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Playing With Prices: What’s Behind Fluctuating 2012 Christmas Toy Costs?

Dec. 6, 2012
Holiday Tips & News, Shopping, Shopping News
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The holiday search for the elusive “perfect toy” is on, but what about the search for the perfect price? Toy prices can be volatile during the holiday shopping season, as there is high demand for the hottest toys and retailers can restock only so fast.

So, what’s the secret behind toy pricing during the holidays? We’re going to take a quick look at why toy prices are unpredictable during the holidays, while offering a few ways consumers can get the best bargains without missing out on the most coveted toys.

Supply and Demand 101

At the most basic level, toy prices are about availability. You probably remember a mad rush on a toy in the past couple of decades, such as the frenzy for the Rubik’s Cube, Cabbage Patch Kids, Transformers and Tickle Me Elmo, and some of these stampedes made a 1929 run on a bank look tame.

Availability clearly influences price, as the hotter the item and the less in stock, the more the retailer can pump up the price. Conversely, if retailers are seeing toys camping on the shelves, they’ll cut prices to avoid being stuck with an excess Dec. 26.

Retailers know that parents will pay extra to ensure that they get the right toy for their child for the holidays. Even if the child really does deserve a lump of coal – and a study by Walmart suggested that 78% of parents don’t take behavior into account for determining how many toys to buy their kids – parents generally don’t want to disappoint their children.

There are a few other key determinants of holiday toy pricing, such as retailer competition. Patrick Carter, founder and president of Digital Folio, a multichannel shopping network powered by crowd-sourced information, notes that certain toys will be labeled by some retailers as “must win SKUs,” a reference to the retail term used to track inventory known as stock keeping units.

These toys, according to Carter, are “extremely popular toys that (retailers) want to ensure they have (at) a competitive price to drive store traffic and visits since those items will be highly considered by many shoppers.” These must-win SKUs are essentially the same as Black Friday doorbusters – items selling at lower margins to drive volume sales. 

Retailer Tricks to Manage Toy Supplies

If we have figured out that toy availability matters, then it’s a good bet that the retailers have figured this out, too.

With tightly controlled supply chains and better-than-ever data analytics, retailers are better armed than ever for managing supply and demand. Two main ways retailers do this are toy books and layaway.

Toy books – published in mid- to late October by big toy retailers such as Walmart, Kmart, Toys R Us and Blain’s Farm and Fleet – drive up early demand. These early toy advertisements and sales lock up consumer dollars and stoke early excitement. These toy sales also provide a snapshot of what toys might be hot in the big month of December.

Retailers use layaway in a similar fashion. Merchants across the board dropped layaway fees this year to promote the program and make it easier for shoppers to start paying for purchases months before Christmas. Besides receiving increased foot traffic in the months of September and October, retailers get a better idea of which toys will be flying off the shelves.

But the key here isn’t just getting a handle on what toys are big this season. Both toy books and layaway drive early toy sales and therefore increase the likelihood that stores will run out of a certain toy by Christmas Eve. This means that stores can avoid discounting toys they’re afraid won’t move by Christmas.

For retailers, selling high volumes of toys at full profit margins is a huge win. In addition, if early sales from layaway and toy books are truly inspiring, retailers can mark up prices on certain scarce toys in the weeks before Christmas. 

Is Toy Pricing Changing From Years Past?

While toy wish books date back decades, the merchant mad dash to drop layaway fees is new this year.

Comparison shopping is also bringing some changes. According to Digital Folio’s Carter, big data and the Internet are also forcing retailers to be more competitive on price. “Unlike the past, the difference between online and offline pricing is narrowing or nonexistent. Consumers never liked the discrepancy. Toys R Us, for example, has a policy of the same price in both channels, which appeals to shoppers, and several other retailers are following suit,” he says.

The transparency of the Internet also forces retailers into de facto price matching. “Discrepancies between major retailers (are) narrowing dramatically given dynamic pricing and competition,” Carter states. “We see the largest discrepancy being smaller, unknown retailers, where many tend to trend with higher-in prices as they hope to capitalize on out-of-stock situations at the major retailers,” he says.

Best Strategies for Consumers

So, what does this mean for you? Try to buy a hot toy now and buy a less popular item closer to Christmas. Dealnews says that the best time to buy Christmas toys is right in the first two weeks of December, when retailers are starting to survey their backrooms and subsequently rolling out discounts to move the slower toys.

To predict whether it will be popular, check out some toy lists. If it’s on our short list of six toys, you’re probably better off buying it now. This will help you avoid the scenario of hunting high and low to find a certain toy, only to have to overpay because of limited availability.

Be smart with the bundles as well. As popular toys get scarce, retailers won’t just mark up the price – they’ll also increase the number of accessories and add-ons sold with the toy. The ratio of bundles to individual items will increase anyway, as shoppers pick over individual items, leaving the later buyers left with only options including accessories and add-ons they don’t want.