retailer announcing higher prices?
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When retailers talk about lowball pricing there is often one major element that lurks behind the scenes: that manufacturers will be squeezed in a way that will lead to more job cuts and more components and products coming from overseas, namely China.
There is only so low they can go on the hot items. There is no margin to play with and selling at a loss doesn’t make sense if you think customers will tighten spending. Retailers will be more aggressive with more promotional vehicles like extra points for those with loyalty programs, bogos, free giftcards with purchase, etc.
With no new console coming out this year, it will be interesting to see how TRU and others will position gaming systems. I just hope allocation on the PS3 and Wii improve because they are going to need those sales to make projections this year!
The pricing approach IS different, although even in the past, WM’s “rollbacks” haven’t been across the board; they were limited to specific products. Ten items in a very large assortment is indeed a new approach, and one worth paying attention to.
The immediate response of Target, Meijer and KayBee is unfortunate, as is the predatory nature of aggressive market share pricing in this economy. As others have pointed out, the toy business was impacted the most by the oil shock, and prices have not readjusted to reflect the lower current status (nor could they…today’s oil turns into Christmas 2009 toys).
I too predict fall out on both sides of the industry. While I believe that consumer spending may be up a slight bit for toys, I do not think that there are “must have” toys out there now whose popularity overwhelms the impact on disposable income. In short, while toys and kid related items may be the least impacted for Holiday, they WILL be impacted.
Historically, economic times like these see a shift from toys to essentials at Holiday. Clothes, books, school supplies and other essential items tend to be reclassified as Christmas presents. Look for that to occur, although on a small scale.
Overall, I applaud the laser approach by WM, but only in comparison to the alternative of across-the-board price promotion. Foot traffic will be down. The selling season will be rocky. Reactive pricing will occur. The industry, to the best of its ability, really should try to stay the course. The only “winner” to an aggressively promotional Holiday will be those companies in the best financial condition. Hi WM.
There are no good intentions here, in my opinion. It’s the equivalent of “chip dumping” which the Japanese used to do back in the 80s. Toys were never high margin products in the first place. Driving the margin to near zero won’t make a dent in WM’s bottom line, but it will definitely kill off others.
What a great time to refocus on the true religious meaning of Christmas and lessen the emphasis on the commercial aspects.
Walmart is very smart to use toys as loss leaders this year as they are in the best position to do it. Target and Meijer are able to do the same thing but stores like Toys “R” Us and KB Toys will have a real problem. I find it fascinating that Walmart is reducing selectively instead of across the board. I am interested in seeing how this strategy will play out this year. It may give their competitors an opening to exploit where they had none with the broader price reductions. I agree with the comments about squeezing the toy manufacturers and it makes me glad that I’m not a toy seller calling on Walmart and the rest.
I think the real winner here is going to be Walmart. Beyond just their ability to market through name recognition, they are best suited to take advantage of using toys as a loss leader. Unlike other specialty retailers, Walmart can take benefit from non-toy related purchases to boost their bottom line.
While I have never been a big fan of competing on price, sometimes it’s the only thing left that gives people a reason to buy from you.
Retailers will compete this year, but I don’t think they’ll shave their margins too aggressively, for two reasons. Adults will buy gifts for children, even if they skimp on themselves. Parents may choose to have an austere Christmas but will get lots of enjoyment out of watching their children open presents. And the number one toy-related search term on Google is Elmo Live. There will be hot sellers this year, and scarcity argues for list prices.
Just like the retailers, toy manufacturers are also expecting a challenging Christmas selling season this year, but their response is somewhat different from that of toy retailers. Manufacturers have been and will likely continue to take price increases to cover rising raw material costs. For example, the two leading suppliers, Mattel and Hasbro, see themselves faced with tight margins, have experienced not-so-great third quarters (operating income up 2% and 3% respectively and net up 1% and down 14%, respectively), and see the need for price increases. Retailers, for their part, have seen inflation and a poor economy put a dent in consumer spending and are addressing the situation relative to toys with some very aggressive price reductions and deals. Even specialist toy retailer Toys “R” Us is saying that it recognizes that consumers’ budgets are stretched, that it has thousands of toys for $10 and under, and this it is instructing its store associates to help customers “find the right toys that best fit their budget.”
The net result of retail price competition combined with manufacturer price increases will likely the shedding of some retail blood, and profits from toy department will be challenged. Since profits from toys can be important for many retailers’ bottom lines during the Christmas selling season, much will depend on each merchant’s merchandising skill. Laser-like pricing from Walmart is an interesting development. The only thing in retailers’ corner is the likelihood that the last thing parents will cut from their budgets are Christmas gifts for their children.
Retailers will get creative with their promotions and sales. They will use some toys as loss leaders to drive traffic and spend. For instance, 6-8 AM sells or totally buy sells, spend $200, get this toy for $10, etc. The bargain shopper will have a field day. With Christmas spending being minimized, there will be an aggressive push to get a portion of it.
Walmart can certainly afford to use toys as a loss leader, especially if it is selective in its choices. Part of the goal is to gain market share (which Walmart has been doing all year), and the other part is to drive traffic into the stores to buy other merchandise, perhaps at higher margins. A specialist like K-B Toys, however, is in a double bind: To be competitive, they need to have the “right” price on the right toys, but they have nothing else to sell once the customer is in the door. Watch for some post-holiday fallout in this industry.
The road to the bottom is paved with good intentions. Low-ball pricing could exacerbate many weak retailers both big and small. This is not news, we’ve heard this every holiday season for the past several years–when it was “good times”–that “price will be king.”
Walmart will clean up because of its scale and ability to ride loss leaders. Killing the competition is the target, it is just sad that it’s all about price and the whole supply chain suffers.
Suppliers in Asia suffer with high inflation, high export prices, dampened demand and increased price pressure from clients. Desperation and fear of failure leads to cutting corners.
Is it a surprise that products hit western markets with dangerous, toxic components? Not really when the focus is only on price.
For 50 years, brand name toys haven’t had any margins at Christmas. And most “toy” dollars are really electronics. Since when did brand name electronics have any margins? And when will we read a press release from any retailer announcing higher prices?