Last big toy chains put everything into play

LANESBOROUGH -- The scent of Play-Doh wafts in the air as children dance with plush penguins and sprawl across hardwood floors reading books. It feels more like a scene out of Romper Room than what it really is: a KB Toys store at the Berkshire Mall.

This is what it takes to survive in the toy business these days. The kid-friendly showroom (complete with technology that pipes in the Play-Doh smell) is central to a carefully calculated strategy by the Pittsfield-based chain to lure customers into its shops.

KB Toys and Toys "R" Us are the last surviving national toy chains, and this holiday season they're raising the ante. Consumers are expected to spend on average $153 on toys this season, about 12 percent more than last year, according to market research firm NPD Group of Port Washington, N.Y. Faced with intense competition from mass discounters such as Wal-Mart and children's changing tastes in toys, KB and Toys "R" Us are improving the shopping experience, selling more electronics, and working closely with manufacturers to design innovative products for their chains.

"It's a matter of survival," said Marshal Cohen , NPD's chief retail analyst. "Toy stores have taken years of hits in declining market share. They need to do something now."

KB and Toys "R" Us grew rapidly in the '70s and '80s, fueled by the explosion of malls and outdoor shopping centers, but by the late 1990s Wal-Mart became the nation's top toy seller. Regional chains from Child World to Zany Brainy began closing, while KB and Toys "R" Us combined have shuttered hundreds of stores over the past five years. Today mass discounters account for 58 percent of toy purchases, while toy stores constitute only 17 percent, according to NPD.

What's more, overall toy sales have fallen 5 percent over the past two years to $21.8 billion as children's toy preferences have dramatically shifted to new technologies like the iPod and digital cameras.

At a KB Toys in Newton last week, 7-year-old Rebecca Daniels rejected a Disney play cellphone, saying "that's too babyish for me. I want a real one," according to her mother Elayne Daniels . Rebecca saw one she liked later that day at Radio Shack.

For some children, electronic chains are the new toy stores. Best Buy is aggressively courting younger consumers with digital cameras, a "High School Musical" DVD boardgame, and an expanded selection of iDogs, robotic dogs that dance when plugged into portable music players.

"Kids have switched from seeing us just as a videogame store to an entertainment and toy store for music, movies, games -- and even the school work they need to do," said Best Buy general manager Janine Ball in Danvers.

Toys "R" Us recognized the importance of youth electronics over the past year. The new strategy: Add coveted merchandise, such as Fisher Price's digital camera (for ages 3 to 10), and get as many exclusives as possible, including a Black & Decker Jr. electronic workbench and a pink version of the VTECH Nitro notebook, a laptop with learning activities and music lessons aimed at young children.

"We were late to be on top of youth electronics and slow as an industry to innovate," acknowledged Ron Boire , US president of Toys "R" Us, who joined the Wayne, N.J., company in July from Best Buy after Toys "R" Us was purchased by private equity firms including Boston's Bain Capital.

"We got pigeon-holed in our view of what a toy was," he added. "We let ourselves be defined as a place that sells molded plastic."

Toys "R" Us is looking to increase revenue 15 percent to $13 billion this year. That's an ambitious goal given that revenues grew less than 2 percent between 2004 and 2005, to $11.3 billion. Still, over the Thanksgiving shopping weekend, the company reported long lines and strong sales of its pink VTECH and Black & Decker workbench.

But the chain isn't giving up on traditional toys. In fact, the company is working closely with manufacturers, including Mattel and Fisher Price, to create toys, including the $32.99 Magic Hair Fairytale Dora and $29.99 "My Scene Bling Bling Barbie Styling Head," a doll that children can style with nail stickers and jewelry.

For its part, KB Toys, which emerged last year from bankruptcy court protection, introduced a KBtronics section this season with about 60 electronics products. KB also put a premium on high-tech exclusives and is the only retailer this season selling an iDisco docking station, a disco ball that synchronizes with a portable music player.

"We need to attract new customers as quickly as we can," said KB chief executive Greg Staley , a former top Toys "R" Us executive. KB doesn't expect to turn a profit this holiday season, though the company is aiming for 5 percent sales growth next year. Over the Thanksgiving weekend, KB ran aggressive daylong promotions rather than early-bird specials. The company said sales were in line with its projections but would not give details.

This season the toy chains are also redesigning their stores. Oftentimes that involves taking toys out of their boxes to turn stores into playrooms.

Toys "R" Us, for example, has been setting up train sets on tables with chairs around them, where children can sit and play. "Our MO [modus operandi] the last few years was that lower prices will drive more volume," said Toys "R" Us president Boire. "It's not a price game. Customers don't want us to compete on price. They want the experience."

KB has set up play areas throughout its stores. In one section, trailers of the new animated movie "Happy Feet" play on televisions while children can play with toy penguins.

The idea of piping in a Play-Doh scent came after KB marketing chief Ernie Speranza sniffed vanilla in a hotel lobby. He introduced the concept to KB, installing devices near the entrance that release scented air. KB has tested fragrances like cotton candy, strawberry, and now Play-Doh, hoping that certain smells will put people in the shopping mood.

But KB Toys isn't betting it can get everyone to come to it. As more merchants -- from Barnes & Noble to gas stations -- sell toys during the holidays, KB is expanding its reach, too. Last year the company began working with Bed Bath & Beyond to help stock its shelves with toys. KB has also partnered with other major chains, including 7-Eleven, to sell its gift cards .

Said Speranza : "If you can't beat them, you might as well make money with them."

Jenn Abelson can be reached at abelson@globe.com.