Comfort Food in Toyland

Toys don't get much more classic than Lincoln Logs: interlocking brown wooden pieces that kids since 1916 have used to build frontier cabins and fences. Under manufacturer Hasbro, Lincoln Logs languished in recent decades. But three years ago, a small company based in Hatfield, Pa., called K'Nex, licensed the brand and found ways to push it into stores. Ever since, the toys have been tumbling into shoppers' carts. With $50 million in sales this year, they're more popular than ever.

But aggressive marketing to retailers is only part of the reason for the revival of the Logs. All sorts of retro toys have been growing in popularity over the past year--and especially since Sept. 11, when they've seemed to act as a sort of comfort food for anxious families. The first spike in sales came among G.I. Joes and fire-fighter action figures. But a range of other oldies, many with fresh face-lifts, are proving to be this season's hits: 1950s-era live-ant farms, a revamped version of the '70s-era Shrinky Dinks and a 3-D Hot Wheels "fireball" raceway that Mattel says will be the biggest seller in the line's 33-year history.

Anecdotal evidence suggests that while some kids are asking for these vintage favorites, parents and grandparents are also driving up demand and not just out of nostalgia. In a recessionary economy, parents who can't spring for a $300 XBox may still satisfy their kids with a less pricey updated classic, say, a Harry Potter Lego set. Cheap, classic board games are getting a boost too. Diane Quaiver of Villa Park, Ill., says her 18-year-old daughter lately spends more time at home with her boyfriend and other friends. "They play UNO, Monopoly," she says. "They haven't gone out as much."

Traditional toys and games account for two-thirds of the $24 billion toy market. And retailers Wal-Mart and Target report that toys are one of the few categories showing sales growth this season. That's welcome news for toy giants Mattel and Hasbro, and even more encouraging for retro-toy niche players like K'Nex, which projects revenue growth of 30% this year.

Mattel and Hasbro have struggled for years with graying product lines and supply-chain snafus that, like clockwork each holiday season, resulted in shortages of the hottest toys. To woo investors back, each made forays into electronics and software, with disastrous results. Hasbro, after losing $200 million on an interactive division and website, sold both ventures for $100 million early this year. Mattel in 1999 bought educational-software maker The Learning Co. for $3.5 billion, only to unload it this year for an "undisclosed sum," which analysts say was virtually nil.

Lately, though, investors have renewed their faith in both companies. Mattel's stock has climbed 28% this year, while Hasbro's has risen 63%. Mattel CEO Robert Eckert plans to slash 1,300 jobs and shutter the firm's last U.S. plant (most toys are made in low-wage Southeast Asia and China.) He has moved product-development teams from El Segundo, Calif., to Hong Kong, where they can better coordinate manufacturing. Result: a leaner, nimbler operation, with toys shipped to retailers earlier in the season to avoid supply disruptions.

Despite plummeting sales of Furby- and Pokemon-related items this year, Hasbro returned to profitability in the third quarter, boosted by its slashng 750 jobs and consolidating toy operations at headquarters in Pawtucket, R.I. More sculpting and modeling is now done in China, closer to manufacturing plants. And the company points to rising sales of G.I. Joes--which began before Sept. 11--as vindication of its strategy of refocusing on core brands.

So will the toy trade be any less volatile next year? Probably not. Kids' fickle tastes ensure eBay auctions for the hottest toys, overstocks of past winners and frustration all around. But the prospect of more oldies being "refreshed" seems to suit Tyler Brown, 9, of Houston. On his wish list: "More PlayStation 2 games, lots of rescue heroes and more Lincoln Logs."