Powered Up At Retail

NEW YORK—At long last: youth electronics has finally claimed its own space at retail. After years of scattering product across various toy aisles—including handheld games, educational, as well as science and nature toys—mass-market and specialty retailers are now carving dedicated real estate for this burgeoning category.

Enjoying double-digit growth during fourth-quarter holiday selling during the past three years, the youth electronics category can, and very often does, command higher prices for a very efficient return on investment inches. According to industry analyst Anita Frazier, NPD Funworld, Port Washington, N.Y., the category increased more than 37 percent for the 12 months ending June 2005, representing nearly $680 million in traditional toy sales. This represents a larger dollar volume than the annual sales of the entire preschool electronic learning aisle, which has also shown compounded growth rates over the past few holiday seasons, and generally garners at least 25 to 40 feet at most mass retailers during the holiday selling season.

When discussing youth electronics versus the more grown-up product, industry pundits speculate on its appeal.

“Kids and teens are the first totally wired generation, and they are changing marketing, technology, and communications,” says Debra Aho Williamson, senior analyst at eMarketer, New York, and author of Kids and Teens Report. “Kids use technology as a matter of fact, and have come to expect their gear to reflect the latest styling and technological enhancements.”

Isaac Larian, president, MGA Entertainment, Van Nuys, Calif., agrees. “You can’t fool these kids. They are more sophisticated and technologically savvy. Products like the MGA Bratz Lip-Tunes MP3 Player provide the unique design appeal and the function that kids want, at a price that is less than half of the price of most iPods,” he notes.

“As a manufacturer that used to be focused more exclusively in the toy aisle, we have broadened our corporate mission to provide entertainment and lifestyle products for today’s consumer that will be featured in multiple aisles at retail,” Larian says, adding, “There are many crossover items that sell well in both the toy departments and the electronics departments.”

Marc Rosenberg, executive vice president of marketing, Zizzle, Bannockburn, Ill., believes that products need to have a purpose. “The category is growing because of smarter products that are more relevant to a kid’s lifestyle. Blending new technology with a need for kids to express themselves with their musical choices is a successful formula.”

Rosenberg and others at Zizzle were responsible for some hits in this electronic toy category many years ago at the Tiger Electronics division of Hasbro. This year, Zizzle president Roger Shiffman and his team launched a first entry into the toy market: iZ— a high-tech interactive music-making device with an external speaker aimed at the iPod crowd.

Chris Heatherly, vice president, Disney Electronics, Burbank, Calif., agrees that the products need to have a purpose: “Digital music is exploding and is ready to take off with kids. To date, CDs have been kids’ format of choice because they have been the most affordable and convenient way for them to get music. Now, technology has advanced to the point where we have developed a more portable format MP3 player, Disney Mix Sticks.”

Priced at $50, the product promises to deliver the plug-n-play ease of use that kids have come to expect. The smaller size is designed to appeal to this demographic, while the add-on accessory Disney Mix Clips are available in a convenient Secure Digital/MultiMedia Card format for retailers looking to ring up additional sales.

Even though today’s kids are tech-savvy, becoming computer literate at earlier ages and programming their parents’ handheld devices without instruction manuals, most moms and dads are still reluctant to spend the big bucks. When it comes to committing to monthly cell phone bills, or considering digital cameras and camcorders with price tags of more than $300, many parents see this as a serious outlay of cash. Add to the fact that products get misplaced or damaged more often than not, many parents don’t feel their kids (6-12 years) have the maturity and responsibility level to handle these purchases. As a result, trial products at a variety of price points serve as a way to get parents to open up their wallets.

Elizabeth Ashear, director of public relations, Sakar International, Edison, N.J., sees the value in providing price value and multiple levels of product sophistication. “Today’s retailers want a variety of price points to meet their consumers’ needs in the youth electronics arena. At Sakar, we strive to provide an entry-level price point for 'cyber-gear’ that offers excellent value, stylish design, superior function for the consumer and the margins that retailers need. We are primarily a consumer electronics company, so we understand the marketplace and have long-standing relationships with both the electronics buyers and the youth electronics buyers,” she adds.

As to whether or not there is a certain price point barrier at which buyers believe that a youth version is too expensive—and that customers would rather opt for the adult version—most retailers Playthings interviewed said that price is not a barrier for this emerging category of products. However, some indicated that at price points more than $100, parents might start to consider opting for the real thing.

Deciding which retail department will showcase youth electronics varies by store. According to Karen Burk, Wal-Mart corporate spokesperson, merchandising is a joint decision between the buyers and the store managers. “Our store associates communicate closely with the merchandise buyers at the home office,” she tells Playthings. “Each of our stores strives to be what we call a 'store of the community,’ where the products reflect the items that the customers in their specific community want to buy,” she says.

“You will see a slightly different selection of merchandise from store-to-store,” Burk explains. “It simply makes good business sense to put the merchandise that their customers want to buy on their shelves.”

William Uzell, executive vice president, Oregon Scientific, Fairfield, Conn., notes, “if your product is innovative and enticing, the buyers will be fighting over it. The electronics buyer and the youth electronics buyer work very closely to determine placement at retail. Sometimes the divisional merchandising manager has to step in and make the final determination. It is a function of a variety of factors, and where the consumer is likely to go searching for that item. When a product offers an innovative solution, there will always be a place on the shelf for it,” he adds.

Uzell points to Oregon Scientific’s ATC 1000 Helmet Cam(era) as a product that can be found at a variety of retailers, in a number of locations. Other factors that play a part in this process include the opening age grade, prior vendor relationships with a buyer, price point and a licensed character tie-in, among others.

“We believe in giving our customers a choice as we know that we’re appealing to a variety of people with a variety of needs,” states Wal-Mart’s Burk. “We have more than 100 million customers per week and want to give them the choices to meet their needs, whether it’s an opening price point or a brand name, higher-end electronic selection and anything in-between. They can get it all at Wal-Mart. It’s all about choices and selections and getting it at the best value. This is for any merchandise; for any age.”

Demo displays for youth electronics isn’t for the sole purpose of the demo itself, it serves as a tool that helps kids show their parents that the product is easy to use. Or, as Sharon John, general manager, big kids/girls marketing, Hasbro’s Tiger Electronics division, says, it affords them a bit of their own purchasing power. “Hands-on demonstration models and displays provide kids with enough information as savvy consumers to compare the products and make the best choices with their own pocket money,” she points out.

And pocket money they have. In the U.S., tween spending power is projected to reach $43 billion by 2009, according to Packaged Facts, a division of MarketResearch.com, New York. And according to NPD Funworld, toys purchased for this age group (8-12) represent $4 billion of the annual $20 billion toy sales at retail.

As they continue to exercise their purchasing power, these consumers are choosing lifestyle products that fall under the youth electronics umbrella. John points to a product line that illustrates this. “Our Video Now brand of products has gained a substantial following with kids, because it is cool gear that is essential to their mobile and social lifestyle. Kids want to take their music, their entertainment and their friends with them everywhere.”

As the youth electronics category continues to evolve, retailers are trying to grapple with this new set of lifestyle products that cross over the lines of fashion, music, entertainment and edutainment.

In addition to providing a more comprehensive location for youth electronics in its stores, Wal-Mart is testing another new area in its toy department this year. The retailer added an aisle of kids’ DVDs—featuring movies and entertainment choices targeted to the young consumer, right in the middle of the toy department—in selected store locations. Licensed character movies and direct-to-video and DVDs will be merchandised alongside licensed character TVs, DVDs, boom boxes and CD players from Disney Electronics, Emerson Nicktronics, MGA Entertainment and others. The hope is that this may drive more consumers to the toy department to meet their family entertainment needs.

Whether DVD games will be added to this aisle remains to be seen. With product sales quickly approaching the $150 million mark, this, too, could be a new profit center in the toy department, and would segue easily into this new location at Wal-Mart. Shane Yeend, CEO, Imagination Entertainment, speaks of this phenomenon: “Playing social, interactive games on your TV will be as normal to the younger generation as playing a board game such as Monopoly. Kids are growing up with interactivity.” With more than two-thirds of children with a TV in their bedroom, this might be a logical move for retailers to consider.

As for the infiltration of video games into this same retail aisle, it may not be so likely. While the market has grown to nearly a $10 billion industry on an annual basis over the past 10 years, this category is still managed by different buyers and located in sections other than the toy department. With the need for locked cases, software still near $50 and an older target age group, these two departments are merchandised in separate areas of stores. According to the retailers Playthings interviewed, this is not expected to change anytime soon.

Additionally, there are noticeable crossover products for some of the youth market target audience, and definitely competition for the same share of wallet. For now, though, it won’t be encroaching on the youth electronics turf.

However, plug-n-play games have already joined forces with youth electronics in the Target retail store environment, as well as with some specialty electronics retailers. Blending the lines even further, the online sites of key mass-market and electronics retailers have combined the electronics, youth electronics, entertainment products, and video games into one flowing group of screen pages.

As youth electronics moves beyond its infancy and into the mainstream, it will continue to garner a bigger share of shelf space—and a larger bite out of the consumer’s wallet. It is definitely a lifestyle category that is here to stay, as long as manufacturers and technology can keep up with kids’ sophisticated tastes.