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Toy Industry Sings The Blues as Local Retailer Sees Green

Brian Miller, the owner of San Diego-based specialty toy chain Geppetto’s, said he’s gearing up for a great holiday season. He may be the only one.

While much of the toy industry seems to be suffering lately, expecting a frosty holiday season, Miller said sales at his five local stores have been up this year.

“We’re on a nice roll and expect even higher sales (during Christmas) than last year,” Miller said.

Geppetto’s opened its fifth store, a 2,500-square-foot location, in Carmel Valley, on Sept. 12.

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Miller said business is so good that he plans to open two more locations , in the 4S Ranch Town Center near Rancho Bernardo and in Otay Ranch in the South Bay , in the second half of 2006. They add to the small chain’s existing stores in Fashion Valley, La Jolla, Carlsbad and at the Hotel del Coronado in Coronado.

But like other toy retailers, Miller depends on a high volume of sales this time of year.

“It’s critical , the last three months of the year is 40 percent of revenue for all stores,” he said.

He’s bucking a national industry trend.

According to market researcher NPD Group of Port Washington, N.Y., sales of traditional toys were down 5 percent in the first eight months of 2005 and 3 percent in both 2003 and 2004, as children look toward the trendier electronic gadgets, such as video games and computers.

Analysts expect higher energy prices and other effects of Hurricane Katrina to put a damper on holiday spending.

Aubie Goldenberg, a partner at Ernst & Young’s retail and consumer products group in Los Angeles, believes that mounting costs, in particular higher gasoline prices, will hit people with less disposable income the most.

As a result, “people travel shorter distances and less frequently,” Goldenberg said.

Mass merchandisers and discount retailers will have a tough time drawing these shoppers.

Goldenberg also seemed to be correct in his prediction from last month that mass merchandisers, having learned a lesson from last year, will start earlier promotions this year.

Wal-Mart, for instance, hurt last year from not offering enough discounts, already has started cutting prices up to 30 percent on toys, according to published reports.

National retailer Toys “R” Us Inc. responded by cutting its prices, according to an Associated Press article from Oct. 12.

Miller, on the other hand, has no plans to cut prices.

“We are a full-price retailer,” he said.

Miller admitted that getting an early start on holiday promotions doesn’t hurt.

“We started increasing our advertising on KPBS-FM (the local public radio station) in early October,” he said. He expects spending about $100,000 on pre-holiday advertising, including newspaper inserts, direct mailing and coupons.

Miller said he can’t rival the buying power and prices of a Wal-Mart or Target, but instead he believes he fills a nich e market by offering exclusive toys that shoppers can’t find in big discount stores and has a knowledgeable staff. Customer-friendly service includes free gift-wrapping.

Miller said it’s true that children are growing out of toys at a younger age and are drawn to computer gadgets. But many parents, especially those with younger children, prefer nonviolent and educational toys, he said.

“For kids under 5, toys are very important for their development, such as problem-solving skills,” he said. “They don’t play with video games , that comes at a later age.”

So what’s hot this year?

Miller predicts traditional board games such as Monopoly, and new family games will go quickly.

Many analysts, however, predict that this year’s hottest toy could be an earworm.

Already ubiquitous, the Apple iPod could just be the smallest but hottest gift under the Christmas tree this year, he said.

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