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Mattel and Hasbro 'terrified': Do kids want gadgets more than toys?

Mattel and Hasbro terrified that kids will want toys less next year, according to reports. Hot toys did well this Christmas, but retailers in general saw less growth than expected.

By Nivedita Bhattacharjee and Jessica WohlReuters / December 26, 2012

Shoppers walk past a shop while carrying shopping bags in New York, December 26, 2012. The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.

Eduardo Munoz/Reuters

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The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory. While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of Barnes & Noble Inc and J. C. Penney Co.

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The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from Oct. 28 through Dec. 24, compared with a 2 percent increase last year. The preliminary estimate from SpendingPulse was in line with other estimates showing weak growth during the holiday season, when retailers can book about 30 percent of annual sales -- and in many cases, half of their profits.

While hot toys such as certain Mattel Inc Barbie dolls performed well, toymakers worry that traditional children's gifts may lose out long-term to high-tech gadgets. 

“The top two guys, Mattel and Hasbro, they are terrified,” Sean McGowan, managing director of equity research at Needham & Company, told the Financial Times. “They should be terrified, but the official party line is they’re not terrified.”

On Tuesday, the International Council of Shopping Centers and Goldman Sachs Weekly Chain Store Sales Index showed sales rose only 0.7 percent in the week ended Saturday.

The estimates are still preliminary and focus on sales, not profits. A handful of retailers will post sales data next week, but most, including heavyweights like Wal-Mart, will not report results at the register until they release financial results in mid-February.

Analysts have also said many retailers entered the season with inventories under control, which could help protect margins.

Still, the latest holiday season sales could end up the weakest since 2008, during the last recession, when sales dropped 4.4 percent in November and December.

"The broad brush was Christmas wasn't all that merry for retailers, and you have to ask what those margins look like if the top line didn't meet their expectations," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Analysts and industry groups already expected sales to grow at a slower pace than in 2011 and 2010. The National Retail Federation predicted 4.l percent sales growth, versus a 5.6 percent increase a year earlier.

But growth of less than 1 percent is weaker than even some of the most pessimistic forecasts, and markets reacted accordingly.

The S&P retail index fell 1.8 percent in midday trading Wednesday. The 13 weakest stocks in the broader S&P 500 were all retailers or consumer brands.

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