Battle of the Fun Factories

Here's some crucial Christmas advice, kids: Don't let Mom and Dad sneak off to the toy stores until they've done their homework. It's a jungle out there, full of Thundercats and Sectaurs, Pound Puppies and Glo Worms, GoBots and Transformers--in short, no place for the innocent. What could be more embarrassing than to have the old folks, however well intentioned, come home with the wrong stuff! Remember what happened when you sent them shopping for video games a few years ago, and they returned with an Etch-A-Sketch? What they need is at least three hours in front of the tube on a Saturday morning. If they balk, tell them that you're appearing in one of the commercials, or that your friend Freddie's wealthy dad, Mr. ceo, watches every Saturday to pick up business tips. Only when they've put in their tube time will they begin to understand the vital differences between He-Man and She-Ra, Voltron and MASK, Wuzzles and Lots-a-Lots-a-Leggggggs.

The toy business has changed dramatically since the time when Gepetto-like craftsmen turned out spinning tops, dolls and sleds. The onetime humble toymakers have evolved into giant fantasy factories that are battling for the hearts and attention of America's children with marching armies of curious and sometimes fearsome characters. This year the two largest U.S. manufacturers, Hasbro and Mattel, expect to ring up more than $1 billion each in revenues for the first time ever. Total retail toy sales grew 20% last year, thanks to a healthy economy and the excitement stirred by such blockbuster products as Coleco's Cabbage Patch Kids and Hasbro's Transformer robots. That would be a tough performance to follow in any industry, but experts predict toy sales will jump an additional 10% in 1985, to $13.5 billion.

The toy titans have helped stimulate that growth by becoming more marketing-minded. They now invent fanciful personalities for their toys, design cartoon shows to promote them and produce endless follow-up products to keep children coming back for more. The companies aim to make their toys into celebrities so that children will accept no substitutes. The strategy is working. Youngsters now pick out their playthings with the fussiness of a young professional shopping for his or her first Saab. "They are smart kids growing up very fast," says Polly Hallett, marketing director for Fisher- Price toys.

Only a few years ago, when toy companies were smaller, their financial health was notoriously erratic because they rode up and down with the latest fads. Example: Rubik's Cube, which lasted only one season, 1981-82. Now the toy firms want to grow large enough so that they can take part in several trends at once and get a smoother ride. Hasbro, Mattel and Coleco, the No. 3 toymaker, will account for about 35% of this year's industry revenues, compared with less than 15% five years ago. But these big firms now compete with a manic rivalry that resembles that of computer or soft-drink companies.

That explains why many of this season's toys look like souped-up versions of previous hits. Convertible robots, the surprise success of 1984, are back in droves. Tonka's GoBots, which reached sales of nearly $100 million last year, and Hasbro's Transformers, which brought in $114 million, have been challenged this year by two riveted rivals, Voltron and MASK. Produced by Cincinnati's Kenner Products, MASK is a line of seven ordinary-looking vehicles that bristle with hidden weapons. Rhino Rig, the flagship, converts from a common truck into a fearsome fighting machine.

Most major companies have stampeded to produce a line of so-called male action figures like Mattel's Masters of the Universe. Since 1982, when the line was introduced, California-based Mattel has sold some 125 million creatures, or an average of eleven of them to each boy in the U.S. between the ages of five and ten. Children collect the 6-in. plastic figures ($5 to $7), whose personalities reflect a blend of medieval and outer-space themes, in order to enact imaginary battles between good and evil. The virtuous leader is He-Man, who fights a never-ending crusade against wicked Skeletor. So far, Mattel has produced 34 other characters, six companion creatures, nine vehicles and three hideouts. This season's oddest new villain: Stinkor, a skunk-striped meanie who actually smells bad. His counterpart: Moss Man, who exudes a pine scent.

Aside from the malodorous one, He-Man may encounter his toughest rivals in the toy stores, where this year he will face the red-hot Thundercats, from New York City-based LJN Toys, and Sectaurs, a strain of insect-like warriors made by Coleco. To give He-Man some help, Mattel has introduced his shapely sister, She-Ra, which the company hopes will get girls interested in action figures.

Not all the hot toys are warriors. The success of Kenner's cuddly Care Bears has prompted a toymaking rush to stuffed animals. The friskiest new critters in sales are Pound Puppies, a breed of soft, sad-eyed and bewrinkled hounds packaged in kennel-shaped carrying cases. They come in 80 different patterns of brown, tan, gray and white, and are meant to be "adopted," like Cabbage Patch Kids. The youngster who gets one can send to the manufacturer, Tonka, for a dog tag and ownership papers. Minnesota-based Tonka, which is diversifying from its traditional line of sturdy toy trucks, expects to sell some $50 million worth of Pound Puppies in the first season.

While the big companies are busy scrapping over conventional toys, this year's biggest breakthrough, the talking bear, has come from small entrepreneurial firms. Filled with stuffing and wiring, these toys can speak, after a fashion, with their owners. The most popular is Teddy Ruxpin ($60 to $80), a 20-in. bear whose eyes and mouth move when it speaks from a recorded cassette. Ruxpin's voice comes from a tape player in its back. The manufacturer, Silicon Valley's Worlds of Wonder, will ship as many as 750,000 by Christmas but still cannot meet demand. Says Stewart Brown, manager of an F.A.O. Schwarz shop in Atlanta: "People keep requesting it, maybe 20 times a day, but I haven't been able to get any more since I sold the first 50."

Another chatterbox, A.G. Bear ($35), made by California's Axlon, contains a microprocessor that monitors the voice of the child with whom it is speaking. The bear replies with vaguely similar murmurings, though it does not move its mouth. A.G. Bear is the latest creation from Inventor Nolan Bushnell, who devised the first video game, Pong, and then went on to found Atari. He now plans a whole line of electronic pets.

Yet the real sophistication in the toy business is often found in the marketing rather than the design. While companies have long promoted toys with blizzards of Saturday-morning TV commercials, they have now taken over much of the programming as well. Manufacturers typically turn their toys into cartoon- show characters, and one hypes the other. Virtually all of the current top toys have regular programs or specials. This stands tradition on its head. In the past, cartoon characters like Mickey Mouse or Bullwinkle often inspired toy products, but not the other way around. Everything changed in 1980, when the American Greetings card company of Cleveland and Kenner Products of Cincinnati teamed up to invent a character who was the star of a line of toys and two TV specials. The strategy succeeded handsomely. Strawberry Shortcake products have rung up total sales of $1 billion.

Cartoons work effectively for the companies because they hook children on a character or a mythology rather than just one toy. Thus the G.I. Joe cartoon program helps sell dozens of licensed products, ranging from pajamas to G.I. Joe Cereal. Explains Brian Sutton-Smith, author of Toys as Culture, a book to be published next month: "Children's minds live more in a story world than in a toy-category world." Concurs Bernard Loomis, president of GLAD, a toy design and licensing firm: "Manufacturers create a fantasy world, and this has led to a very sophisticated relationship between them and the child. We are now in the business of multiple sales to the same children in the same fantasy."

The toy programs spark bitter debate, though, because some parents oppose such promotions. Peggy Charren, founder of Action for Children's Television, claims that 46 toy-based shows have flooded the airwaves since 1983. Says Donna Lambert of Charlottesville, Va., mother of Matthew, 5, and Kate, 4: "It's difficult for me to tell them not to watch the shows because I don't necessarily object to the content, but the kids aren't aware of the advertising." Even so, toy sellers point out that parents or grandparents ultimately control the purchases. Agrees Atlanta Attorney Stephen Kane, father of three: "When it comes down to it, we're going to get them what we think they should have anyway--clothes and one or two things they really want."

While marketing is the most obvious battleground, perhaps the most treasured commodity in the toy business is ideas. Creative staffs feel heavy pressure to dream up the next toy that will break Santa's back. Says Gerald Cleary, vice president of sales for Tonka: "It's nightmarish. You have to plan and plan, see lots of inventors and review lots of concepts." Some of the best ideas spring from the general public, rather than the toymakers' market-research labs. Huggy Bean, a big-selling black doll, was created by a black mother and father in New York City who saw the need for a make-believe character with whom black children could identify.

Since radically fresh ideas surface so rarely, companies try to get all the mileage they can out of them. Coleco, which will have sold some 40 million Cabbage Patch Kids by the end of this year, has devised all sorts of ways to keep them alive. One trick is to sell them as twins ($80 to $85 a pair). Another is to dress them as world travelers, complete with international wardrobes and passports.

The smartest shop in the business right now is Rhode Island-based Hasbro, which this year expects to reach sales of $1.2 billion and surpass Mattel as the largest U.S. toymaker. Hasbro, which is now operated by its third generation of Hassenfeld brothers, has profited from a somewhat contrary attitude. The company avoided getting into video games in 1979, which at the time prompted wags to call it "Has-been." Instead, the company plunged / deeper into conventional toys, which eventually produced such smash hits as Transformers and My Little Pony, a line of plastic, pastel-colored toys.

After picking up the conservative political winds, the company in 1982 brought back G.I. Joe, which had been discontinued four years earlier. The new Joe, downsized from 11 1/2 in. to 3 3/4 in., rang up revenues of $132 million last year. While still a conventional toy, the fighting man has a battalion of colleagues and a battery of weapons. The biggest accessory is his aircraft carrier, a 7 1/2-ft.-long behemoth that carries 100 Joes and sells for $120.

Parents who are shocked by their children's Pentagon-size procurement plans should take heart. Many simple, inexpensive toys have persevered over the years. Etch-A-Sketch costs only $9, compared with $3 when it was born 25 years ago. Slinky ($1.59), the coiled spring that walks down stairs, sells at the rate of 3 million annually after 40 years on the market. The tough question is whether Stinkor will still be around years from now.