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'Twas the week before Christmas, and the question on Charlie Woo's mind was: What's happening with KB Toys?
"Have you heard anything?" he was asking as I arrived for a chat at the headquarters of his company Megatoys, a hulking gray warehouse on the edge of the downtown Los Angeles toy district. As it turned out, that very day KB had announced it was withholding December payments to suppliers. Post-Yuletide store closings look to be in the company's future.
This wasn't good news for Woo, who supplies KB with inexpensive toys. It wasn't surprising, either. "This year, the issue for us is the smaller number of customers," he says. By this he means not individual shoppers -- as we talked the retail space at the front of his building was teeming with late Christmas browsers -- but retail chains, which have been relentlessly squeezed by price cutting in a year of improving, but still lackluster, sales.
As manufacturers, the Mattel Inc.'s and Hasbro Inc.'s of the world garner the most public attention during the toy-buying season that ended with the sound of wrapping paper getting ripped to shreds this Christmas morning. But it's in the business of manufacturers and wholesalers like Megatoys where one can best detect the trends that govern the $25-billion U.S. toy industry.
What Megatoys makes is, to be charitable, largely generic. You won't find a lot carrying recognizable brand names, and most of it appears designed to be produced cheaply and moved fast.
"I have a lower-end market," Woo explains. If Mattel or Hasbro is marketing an expensive toy to exacting specifications and top- quality materials, Woo's Asian contractors can probably turn out a similar item for a fraction of the price. Maybe they'll use recycled plastic, and less of it, so the color is a little duller and the product a little less hefty. Mattel's products will go to Toys R Us Inc. or FAO Inc.'s FAO Schwarz (the latter corporation now operating under bankruptcy protection for the second time this year). Woo's might go to Kmart Corp., or to a network of mom-and-pop retailers across the U.S., or to Mexico and Central America.