As toy buyers and sellers ride up and down the elevators and trudge from one showroom to the next at this year’s American International Toy Fair, KAGOY is sure to be at the forefront of their minds. No, it’s not the name for a new talking plush poised to deliver Furby-like sales next Christmas; rather, it’s a trend that’s causing an industrywide identity crisis. Also known as age compression, KAGOY (stands for ‘kids are getting older younger’) is the term used to refer to the reality that kids are outgrowing their toys at an earlier age than they did a generation ago.

Although manufacturers and retailers began watching KAGOY wend its way through their business 10 years ago, 1998 was a year it seemed to hit with a vengeance. Last November, Port Washington, New York-based market research firm The NPD Group recorded significant dips in the retail sales of traditional toys (for example, infant/preschool, games/puzzles, dolls and action figures) for the seven-month period covering January to July 1998. Another study it conducted in 1998, which examined the age of the toy recipient, found kids were moving out of the categories of dolls and action figures at age six-a year-and-a-half to two years earlier than they did a decade ago, according to industry sources.

So, what’s causing kids to junk their toys sooner, and more importantly, what if anything can the industry do to keep kids interested in toys longer? On the eve of the new millennium, both are questions that retailers and manufacturers find themselves grappling with.

Computers, TV, movies, sports, today’s kids have more entertainment options available to them than ever before. And they’re exercising those options whether they want to or not, says Richard Leonard, VP of the Zandl Group, a New York City-based market research firm that tracks trends among kids and teens.

‘What you have [today] is a lot of aggressive baby-boomer parents, who are pressing their children to excel and enter into activities like organized sports and summer camp-things that, traditionally, kids have started at a later age,’ says Leonard. The trend has caused the emergence of the alpha child, says Leonard, a miniature adult who is too busy overachieving to play with toys.

Another factor contributing to the toy exodus has been television. With the proliferation of cable and specialty kid channels, not to mention video, children can pick and choose what they want at the push of a converter button.

‘Growing up, I had three choices: ABC, CBS and NBC,’ says Michael Tabakin, age 42, director of trend merchandising at Toys `R’ Us. ‘You turned on the TV, and you saw Captain Kangaroo. On Sunday nights, you’d watch The Wonderful World of Disney, and then you’d call it a day,’ says Tabakin. The propensity of TV outlets to tailor shows and entire blocks of programming to a narrowly defined demographic, he says, is causing kids to transition quicker.

‘Fifteen years ago, you had shows that would appeal to a one- to four-year-old. Now, you have shows that are targeting a one- to two-year-old, so the three- to four-year-old is watching something else,’ says Tabakin. ‘We’re seeing kids going from Teletubbies to Sesame Street, to Barney, to Power Rangers. There is a natural progression. But from Teletubbies to Power Rangers, there isn’t an awful lot of years there.’ As an aggregate, the number of viewing choices makes it difficult for kids to develop an allegiance to any one show, which in turn affects their purchasing decisions, says Tabakin. Today’s kids are less likely to want all of the licensed toys based on a TV or film property, because in 12 months, they’re already onto something else.

If individual TV programs aren’t holding the attention of kids the way they used to, computers, video games and other products with electronic components certainly are. According to NPD, sales of video games increased by 24% for 1998, pushing total sales up from US$5.1 billion to US$6.3 billion. In its 1998 Roper Youth Report, the New York City-based market research company Roper Starch Worldwide found that 32% of kids ages six to seven that it had surveyed had a video game system in their room, and 28% of them already owned a handheld video game system. The sharp graphics and hi-tech features of both make the play values of board games and action figures quaint by comparison. Also, video games and handhelds confer upon users a certain amount of coolness that traditional toys cannot.

‘There’s definitely a social stigma to playing with toys. Kids feel a little embarrassed to admit that they play with dolls, [for example],’says the Zandl Group’s Leonard. In its research on this matter, Zandl, which counts Mattel as one of its clients, interviewed 500 boys and 500 girls ages six to 17 in focus groups, but discovered through one-on-one questioning that more kids were playing with dolls and action figures than had originally let on in the focus groups. ‘I think there are a lot of closet Barbie users out there,’ he says.

Nevertheless, kids are interpreting playing with toys to equal an activity that is better suited for, well, children. At the same time, they see video games and electronic handhelds as an acceptable, more mature alternative. Manufacturers and retailers are slowly altering their products and their offerings accordingly.

Industry giants like Hasbro and Mattel have embarked on similar paths, moving their well-established brands into the categories of software and electronics. Mattel has leveraged Barbie into a number of software titles, as sales of the dolls reportedly sank for 1998.

Likewise, Hasbro has developed CD-ROM titles for its well-known board game Monopoly, in addition to licensing Monopoly apparel and a Monopoly café, which opened in the FAO Schwarz store in Las Vegas in the fall of `97. ‘It all boils down to increased entertainment choices for both kids and adults,’ says Ginger Kent, president of global brand marketing and product development at Hasbro. ‘Rather than defining the issue as age compression, we view it as expanded choices for leisure time. Tomorrow’s successful companies will [be the ones that] successfully integrate technology and innovation into their product mix.’

To that end, last Toy Fair, Hasbro acquired Tiger Electronics, whose expertise in electronic interactive products helped bring to market what can be deemed as the year’s only certifiable toy hit, Furby. In December, Mattel followed suit, purchasing the second-largest educational software producer, The Learning Company. Last September, Toys `R’ Us announced its intention to introduce another retrofit, the C3 format, which would see the retailer dedicate more floor space to electronics and kids apparel and less room to toys.

The industry isn’t abandoning traditional toys altogether, though. The solution most manufacturers are turning to is to fuse traditional toy forms with cutting-edge technologies. While Furby is the most recent example, other toys, like Playmates’ Amazing Amy, have also fared well. Released last August, Amazing Amy speaks 10,000 phrases, and like Furby, features time-based technology, which enables it to know when to wake up, eat and sleep.

‘Because Amy is smart and has an interactive element, we’re finding that the doll is skewing a little older for the category,’ says Gina Beebe, senior VP of marketing, girls toys, at Playmates. According to Beebe, girls seven to nine years of age are buying Amazing Amy, based on Playmates’ consumer tracking. Playmates will introduce Amy’s older sister, Ally, the next generation in the Amazing line, at Toy Fair. ‘Where Amy allows girls to play Mommy,’ says Beebe, ‘Ally will allow girls to interact with it as one would a best friend.’ As a result, she hopes, Playmates will retain an older girl demographic.

Another way the Costa Mesa, California-based company is trying to keep girls in the toy realm is by combining the interactive component with other product categories that appeal to girls’ aspirations to be older than they are. Best Friends Forever, Playmates’ next iteration of Nano pets, for instance, comes with a mascara pencil and other makeup items. For boys, Playmates is focusing on signing licenses for action figures based on characters in video games, such as Turok from Turok: Seeds of Evil and Lara Crosft from Tomb Raider. Playmates’ strategy-if they like the game, they’ll buy the action figure-is being tried by many toy manufacturers with different products. But whether techno-chic transference will occur across multiple categories is far from being money in the till. In fact, the reverse is just as likely to be true: there’s no guarantee that including electronics with traditional toys will deliver huge toy sales, says Dan Cooney, a former senior VP of marketing at Fisher-Price.

‘You’ve heard it said with respect to licensing-`you don’t just slap a license on a product, and then think you’ll have a great licensed product.’ I think it would be a mistake to do technology slapping, to throw lights and sounds on a toy that doesn’t need it,’ says Cooney, who now heads up Wink’n Blink’n & Nod, a West Seneca, New York-based manufacturer that makes electronic toys for preschoolers.

Toys `R’ Us’s Tabakin agrees. ‘I think that within every product category, you’re going to have innovation, and in some cases, it’s a great marriage between the innovation, the license and the toy itself. In some cases, a simple toy is still a great toy,’ he says.

So, if talking plush animals and 3-D graphics aren’t the answer to KAGOY, what is? So far, there is no answer, and that, says Tabakin, may not be such a bad thing. At the same time, he recognizes the challenge facing the industry to create and promote products that can engage a generation of kids who are better educated, more sophisticated and more discerning than ever.

‘It comes to the point where you had Jurassic Park, and then you had the Star Wars trilogy movies [that were released around the same time],’ says Tabakin, citing an analogy in the world of film, ‘and then kids say to themselves `well, what’s next? I need to be wowed. What’s the next wow?’ It’s sort of `a how can you top this’ mentality.’