The Land of Misfit Toys

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The holiday season of 2008 may go down in history as one of the biggest nail-bitters in the last few decades. Motley Fool analysts have assessed the state of retail going into this critical season -- the stocks, sales strategies, consumer trends -- and identified the winners and losers at the mall and in investors' portfolios. Click here for the complete report.

Remember the Rudolph the Red-Nosed Reindeer movie, where Rudolph and his buddy Hermey the Elf discover the Land of the Misfit Toys? Well, I hate to tell you, but that's kind of what Christmas is going to look like this year.

Lumps of coal for the kids?
Harris Interactive just released its outlook on holiday toy spending, and it's not pretty. 47% of Americans plan to purchase toys in 2008, and of those who are buying toys, 44% will be spending less this year and 18% plan to spend much less. What are people buying? Well, 47% intend to buy books, 38% will purchase video games, and 33% plan to buy board games or arts and crafts.

Interestingly, last year's infamous lead paint toy recall may also have some lingering effects. The Harris survey found that 16% of those affected by last year's recall have stopped buying toys made in China. This could spell trouble especially for Mattel (NYSE: MAT  ) who bore the brunt of the recall trouble.

What's hot and what's not
A second strike against the toy industry this year is the lack of a "hot" toy. The National Retail Foundation (NRF) predicts that Mattel’s Barbie will top girls' wish lists for the fifth year in a row while Hannah Montana and High School Musical of Disney (NYSE: DIS  ) fame rank second and eighth respectively on the top of the toy list this year. Of course, video games top the boys' wish lists, with generic video games in the top ranking and Nintendo's (OTC: NTDOY) Wii system in second place.

Some notable folks missing on the toy list this year include Dora the Explorer and Thomas the Tank Engine brands, which are licensed by numerous toy manufacturers including struggling RC2 Corporation (Nasdaq: RCRC  ) . LeapFrog is one former up-and-comer who hasn't made the top 10 holiday toy list for three consecutive years. Investors in JAKKS Pacific (Nasdaq: JAKK  ) , maker of last year's top-selling EyeClops Bionic Eye, will be glad to note that remote control vehicles remain on the top 10 list as the company produces numerous versions of these pricey movers.

Bargains galore
Inspired by fellow Fool Rick Munarriz, I took a look at Amazon's top-selling toys to see what's hot online right now. Privately-held Spin Master Ltd makes three of the top 10 toys and six of the top 25 toys. In comparison, Hasbro (NYSE: HAS  ) makes six of the top 25 toys (with two toys in the top 10) and Mattel has four in the top 25 with none in the top 10. Only seven of the top 25 toys are over $30, and most of the products are being discounted in some way.

It's not a huge surprise that toy prices are already dropping considering where the market is. The NRF reports that retailers are featuring toys as loss leaders to get people into stores, which is great if you're buying toys for your kids, but not so great as a retail investor. I've taken advantage of the great deals already and have picked up bargains early at Target and KB Toys' sales, whereas a recent visit to Toys 'R Us left me high and dry as the toys I was looking for were already gone.

Now what?
To me, the toy landscape is divided up between the little ones who like Dora, Diego, and The Little Mermaid and the bigger ones who can't get enough of video games. Let's face it -- most young kids aren't too picky about what they get, so parents -- er, Santa, will have some leeway for what they put under the tree. Parents can move to lower-priced books, games, and toys and still pull off a successful Christmas.

Big kids, well, they're a different story. Video games make the top five lists for both boys and girls, so systems like the Nintendo Wii are becoming gifts that the entire family can enjoy. Still, families may decide to buy a Microsoft (Nasdaq: MSFT  ) Xbox -- which, by the way, has made the boy's top 10 toy list for four consecutive years – however, I don’t think they'll buy as many games to go along with it in a year like this.

With a lot of people just downgrading in general, Hasbro may have the well-diversified portfolio that both investors and consumers are looking for in these tough times. Hasbro's Transformers have dropped from the top boy toy of last year to number five, but the company is able to gain from the recent Hannah Montana and High School Musical successes in its toy and game offerings. In addition, Hasbro features a portfolio of established brands including Candy Land, Monopoly, Mr. Potato Head, and My Little Pony. With a wide range of products under $20, Hasbro has the most to offer to in the current economic environment and might just be the most merry toy manufacturer during this holiday season.

For related Foolishness:

Disney, Nintendo, and Hasbro are Motley Fool Stock Advisor recommendations. RC2 Corporation is a Motley Fool Hidden Gems pick. Looking for more advice in a topsy-turvy market? Give the Motley Fool's newsletters a try via the 30-day free trial.

Fool contributor Colleen Paulson does not hold any positions in the companies mentioned above and must admit that she hates the claymation version of the Rudolph the Red Nosed Reindeer. The Fool's disclosure policy is no grinch.

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  • Report this Comment On November 26, 2008, at 1:22 PM, mediaadvantages wrote:

    Last Thanksgiving roughly 20% of the recalled toys were still on the shelves. Don't take home a recalled toy this holiday. is a site you can access on your mobile phone, on the go, while you are shopping. It allows you to access the governments database of recalled items, showing where the items were sold, how many, any incidents, who to contact and also pictures of the recalled item. Hope you enjoy and have a great Thanksgiving and Christmas!

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