Consumer Electronics Helps Write A New Toy Story.

With the help of consumer electronics, the toy industry is reinventing itself — and just in time for the all-important holiday shopping season.

Over the past few years, traditional toys have struggled to keep their relevance in children’s lives while consumer electronics like MP3 players and cell phones have captured their fancy. And with the infiltration of video game consoles into America’s living rooms, much of the market’s prime demographic considers old-fashioned toys passé.

To beat back consumer electronics companies from stealing their market, toy makers are incorporating interactive and electronic features into traditional toys, as well as making consumer electronics products for children.

“There is a convergence going on between toys and consumer electronics,” says Scott Krugman, spokesman for the National Retail Federation. “These aren’t loss leaders like traditional toys [for retailers], where discounters can beat specialty stores and other retailers on price.”

Toy sales account for $21 billion a year in sales, but sales have declined as kids’ attention has turned toward electronic gadgets, ranging from music players to computer games. Between 2003 and 2004, toy sales declined 5 percent, according to NPD Group in Port Washington, N.Y.

Sales of action figures and accessories declined over 5 percent during that time, to $1.2 billion, while leaning and exploration toys fell 25 percent, to $401 million.

Digital cameras were a hot item last year for children and teenagers; this year, Microsoft’s new Xbox 360 video game system is the “must have” item. In addition, digital music players like Apple’s iPod are extremely popular, according to Jenny Pareti, spokeswoman for the Consumer Electronics Association. Early returns indicate that the Xbox and iPod have been strong sellers so far in the holiday season, despite a price tag that can reach $400 for the Xbox and $500 for the iPod.

“Children have become more sophisticated, and manufacturers are taking traditional toys and adding technology to make them fun and exciting,” says Genna Rosenberg, vice president of communications at Jakks Pacific, a toy designer in Malibu, Calif., that owns the Cabbage Patch Kids line of dolls.

In adding electronic, interactive features like speech and movement, sales for Cabbage Patch dolls increased 183 percent between 2003 and 2004, according to the NPD Group. Similar efforts by the makers of the Strawberry Shortcake doll helped boost sales 111 percent during the same period.

This holiday, the Care Bear doll, which was introduced in the 1980s, can read to children as they follow along in books. A computer chip inside the toy contains recording of books, Rosenberg says.

Not only are toy manufacturers integrating consumer electronics into toys, but they’re transforming consumer electronics into toys. Traditional toy makers such as Hasbro and Mattel — creators of G.I. Joe and Barbie, respectively, which account for 29 percent of all toy sales — now have an array of consumer electronics as part of their product lines.

Hasbro’s VuGo Multimedia System allows kids to load shows from Cartoon Network and Nickelodeon onto a multimedia player. Hasbro is also selling digital video cameras, retailing for $79, aimed at children 8 and older.

By adding CE products and integrating CE components into traditional toys, Hasbro has been able to boost sales. In the third quarter, Hasbro reported third-quarter revenues of $988 million, compared to $947 million a year ago, according to the company.

MGA Entertainment’s Bratz doll line, while not a consumer electronics product per se, includes a Bratz-branded MP3 player and digital video camera.

LeapFrog Enterprises, an educational toy company, partnered with wireless company Enfora to create TicTalk, a phone for children. In the past, this would have been considered a consumer electronics product, but it’s not a far reach to market TicTalk as a children’s toy. The phone, which retails for $100, also includes LeapFrog’s educational games.

Toy makers are also creating toys that fit into family entertainment centers. In 2002, Jakks created a small video game console that plugs into the back of a television. The console retails for $20, Rosenberg says.

The Toy Industry Association (TIA) expects more consumer electronics to be marketed as toys. The shift from buying traditional toys, such as puzzles, board games and non-electronic action figures, has to do with children growing up faster.

“As kids become more technologically savvy, they appear to be adopting alternatives for play outside the traditional toy industry,” according to a 2004 TIA survey.

By Kathleen Kiley
Courtesy of http://www.kpmg.com