Elmo Economics

Who says you can’t keep up with the latest business news when you have infants?

Wall Street Journal (Subscription Required) – Wal-Mart Stores Inc. has launched the Great Toy War of 2003 and its top soldier is Hokey Pokey Elmo.

In late September, a full three months before Christmas, and a month before hot holiday items normally are promoted, Wal-Mart Stores slashed the price on Fisher-Price’s newest dancing doll to $19.46 — a stunning 22% discount to the Toys “R” Us price of $24.99.

Then, by mid-October, Wal-Mart had cut prices on more than a dozen toys. A survey of the prices for 15 popular toys conducted by Banc of America Securities found that Wal-Mart’s prices were 12% cheaper than Toys “R” Us and 8% less than prices at discount retailer Target.

The steep and early price cuts are roiling the industry. Tuesday, Toys “R” Us acknowledged Wal-Mart’s moves caught it by surprise and hurt its third-quarter results. Its stock price fell 5.4% Tuesday in New York Stock Exchange composite trading, after falling 11% Monday when company’s earnings came out.

While parents may love the lower prices, other competitors are frustrated, saying they are hard-pressed to match prices below their costs. Yet they can’t afford to lose more market share to Wal-Mart. And manufacturers fret that the discounting will cheapen their brand names, quash innovation and prompt consumers to buy only when toys are on sale.

Even toys in short supply are being discounted. Tom Kalinske, chairman of LeapFrog Enterprises Inc., Emeryville, Calif., says Leap Frog’s Explorer Globe was reduced by one retailer to $89.99 from $99.99, although the item is hard to get. “We perhaps have conditioned the consumer to realize that prices are at their lowest from Nov. 15 to Dec. 25,” he says. “That might accentuate the seasonality of our business.”

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