By Jessica DiNapoli
NEW YORK (Reuters) - Retailers including Target (NYSE:TGT) and Walmart (NYSE:WMT) are stocking shelves with more toys and gifts such as Barbies that cost less than $10 this holiday season, a strategy aimed at attracting cash-strapped shoppers.
For retailers and toymakers, selling a bounty of cheaper gifts aimed at consumers earning $50,000 or less helps boost volumes and sales in the key holiday period that is five days shorter than last year and forecast to be lackluster.
The merchandising plan also helps cushion profits because discretionary goods, like toys or clothes, have richer margins than consumable items such as food, which shoppers, especially low-income ones, are spending more of their money on due to inflation.
U.S. inflation has been persistently high, with grocery prices, and eggs in particular, soaring.
Privately-held Bratz doll maker MGA Entertainment is seeing 60-70% of its sales come from toys priced $10 and under, said CEO Isaac Larian. Its Miniverse figurines - listed as top toys by retailers including Target and Walmart - are mostly under $10.
"The consumer is very, very stretched, and they’re going to be frugal," Larian said. "A kid who is going to get four to five toys (in the past), maybe will get two to three this year."
MGA has 625 toys out of 2,500 that retail at $10 or below, Larian said.
Discounter Five Below (NASDAQ:FIVE) - named for its primarily $5 and under merchandise - is "leaning into value even more this holiday season with $1, $2 and $3 items," chief operating officer Kenneth Bull told investors this month.
The retailer is selling squishy Hello Kitty collectible figurines for $3.25 and $1 candles and gift wrap. The ultra-cheap items are working to attract customers, Bull said, even though the retailer is expecting a sales decline in its fourth quarter, which covers November and December.
Walmart and Target are also promoting $10 buys. Walmart has positioned Procter & Gamble (NYSE:PG)'s Old Spice HoliDude soap and deodorant gift sets in Lumbersnack and SnickerDudel scents in attention-grabbing locations, according to a research note from brokerage D.A. Davidson.
Merchandise costing $10 and under could lead to customers buying cheaper items than they initially planned, lowering sales and pinching margins, said Barry Thomas, a senior global thought leader at marketing data provider Kantar.
The low-cost items may also encourage shoplifting, because thieves can easily grab the products and walk out, he said.
The stores are also highlighting $5 and $10 deals on Mattel’s Barbie dolls, according to D.A. Davidson. A Barbie priced $10 or less usually has fewer accessories or wears simpler clothing than a higher-priced doll.
"$10 is a price point that has psychological power," said Thomas, adding that $10 is low enough for consumers to try something new. "It's low risk. From the retailer's point of view, it's seen as driving basket size. It's an impulse price point."
To be sure, retailers have long promoted low-cost and heavily-discounted gifts during the holidays in an effort to increase sales during the biggest selling season of the year.
But the deals this year aim to encourage greater spending by penny-pinching low-income consumers, whose buying so far lags their wealthier counterparts.
Consumers earning less than $50,000 are planning to spend an extra $87 this holiday season, or 12% more than last year. Those earning between $100,000 and $199,000 are planning to spend $379 more than last year, or 17%, according to accounting firm Deloitte.
In the two weeks around Thanksgiving, low-income consumers fell behind on buying compared to middle- and higher-income shoppers, according to Bank of America credit card data.
In a sign of how retailers are rearranging their merchandise to cater to cash-strapped shoppers, the average price of Walmart's 70 top toys was 10% lower than last year's, at $40.16, according to D.A. Davidson. The average price on Amazon (NASDAQ:AMZN)'s top 389 toys was 3% lower, according to the brokerage.
A Target spokesperson said the retailer intentionally increased its allotment of toys under $20.
Latrina Begley of Nashville, who is on a tight budget, said she plans to do her holiday shopping in-store, where prominently-displayed $10 deals may catch her eye.
Only 40% of consumers earning less than $50,000 per year plan bought online in the five days after Thanksgiving, compared to 60% of those making more than $100,000, according to the National Retail (NYSE:NNN) Federation, a U.S. trade group.
"I prefer to go into a store, I have a better view of what I'm buying," said Begley, who was planning to visit stores such as Target, Walmart, TJX (NYSE:TJX)'s Marshalls and Ross. "(Buying online), you have to worry about shipping."
Shoppers at the largest U.S. dollar store Dollar General (NYSE:DG), who largely earn less than $35,000 per year are shifting their spending to necessities like food, pinching the retailer's profits.
But, Dollar General is discounting toys, gadgets and holiday decor to entice more buying, executives said.