Santa May Have Less for Toy Retailer By Angela Moore Yahoo Finance Sunday October 20, 11:40 am ET

The toy industry, which makes most of its money in the fourth quarter, looks like it will come up short, with consumers reluctant to open their wallets and the possible scarcity of some key toys.

"It'll be a challenging season for toy retailers, with shoppers looking for value, and people overall expect to get more for less," said Geoff Wissman, vice president with consultants Retail Forward.

Toy stores are going to see growth of about 2 percent for the fourth quarter, according to Retail Forward, losing market share to discount stores, which will report growth in toy sales of about 4 percent.

Still, children won't go without. Toys are part of discretionary spending but it's one of the last things to get cut, according to analysts. Wish lists are already filling up with popular toys like Chicken Dance Elmo made by Mattel Inc. (NYSE:MAT - News) unit Fisher-Price and Lego's Harry Potter Chamber of Secrets.

Other hot toys for this holiday season include Rapunzel Barbie, Yu-Gi-Oh trading cards and figures, Harry Potter and Spider-Man toys, and LeapFrog Enterprises' (NYSE:LF - News) line of educational toys.

"There's plenty for the consumer to be interested in," said Sean McGowen, toy industry analyst at Gerard Klauer Mattison. "There's lots of good licenses and educational toys have really been perfected."

NO CABBAGE PATCH OR FURBY MANIA

While video games and video game systems were the big thing last year, no single hot toy such as the Cabbage Patch Kid or Furby is expected to emerge, experts said.

"I'm giving a lot of credit to the American consumer who's realized that it's a waste of time to get up at 4 in the morning and sit in the parking lot of Toys R Us to get a toy," said Chris Byrne, an independent industry expert known as "The Toy Guy."

Then again, if a hot toy came late onto the scene, like Tickle Me Elmo did in the late 1990s, it could be even harder for parents to get their hands on it, as backlog from the West Coast port lockout tangles deliveries to U.S. retailers.

"Usually people will not deny a child what's on the list," said toy analyst Margaret Whitfield at Brean Murray. "And you can't buy a toy that is 'sort of' like what the kid wants. If she says 'I want Rapunzel Barbie,' another doll isn't going to make her happy."

The threat of layoffs looms for many consumers and there is no end in sight to the economic tumble. But despite pain in their pocketbooks parents don't want to disappoint their children at holiday time.

"Santa's still flying," Byrne said. "Parents are more likely to delay the purchase of a new car or refrigerator than cut back on toys."

For specialty retailers like Toys R Us (NYSE:TOY - News), KB Toys and FAO Schwarz (NasdaqNM:FAOO - News), it's the season to be racking up sales. But with many parents more cost-conscious than ever, these companies are going to be hard-pressed to attract customers.

"Toys R Us' problem is that it's a no-growth business where the biggest competitor -- Wal-Mart -- doesn't need to make a profit," McGowen said.

Wal-Mart Stores Inc. (NYSE:WMT - News) has become the No. 1 U.S. toy seller and other discount stores like Target Corp. (NYSE:TGT - News) have also gotten into the toy game. Since many toy offerings are the same no matter where you shop, they can offer lower prices on the exact same merchandise.

"It's shaping up to be a very promotional Christmas for toys," said Frank Badillo, a senior economist, also with Retail Forward. "Consumers will be able to take home a lot of toys at great prices but retailers aren't going to ring up much in terms of sales growth."