August 13th, 2007

How to Take Money From Kids: Sell Toys Both Physical and Virtual

By Jacob Ogles

The latest toy craze in North America are stuffed animals called Webkinz that blend the comfort of teddy bears with the addictive challenges of online role-playing games.

Webkinz look like Beanie Babies, but come with a code to unlock a digital doppelgänger children play with in a Sims-like digital world. The combination has proven as habit forming as the Tamagotchi phenomenon, but with a stuffed animal that sleeps in your child’s bed. And it might be the ploy that saves the toy industry.

Sold only at specialty stores like Hallmark, more than 1 million Webkinz stuffed animals have been snapped up since their April 2005 debut, making the toy by Ganz a sensation. In February, the Toy Industry Association named Webkinz the Specialty Toy of the Year for 2007.

“Kids are on the internet at a younger and younger age,” said Ganz communications director Susan McVeigh. “They are comfortable in an online environment, more so than their parents. It just feels natural to them.”

Webkinz kick-started a trend in children’s gaming that ties virtual environments to real-world merchandise. Online games for kids aren’t new. Sierra Online had tot-focused games in the early ‘90s, and Neopets proved a hot product six years ago with a similar concept. But the unprecedented success of Webkinz is inspiring everyone from Barbie to Disney to get children invested in both the digital and the physical.

“This is now a very hot area,” said Jim Silver, editor-in-chief of Toy Wishes magazine. “We will see more and more toys which have codes that interact with websites.”

The strategy is coming into play as physical toy sales decline. Plush remains a $1.3 billion industry, according to the Toy Industry Association, but suffered a 4 percent decline in 2006. Indeed, the toy industry saw hardly any growth between 2005 and 2006.

Video games, meanwhile, saw a 19 percent increase in sales during the same time, and are now a $12.5 billion industry.

Marketed to children ages 6 to 12, Webkinz tries to marry plush with video game. The attempt has brought new relevance to Ganz, a family-run gift company based in Canada. High demand had the company dealing with supply shortages earlier this year, McVeigh said.

Ganz declined to give current sales figures—it stopped reporting Webkinz sales and online activity a year ago, when it had a million online accounts. But Silver estimates Webkinz raked in $100 million last year.

Retired Webkinz now sell for hundreds of dollars on eBay, and numerous fan-created sites have launched around the Webkinz community.

Ganz has expanded its product line with a range of supporting merchandise, including Pokémon-esque trading cards that come with unlockable goodies to use online. But McVeigh said Ganz, which also sells collectible decorations, is uninterested in selling code on its own. 


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