Activities, characters win over segment

"Toy dollar sales are up 4% in the drug store channel," said David Luth, principal at Radian Group, a market research firm. "The chains that do the best in this category are those that make an intentional decision to be in the business. That doesn't mean that they have to devote 80 ft. to the category, but if they devote 20 ft., they should do a great job with the space they give it. They have to have the right toys at competitive prices."

Activity toys are a key segment for the drug channel. Dollar sales of activity toys — which include action figures, vehicles, construction toys, and activity kits and crafts — increased 18% in the drug channel for the 52 weeks ended Sept. 25, 2012, according to GMDC /Nielsen Hierarchy Channel. Dollar sales of toy models were up 12% and educational toys were up 7%, according to the report.

"Construction toys are one of the biggest growth categories in the past two years," said Adrienne Appell, a spokeswoman for the Toy Industry Association. "Crafts continue to be very popular with both parents and kids." Crafts that allow kids to make their own art supplies or personalize their electronics or school supplies are a big trend. "For younger kids, anything with bling or sparkle is really popular," Appell said. "There are also a lot more crafts on the market aimed at tweens and teens. Hair and nail craft kits really appeal to this age group."

Licensing is also integral to the category, so a good toy department depends on on-trend licensed character products. Appell said that One Direction, My Little Pony and Cabbage Patch Kids products will all be popular this year. Teenage Mutant Ninja Turtles, she said, are "back with a vengeance."

Creating a destination category means generating excitement for the category year round. "Toys naturally get more space around the holidays, but the category could also get an endcap during the summer months with a 'summer fun' promotion that includes activity kits or a 'family fun' promotion around games," Luth said.

Merchandising small travel activities near trial size health and beauty aids is another way to spark incremental sales, while giving toys a higher in-store profile. "When consumers are pressed for time, one-stop shopping is a big draw," Appell said. "Shoppers want to be able to pick up their prescription, some snacks and an inexpensive birthday gift for a party that their kid is attending tomorrow in one location."