Wal-Mart Fires Shot in Toy War

The Wall Street Journal

Retailer Cuts Prices After Learning Target's Are Lower

 

 

The annual battle for the minds and wallets of toy-buying parents has gotten off to a particularly fierce start, with Wal-Mart Stores Inc. slashing prices in an effort to keep Target Corp. from being the low-cost leader this holiday-shopping season.

Toys are key to many retailers' success at Christmas, because parents will buy stuff for their kids even when the economy is awful. But in recent years shoppers have tended to snap up the biggest toy bargains and ignore stores' other offerings.

This year, with economic conditions somewhat improved, retailers are hopeful that if they can lure parents with a great price on electronic hamsters or Stinky the Garbage Truck, shoppers will make other purchases. But store chains continue to feel the need to stake their low-cost claims just days after Halloween.

"It will still be a very competitive season for toys," said Craig Johnson, president of Customer Growth Partners, a retail and consumer consulting firm. "The reason you are seeing so much early discounting is that retailers are trying to get an early share of the market."

When the biggest retailers came out with their initial holiday toy prices shortly after Halloween, Toys "R" Us Inc. and Amazon.com Inc.—which is touting 25% off hot toys—telegraphed aggressive price cuts.

Amazon's toy prices are for the most part within the range of Wal-Mart, Target and Toys "R" Us, which also offer a variety of free-shipping deals on toys to compete with Amazon. Online toy purchases are rising but still make up a small percentage of all toy sales.

Wal-Mart was offering discounts on a broader selection than the bare-bones list of inexpensive toys it promoted last year. But in many cases its prices were higher than those advertised by archrival Target.

Shortly after The Wall Street Journal asked Wal-Mart last week about its price disadvantage, the company issued a new price list, slashing the sticker on many hot toys.

"This underscores our commitment to offer the lowest prices on top toys," Wal-Mart said in a statement.

With its newly announced prices, Wal-Mart beat Target on many toy prices by just a few pennies. But a few big spreads persist.

For example, Wal-Mart is now selling a Barbie doll embedded with a video camera for $39, or $6 less than Target. Meanwhile, Target has priced Stinky the Garbage Truck—a Matchbox truck that tells jokes—at $49.99, after a coupon, or $6 less than Wal-Mart.

Both retailers say that if a shopper presents them with a print ad featuring a lower price, they will match it.

But Target has a new, potentially potent price weapon that Wal-Mart does not: Shoppers get an extra 5% discount on all purchases, including toys, if they pay with a Target credit or debit card or the Target Visa card.

A much lower proportion of Wal-Mart's customers use credit cards of any sort. Wal-Mart's Discover Card gives buyers 1% back on purchases. As of yet, it has not matched Target's 5% discount.

Casey Carl, vice president of toys and sporting goods at Target, said, "We are doing things differently this year. We're expanding our discounts throughout the season."

Target is putting half of its 2,000 toys on sale this year, an increase of about 10% from 2009. The discounts released last week expire Nov. 24, but will be followed by other sales through the holidays.

"From everything we heard, Target was disappointed with their toy sales last Christmas and they seem to be coming out swinging harder and faster," said Eric Johnson, professor of management at Dartmouth College's Tuck School of Business.

Wal-Mart, meantime, is trying to convey that its toy section, which had shrunk by 30% in recent years, is expanding again, at least during the holidays. It also has more than quadrupled the size of its toy-oriented circular for newspapers, which this year has 52 pages.

In a departure from the last two years, when Wal-Mart emphasized toys for under $10 and $5, the retailer is touting popular toys across a range of prices. The most expensive item on Wal-Mart's top toy list is Big Foot The Monster, which walks, talks and burps, for $84.88.

"We've expanded the selection of toys and widened the array of price rollbacks," said Laura Phillips, Wal-Mart's senior vice president of toys and seasonal merchandise.

Ms. Phillips said that while Wal-Mart's price cuts will last through the season, competitors are expected to raise and lower their prices until Christmas. At rival stores, she said, "customers will have to chase sales."

Dartmouth's Prof. Johnson said he sees a shift in Wal-Mart's strategy. "They don't seem as intent on running everyone out of the toy business," he said.

The holiday selling strategy at Toys "R" Us goes beyond price, said Chief Executive Gerald Storch. The retailer is stocking a wider variety of toys in general and more exclusive toys, where it is not necessary to compete on price. The company, for instance, made a big bet this year on a line of miniature die-cast trains called Chuggington that aren't sold by Wal-Mart, Target or other big chains.

Toys "R" Us also holds events that bring products to customers ahead of the competition, such as Sunday's sale on merchandise involving teen heart throb singer Justin Bieber.

In addition, the retailer offers shoppers who enroll in a loyalty program 10% back on holiday purchases up to $500, via store credit. And the company has created an iPad app where children can create a wish list.

But that doesn't mean Toys "R" Us is ignoring its rivals' prices, Mr. Storch said, adding, "At any time, anyone can have the lowest price on a toy and we respond accordingly."

American Girl Dolls Face Disney, Toys ‘R’ Us Rivals

Bloomberg

American Girl, the Mattel Inc. doll that has dominated the big (18 inches, or 46 centimeters, tall) and expensive ($95) part of the market for 24 years, may have to watch her back this holiday season.

Toys ‘R’ Us Inc., Walt Disney Co. and MGA Entertainment Inc. are all out to get her. Toys ‘R’ Us, the world’s biggest toy retailer, has introduced a line of ethnic dolls called Journey Girls for $29.99. Disney’s $49.99 Princess & Me doll has made “most wanted” lists from Toy Insider and TimetoPlayMag.com. MGA’s Best Friends Club features a $32.99 doll that promotes friendship through a storytelling website.

The trio of new big dolls may be the biggest threat to American Girl sales since a Wisconsin educator created the history-themed characters in 1986. With U.S. unemployment hovering at 9.6 percent, the cheaper entrants may be appealing to gift buyers seeking to economize.

“The angle most people seem to be pursuing is to price well below American Girl,” said Edward Woo, an analyst at Wedbush Securities Inc. in Los Angeles. “That’s an opportunity to break into this market.”

Toys ‘R’ Us decided to enter the market after observing the continuing popularity of big dolls, Lisa Harnisch, a vice president of the Wayne, New Jersey-based retailer, said in an interview. About a year ago, she and her colleagues met with manufacturers and concluded 18-inch dolls -- more than six inches taller than Mattel’s Barbie line -- would sell well during the 2010 holiday season; Journey Girl was born.

Each doll comes with a back story describing its travel experiences and hobbies. Taryn is a musician who dreams of playing at the New Orleans Jazz Festival; Meredith is a skier who hopes to visit the Alps.

‘Like Friends’

“Kids can really relate to these larger dolls,” Harnisch said. “They’re like friends to the girls who play with them.”

The Disney Princess & Me line, Disney’s first foray into 18-inch dolls, features six popular movie characters including Cinderella, Ariel from “The Little Mermaid” and Aurora from “Sleeping Beauty.” Among other accessories, girls can get the same outfits as their dolls.

“The popularity and success of American Girl has opened the market to other brands and opportunities,” Jennifer Caveza, a marketing vice president at JAKKS Pacific Inc., which makes the Disney Princess dolls, said in an e-mail.

Nathalie Crausse, a flight attendant from Montpellier, France, was at the flagship Toys ‘R’ Us store in Times Square on Oct. 8, checking out Disney Princess & Me outfits for her 6- year-old daughter, Tara. Crausse is a regular in the store during her bimonthly stopovers in New York and says she has bought eight Disney Princess dresses in the past 18 months.

‘Buy Something’

“If I can’t get something for my daughter,” said Crausse, “I always buy something for the doll.”

MGA’s Best Friends Club line aren’t the only dolls the company makes that competes with Mattel products. MGA’s Bratz line has gone head to head with Barbie. The two companies have tussled in court over the ownership rights to Bratz. In July, an appeals court overturned an earlier ruling that had awarded the rights to Mattel.

Pushing American Girl aside won’t be easy, says New York- based toy industry analyst Sean McGowan of Needham & Co.

“American Girl is not purchased instead of any other doll,” said McGowan, explaining that the dolls appeal to customers who aren’t easily swayed by price. “It’s just a different kind of purchase.” McGowan expects this year’s sales to surpass the record $463 million in both 2008 and 2009.

Educator

American Girl first appeared in 1986 after Pleasant T. Rowland, an educator and writer based in Madison, Wisconsin, was looking for dolls for her nieces. Rowland couldn’t find any that represented girls aged nine to 12.

She decided to create a line of dolls and books representing periods of American history, from Felicity Merriman, a colonial girl from 1774, to Molly McIntire, a World War Two-era girl from 1944. The dolls’ popularity attracted the interest of Mattel, which bought Rowland’s company for $700 million in 1998.

The El Segundo, California-based toymaker kept the craze going by opening stores, which now number nine, and backing a series of movies. Mattel added contemporary dolls in 1995, with varying combinations of skin tone, eye color and hair style.

Sales Rose

Sales surged 15 percent in 2005 following the release of the first of five films, “Samantha: An American Girl Holiday.” While the growth has since slowed, sales rose during the recession, climbing 7.3 percent between 2007 and 2009.

Mattel climbed 40 cents to $22.73 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have climbed 14 percent this year, compared with a 5.8 percent increase in the Standard & Poor’s 500 Index.

Valerie Fallon is an American Girl buyer of long standing. Over the past nine years, the mother of three from Newtown, Connecticut, has purchased a salon chair, hair brushes, a horse and an equestrian set for her three girls, as well as a matching soccer kit for doll and child.

Fallon’s youngest daughter, Kiersten, celebrated her 8th birthday at American Girl’s New York City store with cookies and cupcakes on Oct. 8. Each year, Fallon says, she spends “a couple of hundred dollars” on American Girl products.

Bring on the competition, Julie Parks, American Girl’s director of public relations, said in a phone interview.

“We’re really proud to have created this 18-inch doll genre,” she said. “We feel we have a great product line for 2010. Our content has evolved into entertainment and theater, and that has been our point of difference from the outset.”

Toys Я Us Faces U.S. Antitrust Inquiry

from the Wall Street Journal

Federal antitrust enforcers are investigating whether Toys "R" Us Inc. used its market clout to stifle discounting by retail competitors and force consumers to pay higher prices for baby products.

The Federal Trade Commission is investigating whether the retail giant may have violated an 11-year-old FTC order to abstain from anticompetitive tactics, according to people familiar with the matter. It is unclear whether the probe will result in any enforcement action.

Toys "R" Us consented to the decree in 1998, after an administrative law judge ruled that the retailer illegally wielded its market power to strong-arm toy makers into boycotting Costco Wholesale Corp. and other discount warehouse clubs by threatening to stop selling any toys also being sold by the clubs.

Toys "R" Us could face a new FTC complaint for allegedly trying to fix the prices of baby products, people familiar with the matter said. The products include strollers, high chairs, car seats and breast pumps sold at Babies "R" Us, a unit of Toys "R" Us.

A spokeswoman for the Wayne, N.J., company said, "The FTC began looking into the issue a year ago and we have cooperated fully since that time." An FTC spokesman declined to comment.

The probe is a signal that federal enforcers are taking a more aggressive role in one of the most contentious issues in retailing: whether manufacturers and retailers can agree to set a minimum retail prices on products.

FTC investigators are expected to review numerous emails exchanged among Babies "R" Us and various manufacturers.

One set of email exchanges filed in a class-action case appears to show Babies "R" Us urging the Britax Childcare unit of Carlyle Group LLC to get Target Corp. to raise prices. The subject field in the email exchanges said: "Target has not raised prices."

"Did Target commit to you when they will raise their prices?" Cesar Garcia, director of merchandising at Babies "R" Us, allegedly asked in an email dated Jan. 6, 2006.

According to the emails, a couple of hours later, Scott Doerstling, a Britax representative at the time, allegedly responded: "Target said they would honor the new MSRP's [Manufacturer Suggested Retail Price] ... please be assured that Britax's goal is to have uniform MSRP's in the market place."

Five days later, according to court records, Mr. Doerstling allegedly sent another email to Mr. Garcia reassuring him that "We are in communications with them [Target]. We understand your position and are doing what we 'legally' can do to ensure MSRP harmony in the marketplace."

Toys "R" Us didn't reply to an email seeking comment about its remarks regarding Target's prices.

Another court document suggests Babies "R" Us canceled orders for some products from Medela Inc. of Switzerland because the company wasn't being tough enough on Internet retailers that didn't abide by minimum-pricing agreements. An internal Medela memo filed in the case indicated that Medela, under apparent pressure, cut off supplies to 17 Internet retailers.

Medela officials couldn't be reached for comment.

The FTC has requested documents from two law firms -- New York-based Faruqi & Faruqi LLP and Hagens Berman Sobol Shapiro LLP of Seattle -- that are litigating cases alleging price-fixing against Babies "R" Us in U.S. District Court in Philadelphia, according to people familiar with the matter.

Kendall Zylstra, a Faruqi attorney representing two online retailers, Babyage Inc. and Baby Club of America Inc., said he had been contacted by the FTC "pursuant to the investigation."

Elizabeth Fegan, a Hagens Berman attorney representing a group of consumers in a class-action suit against Babies "R" Us, also confirmed being contacted by the FTC in same probe. That suit also is being heard in U.S. District Court in Philadelphia.

It isn't clear whether the FTC also is looking at the five manufacturers named as defendants in the lawsuits: Maclaren Ltd. of Britain; Italy's Peg Perego SpA; Sweden's Baby Bjorn AB; Medela; and Britax. The companies have denied any wrongdoing.

For nearly a century, price-fixing agreements generally were illegal. But in 2007, the U.S. Supreme Court ruled such pacts could be lawful if the benefits to consumers -- better service, for example -- outweighed the harm of higher prices.

The high-court ruling emboldened a growing number of manufacturers to establish minimum-pricing agreements with retailers. Under such pacts, discount retailers risk having their supplies cut off if they sell the goods below the fixed minimum price.

In a speech delivered last week to the National Association of Attorneys General in New York, Christine Varney, the new head of the U.S. Justice Department's antitrust division, called enforcement under the Supreme Court's pronouncement "one of the most important challenges facing state Attorneys General."

Ms. Varney added: "There is a greater likelihood that a [fixed price] restraint is anticompetitive if retailers coerced the manufacturer to adopt it."