Inside the Hot-Toy Hype Machine

Many of life's most dreaded events -- natural disasters, plagues, market collapses -- are impossible to predict. But if you want to know which holiday toys will incite fights in the aisles of Toys 'R' Us, you're in luck. All you need is an early peek at the Most Wanted list issued by toy-industry analyst Jim Silver.

Silver is an unassuming Long Island dad with sideswept brown hair and an oversize grin who inhabits a toy-stuffed, windowless office on one of Manhattan's few remaining unfashionable blocks. But thanks to 24 years spent editing toy magazines, he has a deep understanding of the process by which toymakers, retailers and the press create the toy du jour. By August, he says, it's clear which products -- Elmo Live!, EyeClops NightVision Goggles, Clickables -- will be the season's best sellers.

The process is not so much a conspiracy as a sloppy chicken-and-egg cycle that gets going at the big New York trade show in February, when manufacturers promote their new playthings and press stores to place their orders. For retailers, of course, the quality of the toy is the top consideration. But they also want to know how much manufacturers will spend to promote each toy. "If the toy is good, you can count on advertising. Nine times out of 10, it will work," says Fred Hurley, head buyer for eToys.com.

Meanwhile, the makers are playing their own waiting game. Most won't support a toy with TV ads unless at least three of the five largest toy sellers commit to carrying it, and they don't like to spend more than one advertising dollar for every $10 in wholesale orders. The negotiations go round and round. By the time the dust settles in midsummer, toymakers and retailers have pretty much decided whether Hannah Montana or Barbie gets the primo shelf space and big ad campaigns.

Next step: They share their plans with list makers like Silver. He uses the intelligence (along with product evaluations performed by a three-man team) to compile his hot-toy list, which he releases at a well-attended October press conference. An easy story for journalists, the list typically goes out via dozens of top news outlets, ensuring that everyone still breathing knows which will be the season's winners. Silver readily admits that his list sparks demand as much as predicts it: "Sales go up 1,000 percent in one week," he brags of the toys on his list. There are competing lists issued by rival magazines, stores and self-appointed toy gurus, but since they're all operating with similar information, "you'd be surprised how identical those lists have become," says Hurley.

If the whole process is so carefully orchestrated, why do we ever have toy shortages? Some blame logistics. Stores order the minimum amount needed to meet predicted demand, so when holiday sales prove unexpectedly strong, they run out fast. And since it takes two months for more toys to arrive via a slow boat from China, it's too late to order more. But several retailers confirm the popular suspicion that manufacturers also under produce certain toys in hopes of extending an item's popularity into a second year. "They want to create that frenzy," says Ty Simpson, CEO of toy retailer TysToyBox.com. "Certainly, Mattel did that last year with TMX Elmo." (Mattel (MAT) declined to comment.)

Parents can't possibly fall for that old trick again. Or can they? KB Toys warned me that the newest Elmo was "in limited supply" -- a month before the talking monster even went on sale. Let the aisle fighting begin!