Toy Story: Price War Erupts as Retailers Vie for Holiday Sales

It's beginning to look a lot like Christmas, as Wal-Mart, Target and Toys "R" Us maneuver to win the hearts, minds and credit cards of holiday toy shoppers.

Wal-Mart staged a preemptive strike on Target over the weekend, slashing some of its prices to within a few cents of Target's. But, hoping to be a moving target, Target is putting about half of its 2,000 toys on sale this year, double last year's number.

Perhaps the biggest weapon in Target's arsenal is the 5% discount it offers on all purchases made with a Target credit or debit card or the Target Visa card. Wal-Mart's Discover card offers only a 1% rebate.

Both big retailers have expanded the number of toys in their inventory this year. Wal-Mart had reduced its toy selection by as much as 30% in recent years but with a slightly more robust economy this year, the retail giant is hoping its customers will dig a little deeper to stock their childen's stockings.

Toys "R" Us isn't emphasizing price-cutting this year. Instead it is stocking a wider variety of toys and a broader selection of "exclusive" toys. It also offers a loyalty program that returns 10% on holiday purchases up to $500. The rebate is in the form of a story credit, not cash.

Retailers are hoping, as they do each year, that spending on toys will be a bright spot in an otherwise dim year. Cash-strapped, pessimistic consumers generally cut back on luxury items, home electronics and other big-ticket items but can usually be persuaded to pony up to spread holiday cheer among their children. Besides, toys are relatively cheap.

Must-haves

So far there's no clear leader in the annual race to be the "must-have toy but, for the slightly older crowd, the elves at Microsoft may have finally connected with holiday shoppers. The Xbox Kinect, the company's motion sensor gaming platform, is generating a lot of buzz, or at least a lot of hype.

It's been reported that the Xbox has already sold out its pre-order applications at many retail outlets, and gaming industry insiders are predicting the Kinect will be the must-have toy for gamers this year.

Last year's big toy for younger gift-getters was a robotic hamster, you may recall. Nothing has yet emerged to replace it this year but the Los Angeles Times reports that parents and kids are buzzing about squishy pencil toppers, a Barbie doll that comes equipped with a functioning video camera and toy musical instruments that can be played by touching the paper surface.