Investing As Kids Trade Toys for Tablets
In a few days, following several hours of giving thanks and hopefully a little reflection, consumers will be hitting the malls, the stores, the iPads, and more as the 2012 holiday shopping season kicks off. While a fair amount will head out on Black Friday in search of deals, the early bird shoppers will be heading out to Target (TGT), Walmart (WMT), and Sears (SHLD) late on Thanksgiving Day. Walmart and Sears will open at 8 p.m. on Thanksgiving, while Target will open at 9 p.m. Despite favorable forecasts from the National Retail Federation that calls for a 4.1% increase in holiday spending year over year, it seems that some retailers want to capture as many holiday shopping dollars as they can. Even Best Buy (BBY) is only opening its doors at midnight on Thursday.
Last week, Mesirow Financial Chief Economist Diane Swonk pointed out hourly weekly earnings fell during October. Coupled with data that show real disposable personal income has been declining in recent months, it does not paint a pretty picture for holiday sales this year. Even though the NRF’s forecast is upbeat, BIGinsight’s holiday consumer spending survey puts the average holiday shopper spending 9.51 on gifts, décor, greeting cards and more this year, up 1.2% from the 0.57 they actually spent last year.
One area that is suffering thus far is toy market as toy sales are running 5%-6% below year ago levels heading into the holidays according to BMO Capital Markets toy analyst Gerrick Johnson. Johnson found early season sales in September and early October were good but those appear to have been sales pulled forward by layaway plans and a lack of cool toys this year. While this sounds bad for Barbie, Monopoly, Play-Doh, and G.I. Joe and companies like Mattel (MAT), Hasbro (HAS) and LeapFrog (LF), there appear to be pockets of strength. Some of those pockets include Lego, Hasbro‘s Furby and Nintendo‘s Wii U.
Another area of strength – tablets – is not a surprise. While most investors and consumers quickly think of Apple (AAPL) and its iPad, as well as Amazon’s (AMZN) Kindle and Barnes & Noble’s (BKS) Nook, there are more kid friendly tablets at more affordable prices designed for the 3-9 year old market. One example is LeapFrog’s LeapPad2 that comes with front-and-back cameras and video recorders, 4GB of memory and a library of hundreds of educational games, apps, eBooks, videos, music and more. Another is the Tabeo from Toys R Us, a 7” tablet that comes with games, books and its own app store that offers 7,000 additional apps, kid-friendly books, videos and more. A third is the InnoTab2 from Vtech Holdings (VTKLY), which is a follow up to the company’s InnoTab product.
What companies stand to benefit from sales of these kid-friendly tablets?
Aside from the tablet makers themselves, looking at the product specs, the short list of component companies that are poised to benefit from the sales of these devices include Arm Holdings (ARMH), image sensor company OmniVision (OVTI), and touch screen solution providers Synaptics (SYNA), Cypress Semiconductor (CY) and Silicon Labs (SLAB).