When children write their letters to Santa this year, many will be skipping last year's hot item: Webkinz. The stuffed animals were so popular last holiday season it was hard for retailers to keep the toys on their shelves. The plush dolls appealed to children and parents by linking the physical toy with a virtual world, where kids play with online versions of their personal stuffed animals and spend virtual cash to clothe and feed them.
Since then, demand has fallen off a cliff. According to The NPD Group, sales for Web-connected play toys have plunged 41% this year through August, marking the biggest decline among the 13 categories tracked by the market research firm, which provided its data to DailyFinance. The drop-off was so stark that at least two retailers disclosed the dwindling sales of Webkinz as drags on their performance in recent earnings calls."They were tremendous and they were a fad, so it looks like it's gone through a cycle," said Dan Crow, chief financial officer of Hastings Entertainment (HAST).
Customer frustration with Webkinz site crashes, the recession and market saturation -- think dozens of the toys already collecting dust in kids' rooms -- have taken the stuffing out of toy's sales. Susan McVeigh, a spokeswoman for Webkinz manufacturer Ganz, a closely held company, declined to comment for this article.
Hastings, which disclosed the plunge in Webkinz sales during its second-quarter conference call in August, declined to disclose the exact drop-off. The company will report third-quarter results on Monday. And TweenBrands (TWB), which owns the Justice chain of girls' clothing stores, said in August that its 12% decline in comparable second-quarter store sales was partly due to lower sales of Webkinz.
"The Kids Already Have 50 of Them"
It's a far cry from the halcyon days for the plushies, which sell for roughly $10 to $15 each. The toys burst onto the scene in 2005, one of the first lines to combine a physical plaything with an online world. Like that earlier stuffed animal fad, Beanie Babies, Webkinz have been issued in dozens of varieties, starting with fairly simple animals such as cats and dogs in its initial year. More recent varieties have included exotic species such as "Rainforest Boa" and a "Green Seadragon."
"Webkinz was the first to do a hybrid product, and it took off like a rocket," said Richard Gottlieb, CEO of USA Toy Experts, a consulting company based in New York. "But new people have been coming into the business," he added.
It's not only rival hybrid stuffies from toy lines such as Groovy Girls competing with Webkinz, but free online games that have taken market share away from the toys, he said. Club Penguin, from Walt Disney (DIS), for one, offers free online games to the same age group. And in a recession, many parents are choosing to go the free route.
"The kids already have 50 of them," said Justin Watkins, the owner of Webkinzinsider.com, a Website dedicated to tracking the online world. "People are still buying them, but not as much," he said, adding that some of the people visiting his site have hundreds or even thousands of the toys.
And parents and kids got frustrated with Webkinz site crashes and stalls. Frustrated users vented about difficulties getting onto the site through consumer forums such as My3Cents.com, or on sites like this one, at which a parent documented the traffic message encountered by his daughter on Christmas morning 2007.
This Year, Classic Toys Are Strongest Sellers
The plunge in sales has resulted in a glut of Webkinz in retailers' inventories. KidsTown, a high-end children's retailer based in Burlington, Vt., was selling the toys on clearance ($4 for a white dog Webkinz) this fall.
"Those are leftover from the heyday," said Tina Uzomba, buyer and operations manager for the store, one of the largest specialty toy retailers in New England. "We used to order 12 dozen at a time or more, because you couldn't keep them in stock." For this holiday season, she estimates she'll order two dozen because "I want to guarantee I'll get rid of them."
But Uzomba noted that Webkinz sales aren't the only ones being affected this year. Because of the recession, she has seen overall sales for her store decrease dramatically. Yet some items remain popular, she added. Which ones? Staples such as books, games and arts and crafts.
That's borne out by data from NPD. While overall sales of U.S. toys slipped 2% this year through August, arts and crafts, board games and building sets were among the categories with sales increases, the research company said.
Ganz has reacted by selling online-only pets as a way to reduce its reliance on sales of physical toys, said Webkinzinsider.com's Watkins. But Ganz is now competing with other companies which have more resources, such as Disney, Watkins added. "I don't think it'll ever become as popular as it once was," he said.
Why do investors make the decisions that they do?View Course »