A survey of mass-market toy retailers in the St. Louis area in late August and again in September conducted by A.G. Edwards for Playthings magazine found that prices contracted between 1-3% over a range of toys as the stores geared up for the coming holiday season.  Some 61 toys were surveyed at four key mass-market outlets, Wal-Mart, Target, Toys R Us and K-Mart.  In the survey Wal-Mart reasserted its low-price leadership, although it has yet to recreate the pricing gap of 2003, when the mega-retailer's aggressive down pricing put FAO Schwartz and KB Toys into bankruptcy (see 'Wal-Mart Applying Toy Category Kill Shot').  Outside of Wal-Mart Target had the lowest prices followed by Toys R Us, which passed K-Mart to take the third position.  Toys R Us is currently rethinking its overall strategy and most analysts think that the company will shed 100-200 stores in 2005.

The survey also makes the point that the price decline is not the result of excess inventory since the major reductions are on key toys that can function as 'loss leaders' to attract additional store traffic while undercutting the competition.  All four of the mass-market retailers have their own exclusive items and private label brands -- items that don't need to be discounted since the competition can't get them -- but the St. Louis survey found very little customer traffic in the aisles where the proprietary items were located.