Richard:

Great observation - and a valid approach to analyzing the trend. In our business (Sales & Market Development for small companies)we work directly with several manufacturers who are impacted by the economy. As someone "in the trenches" with both retailers and reps on a daily basis, we're seeing your theory play out first hand.
I hate to sound like "Chicken Little", but I think we all need to brace ourselves for a major market adjustment this fall. Here's why:

1) Retailers are pushing back on manufacturers, asking for free freight, longer terms, and deeper discounts. Even if terms are net 60, we are seeing payment in 90 and even 120 days from both small and large retail accounts.

2) Banks are tightening up financing in this poor credit market, and are literally running away from factoring receivables that continue to push out past 90 days (basically, the entire Specialty Toy channel) So, manufacturers have fewer capital resources to support growth.

3) Raw Materials Suppliers are pushing through very real increases in labor, freight, and plastics to the manufacturers, further shrinking margins. I am seeing 18-25% increases with our clients.

4) Freight costs between Asia and the US, and again inside the coasts, are going up daily. Someone needs to absorb this - and again the retailer is pushing back.

5) Road Reps are incurring higher than ever expenses due to the sheer costs of being on the road. Some are adopting more innovative ways to connect with their retail base, but overall they are either paying more to be on the road OR just staying home.

Add to this mix the fact that 6,000 - 8,000 manufacturing sites in Asia will close this year, most without warning to their US partners. This will further drive prices, and frankly put some US companies out of business for fall.

The bottom line is that we've enjoyed years of price declines in the industry as diversified manufacturing has become more competitive and materials more accessible overseas. We have hit the baseline in terms of what it costs to design, make, and distribute a product. At some point, retail prices will have to reflect reality, which means (gasp) inflation. Yes, higher retail prices. Which, by the way, we as consumers will not like. It will mean we buy less, which means that weak products will likely go away.

I don't mean to be alarmist. In some respects, weeding out poor product from any industry is a nice side effect of "darwinian economics".

But I would wholeheartedly reinforce your notion of a shaky economic climate. What does this mean for those of us who are passionate about the industry? That we need to move beyond being "toy people" and start being "business people".

Thanks for addressing the elephant in the room and sharing your observations.

I would agree with the previous comments from Brian. I don't have a lot of history in the toy and game industry yet (Strategic Space, Inc. is only a year old), but I noticed a lot more enthusiasm for orders among retailers last fall than since then. I had several retailers sell out their inventory of my games in only four months, and ALL of them have decided that this is not fast enough turnover for them to reorder. Then in getting preorders for new games, I've always tried to keep my list prices as low as possible, but I have a big game with lots of custom-molded plastic coming up (Master Spy), and I was shocked that even with a box about 7 x 11 x 6 inches, they were nervous about ordering a game retailing at $34.95. This particularly confused me when I had just paid $50.00 retail a few weeks ago for Days of Wonder's Ticket to Ride, which appears to have even cheaper components than mine!