Ah, it's that time of year when people get out their crystal balls (hopefully in the privacy of their home), and predict what the coming year has to offer. With Toy Fair still a month away, and a new year just beginning, it seems only right that I spend a little time jotting down my thoughts about the current action figure market and industry.

Let me start out by saying that I predict this year's Toy Fair will hold the record for what I call 'the big tease'. We will see more lines, figures and companies at Toy Fair this year that NEVER make it to production than ever before. It's going to be a harsh year for the toy makers. As Randall would say "Shhh - hear that? It's the winds of change..."

That's my main prediction, but let's talk about all the little predictions that build up to this big one first.

Retailers
Who buys toys? There are actually three target buyers - kids and collectors of course, but we often forget that for manufacturers, the buyers are the retailers. And the retail picture for action figures is getting tremendously bleak to say the least.

KayBee Toys has filed bankruptcy. FAO has lost it's battle to survive. And K-mart? Who's K-mart? Toys R Us is hanging in there, but have been forced to raise prices. Target is the only retailer hanging in there with the Great Retailer War with Wal-mart, and they have reduced most of their stores to a single valley of action figures. Wal-mart has crushed most regional chains, although a few like Meijers are holding their own.

So that means Wal-mart controls the very life blood of toy makers. They will treat toys the same way they treat detergent - we want something cheap, and we don't care if it's crap, because we'll tell people to buy it. It's already well known that the Wa-mart buyer has an personal edict against collector based lines, and only needs to hear those words to avoid them like the plague. The current Wal-mart reset adds proof with the heavy reliance on Power Rangers, Yu-Gi-Oh, Transformers, and other predominately kid focused lines.

With the number of mainstream retailers that carry action figures shrinking, and Wal-mart controlling much of what ever makes it to the shelf, where does that leave the smaller licenses, especially those that appeal to collectors and adults? Specialty stores. Comic shops, on-line stores, and bricks and mortar retailers like Sam Goody, Media Play, Tower Records, Gamestop and Electronics Boutique are the only other outlet. These retailers are feeling the pinch as well though, and the amount of peg space being dedicated to action figures continues to shrink. I have three Gamestops in my normal stomping ground, and only one carries any real number of toys. There's a whole lot more licenses, lines and companes out there than these small stores can support. And to sell through these retailers, the number of figures they produce must be far fewer. They lose any savings due to scale, and that leads to our next problem...

Price
They're going up. Oh, that's not a tough call, I know. They seem to go up every year. But if you think the price jumps were bad the last couple years, I suspect you're in for a rude awakening. As more retailers and lines that were once available at Target, KB, K-mart, and TRU are pushed into the smaller retailers, the competition for space will heat up even further. The quantities they'll be able to sell will drop drastically, and the only way they'll be able to make a profit is to raise the prices across the board. I hate high prices as much as the next guy, but I also am very aware that the collector market is getting squeezed on two sides right now. Collectors demand higher quality than kids, and they buy fewer toys. That means any line geared only to collectors is going to cost far more than it would if it were geared to a combination of the two.

But will the market bear the increase? In many cases, no. Think of all the lines just this last year that you would have been far more interested in if they just hadn't been so expensive. How many more that you do buy would you drop if they jumped 25 - 40%? It's going to be a gamble for the manufacturers, and some will simply drop the lines. MOTU is at the end of it's days, and I predict World of Springfield is too. There are probably an awful lot of lines whose continued survival depends very heavily on the retailer reaction at Toy Fair, and I'm betting some of these lines would be a big surprise to the average collector.

So that brings us back to the beginning...
So the number of retailers buying action figures, particularly action figures that are considered 'specialty market' (not just for kids), is shrinking considerably. That will drive all the product to the specialty retailers, who can only support so much. That drives down the number produced for any particular line. That will drive up prices (along with our diva-like need for perfection in our toys), which in turn will shrink the collector market further. No matter how you look at it, 2004 is going to be a rough year for action figures. And a lot of the figures and lines we see at Toy Fair this year are going to be fighting for their very life.

But will it be rough for everyone? Well, all manufacturers, at least to some degree. But some will be hit harder than others, and some have planned well (or gotten lucky). We all know Mattel and Hasbro have had bad years. Even Lego, a successful company with the kid's market, posted a bad year. Companies like Mezco, Art Asylum, Palisades, NECA, and Majestic are going to get pinched the hardest, They have a lot of cool stuff planned for 2004, but it's going to be tough for it all to make it to market though such a small retailer funnel.

Some companies made changes last year (and the year before) that help position them to ride this out. Mcfarlane made several large cost cutting measures the past couple of years, consolidating some of their locations, and dropping attendance at many of the shows and Toy Fair. At the time, many industry insiders felt this indicated McToys was already in trouble. Perhaps Todd was smart enough to see things coming, or simply got lucky in his timing.

Another company that will remain relatively uneffected - or in reality, was already effected - is Sideshow. The retailer crunch already hit them, and I defy you to find Sideshow product on the shelf. However, they've managed to not only keep their heads above water, they have already secured several very exciting licenses for 2004, with plenty of other product to back it up. They have done this by going all direct to the consumer through their website. Sure, they still sell to small retailers like on-line stores and comic shops who order independently, but they've overhauled their distribution chain and have made it work so far.

This will be a very interesting year for those that like to watch. Not all the players will be here at this time next year. Some will disappear - others may get eaten by bigger fish. And some of those may be real surprises. For the people in the industry, it's going to be a real buzz kill.