In the collectible toys business, scarcity is everything. Those vendors that understand this economic principle and know how to manipulate supply can elevate the act of collecting from a modest pastime to an all-consuming, mega-profit-yielding craze.

‘The goal is not to release the amount of product that will just meet consumer demand, but to release not enough product,’ says Michael Albert, marketing manager and VP of product development at Playtoy Industries, a Toronto, Canada-based toy company. Playtoy is the Canadian distributor for Go-Go’s Crazy Bones, a collectible product targeted to kids ages five to 11 that includes a line of plastic skull-like figurines, a board game and a book of stickers. Playtoy releases sets of 40 Crazy Bones figures every two months, after which it ceases production and begins manufacturing a new batch.

Nurturing the collectors’ fears that they have only so much time in which to buy the item that will make their collections complete is one major force that drives the market. The must-have-or-die impulse to collect can be enhanced by tweaking the appearance and limiting the quantity of toys available, common practices amongst manufacturers. Playtoy regularly changes the color of some Crazy Bones figures in every set and, although it doesn’t publicly announce it, Mattel short produces some of its special edition Barbies.

‘It’s not too difficult to figure out which ones it limits production on. [For example], it’s very difficult to get your hands on the Harley Davidson Barbie, but not hard at all to get a hold of the Happy Holidays Barbie, which came out last year. It’s still on store shelves today,’ says Sharron Korbeck, editor of Toy Shop Magazine.

Another factor that spurs consumer demand is the anticipated value toys will assume once they’ve been discontinued and moved into the secondary market, also known as the aftermarket-that toy sellers’ nirvana where US$2 tchotckes can fetch a hundred times their primary market worth.

Few toys have generated as much interest or capital in the aftermarket as Ty Inc.’s Beanie Babies. There’s a plethora of magazines and Web sites listing the values and minute details of retired Beanie Babies, some of which sell for upwards of US$2,000. Rival companies have been quick to figure out ways to capitalize on their popularity, too. Most recently, this pursuit has given rise to the Super Collectible-an item that merges the Beanie Babies’ form with the physical characteristics of another collectible toy. In November, Applause released a line of Peanuts Beanies (US$4.99), based on characters from the popular comic strip, which are being sold exclusively out of Kohl’s Department stores. Also last month, the idea factory began distributing beanbag doll versions of the Spice Girls, which retail for US$8.99 each.

Most observers of the collectibles biz credit Ty’s fortunes to a mixture of marketing and distribution savvy. While it’s not the first company to retire its products as a way to induce demand, Ty certainly honed the tactic into an art form.

In 1994, when Beanies were first introduced, Ty would send out catalogs twice a year announcing the names of retired and soon-to-be-released Beanies. Since 1997, it has been using its Web site (www.ty.com) to disseminate that information. But Ty doesn’t simply post all the names of retirees at once. During the last week in September, the company sporadically revealed the identities of dolls that it would no longer manufacture. ‘Each day you had to check-one day they retired two, the next day they retired one, and the day after that they didn’t retire any. So they keep you hooked. They keep you fascinated by the whole thing,’ says Mary Beth Sobolewski, editor and namesake of Mary Beth’s Beanie World Monthly, a publication with a one million-plus circulation that is the Bible of all matters Beanie-related.

Also adding to the Beanie mystique, suggests Sobolewski, is Ty’s stipulation that its products are to be distributed through the specialty toy and gift routes only, thus attaching a pretense of exclusivity to the product. Timely promotions with McDonald’s (Teenie Babies premiums) and Major League Baseball have served to further Beanie mania. And then there’s Ty’s marketing strategy-or lack thereof. The Oak Brook, Illinois-based company never advertises and refuses to do interviews. In fact, except for its 1-800 order line, there’s no way to directly contact Ty.

Though still the undisputed Garbo of corporate America, Ty has, on occasion, deigned to speak to the outside world. Last year, it issued a missive on its Web site threatening to cancel accounts that sold Beanie Babies to secondary market dealers, adding that the practice made it difficult for the product’s intended consumer-children-to afford the dolls. Another wise PR move? Perhaps. But Korbeck doesn’t buy the company’s position.

‘Ty loves the secondary market. They’ve got to-it’s keeping their business going,’ says Korbeck. In addition to her editing duties, Korbeck also works as a clerk at a local book and gift shop in Iola, Wisconsin where, she says, store managers routinely mark up new Beanie Babies for well above Ty’s suggested retail price of US$5. Many small toy, gift and hobby shop retailers do the same, though every one I contacted requested anonymity for fear of reprisals from Ty, even though under U.S. trade law, it is illegal for a manufacturer to order a retailer to sell its product at a set price.

Nevertheless, trying to maximize profits off of toy collectibles as white-hot as Beanie Babies is still a tricky proposition for retailers both in specialty and mass. Holding back quantities until they reach secondary market prices or jacking up the margins on new products may boost revenues in the short term, but in the long term, such strategies risk souring customer good will, says Don Graham, owner of the Toy Shop, a toy and hobby store located in Toronto.

Like Graham, some retailers choose not capitalize on the secondary market and take steps to deflate the feeding frenzy that surrounds toy collectibles. Last June, participating Target stores reportedly defaced boxes containing Star Wars action figures, and thus decreased their resale value as collectible items in order to dissuade the throngs of greedy collectors from buying them all up. Other retailers resort to less drastic measures. Zany Brainy, for example, rations the sale of new Beanie Babies to three per customer, as a way ‘of getting more Beanie Babies into the hands of more people,’ says Warren Chang, VP of marketing at Zany Brainy.

In the end, the best way for toy retailers to cash in on collectibles may be to keep their eyes on the lookout for the next craze or, just as importantly, to recognize the early signs that the current one is about to burn out. Beanie Babies, in fact, may be about to go the way of the Pogs. Recent secondary market devaluations of the Princess Teddy Bear and Libearty, among other items, have led some to suggest that the world’s infatuation with the cuddly toys is about to end. Jerald Reichstein, president of Collectica (www.collectica.com), a Web site that serves as a hub for toy collectors, buyers and sellers, recognizes a disturbing trend emerging in the Beanie market.

‘I think with Beanie Babies, there are a lot of parallels with what happened to baseball card collecting. Basically, in the early 1980s, you had a situation where people collected baseball cards because they enjoyed it, and then you had speculators move into the market who realized that because prices were going up so quickly and because new collectors were moving in all the time, there was money to be made. And when they moved in, prices went higher and higher, inevitably leading to a crash in the early `90s. Today, there are as many Beanie Babies speculators as there are collectors.’