Hit holiday toys key for retail industry

Wednesday, December 24, 2008
Gage Treadway poses with a Bakugan Battle Brawlers in Palo Alto, Calif., Friday, Dec. 19, 2008. Indecipherable to adults and irresistible to kids, Bakugan Battle Brawlers toys have become an out-of-nowhere hit of the holidays. That is music to the ears of its creator, scrappy Toronto-based Spin Master Ltd. (AP Photo/Paul Sakuma)

NEW YORK -- At the hectic Toys "R" Us in Times Square, displays of Incredible Hulk and Star Wars toys dwarf a shelf displaying Spin Master Ltd.'s Bakugan Battle Brawlers. But the Bakugan products are sparse, while other shelves remain fully stocked.

Irresistible to many children, Bakugan Battle Brawlers and related merchandise have become an out-of-nowhere hit this shopping season.

"Bakugan qualifies as the hardest-to-find toy of the holiday season," said Toys "R" Us spokeswoman Kathleen Waugh. "The minute it is restocked on store shelves it vaporizes."

Toy makers often rely on holiday hits like Bakugan because up to half their annual sales come during the last three months of the year. Even though adults are focusing their spending on children during this holiday season, analysts predict toy sales will be flat or even fall up to 3 percent from the $10.4 billion market research firm NPD Group said toy shoppers spent during last year's final three months.

Retailers and industry experts say the most expensive items are selling slowest.

Paul Sakuma ~ Associated Press
A Bakugan Battle Brawler toy is seen Friday in Palo Alto, Calif. The toys have become an out-of-nowhere hit for the holidays.

"We're cautious on high-ticket items this holiday period," said Drew Crum, a Stifel Nicolaus analyst.

An exception is Spike the Ultra Dinosaur, a remote-control dinosaur from Mattel Inc.'s Fisher Price unit, according to Jim Silver, a toy analyst with Timetoplaymag.com. It retails for $140 at Toys "R" Us and $130 at Wal-Mart Stores Inc.

Among other classic brands, Hasbro's Nerf "is on fire," BMO Capital Markets analyst Gerrick Johnson said in a note to clients; most popular are Nerf guns, which range in price from about $20 to $85, he said.

For Toronto-based Spin Master, which launched Bakugan in Japan in 2006, Canada last year and the U.S. this year, ranking among holiday hits is a relief. Around this time last year, the company was contending with the recall of its popular holiday gift, Aqua Dots.

"We have been cautiously optimistic all along" about Bakugan, said chairman and co-chief executive Ronnen Harary. "There's something really special about this product that gave it the ability to perform at the level it's performing today."

Bakugan, which Spin Master worked with Sega Toys in Japan to create, combines magnetic playing cards and collectible spheres that click open into action figures when they roll over the cards. An accompanying TV show, an anime production on the Cartoon Network, gives history and depth to the characters. A Bakugan combo pack with a Bakugan card and action figure is about $7 and a collector's tin with two action figures is about $20.

"Without a doubt, it's the best-selling toy out there," said BMO's Johnson.

Marketing has been key to Bakugan's success, as well as to Spin Master's. The company, started by three friends in 1994, has grown to a 650-employee operation that calls itself the fifth-largest toy maker in North America.

Spin Master introduced Bakugan with tournaments, a van tour that gave demonstrations at outdoor festivals and in-store presentations and traditional TV advertising.

"They do a lot of searching around the world looking for ideas and acquiring ideas, they take chances and come up with products that no one else is doing," said Silver of Bakugan's strategy. "Then they heavily promote them."

After last year's recall of Aqua Dots, Spin Master severed ties with the manufacturer and brought the product in-house. Redesigned with help from the Consumer Product Safety Commission and a team of toxicologists, the toy was reintroduced this year under a new name, PixOs, and has become popular.

Spin Master has since changed its structure and now mostly distributes its own toys.

"If we can't manufacture a product or control 100 percent of its manufacture, we don't distribute it," president and co-CEO Anton Rabie said. "If we can't be 100 percent sure on safety, we turn it down, we don't even blink."

Meanwhile, the Bakugan phenomenon keeps growing. Rabie said he admires Hasbro Inc. and the way the company built its Transformers toy into a franchise with a major motion picture, and Spin Master may not be too far off from that path. Last week, Universal Pictures agreed to create a feature film based on the Bakugan game and series.

"We're going to put a lot of energy building the Bakugan franchise worldwide," Rabie said. "We want to turn Bakugan in global franchise."

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