Just as Santa Claus always came to town, Walmart's deep discounts on toys regularly arrived to drive holiday traffic and drive out competitors. But apparently not this year.
According to a company e-mail dated Nov. 30 obtained by Bloomberg News, U.S. store managers received instructions to increase an average of 1,800 types of toys per store. The prices were hiked "to better enable your store and the company to have a successful financial month," said the e-mail.
Not surprisingly, a Walmart spokesperson assured Bloomberg that the discount giant remains committed to the toy category. The retailer had nearly doubled the floor space devoted to toys in most stores this year and the pages in its toy catalog had more than quadrupled, he said. On Wednesday, Walmart also unveiled a round of price cuts on the "Hottest Toys and Electronics," such as $5 off Kung Zhu Hamsters.
Regarding the price increases, the spokesperson said they reflect temporary discounts across products, including toys, that ended Nov. 30. "Once a rollback ends, the item returns to its original everyday low price," he said in an e-mail.
Still, toy market observers said any move to limit margin erosion would be in line with an overall shift by Walmart to deemphasize the category.
"Walmart felt like they weren't making as much margin," Jim Silver of timetoplaymag.com, a toy review site, told The Baltimore Sun. "They make more money in electronics and computers, so they'd rather compete there."
Carter Keithley, president of the Toy Industry Association, a trade group, added that while many retailers have shrunk or exited the category due to past price competition, many are coming back as Walmart's less aggressive stance and the exit of KB Toys has made the category more profitable. Also, although the category is missing a must-have item to the level of Tickle Me Elmo or Cabbage Patch Kids in the past, it is being helped by the success of traditional toys that are incorporating interactive and technology components as well as the arrival of more affordable toys (such as Squinkies and Zhu Zhu Pets) that are working with today's budget-conscious shopper.
The biggest beneficiaries, Craig Johnson, president of Customer Growth Partners, told Bloomberg, are Target and Toys "R" Us. Both have gained market share in toys against Walmart this year by expanding their toy mix and overall distribution.
Discussion question: How important is it for Walmart to be known as the destination for toy deals? What do you think of Walmart's apparent downplaying of the toy category?