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Welcome to the Zhu Zhu Economy


The rise of the $8 toy.

The most sought-after toy this holiday season comes to us courtesy of a company in St. Louis, Missouri, with just 16 employees: The Zhu Zhu pet.

Cepia Toys, LLC, is the company behind Mr. Squiggles, Patches, Chunk, Pipsqueak, and Num Nums -- wind-up mechanical hamsters that, according to the company's website, "don't poop, die, or stink."

The maintenance-free "pets" are made in four factories in Guangdong province, China, at the rate of 220,000 a day. The fake hamsters, along with the requisite suite of accessories, are expected to generate up to $400 million over a 12-month period, Cepia marketing director Natalie Hornsby said.

How exactly did a fuzzy, $8 tchotchke come seemingly out of nowhere (if you, like many others, don't consider Guangdong to be the center of the universe) to become this year's must-have gift?

First off, as pointed out earlier, they "don't poop, die, or stink." That's something parents can cotton to right off the bat.

Secondly, they're priced for today's recessionary atmosphere -- unless you order them on the secondary market, like eBay (EBAY), where Zhu Zhu pets have reportedly gone for $2,000, or Amazon (AMZN), where the ersatz rodents have also sold for multiples of the MSRP.

Third? Incredible marketing foresight by retailer Toys R Us.

The New York Times detailed exactly how Toys R Us turned a low-tech toy into a necessity that is being rationed to consumers by retailers from Walmart (WMT) to Target (TGT) to about every other industry player in between.

Lisa Harnisch, a vice president and divisional merchandise manager for Toys R Us told the Times that, after spotting Zhu Zhu pets about a year ago at the Hong Kong Toys and Games Fair, "We saw the potential."

She knew kids loved hamsters -- but their parents didn't.

Toys R Us decided to partner with Cepia for a limited test run in Arizona. The Zhu Zhus sold out almost instantly.

It was then that Gerald Storch, CEO of Toys R Us, asked, "How do we make it big for Christmas?"

According to the Times, Toys R Us began placing Zhu Zhu orders for the holidays back in August, hoping they had the next blockbuster toy.

The company's bet paid off. Parents are literally camping out in parking lots, waiting for stores to open so they can get their hands on as many Zhu Zhu pets as possible.

Between today and December 23, Walmart stores will be selling Zhu Zhus at a $1.99 discount -- but shoppers will be limited to one hamster apiece.

Target is selling Zhu Zhus at list price, and customers are allowed to buy up to four.

But only customers.

Target employee David Lawrinowicz of Lancaster, New York, was fired last week for buying two Zhu Zhu pets.

That's right. He bought them.

Lawrinowicz, who worked the overnight shift at an area Target, unloaded a shipment of Zhu Zhus, and before clocking out at 5 a.m., bought two of them for his daughter.

Oops -- Lawrinowicz had inadvertently broken a company rule. Employees aren't allowed to purchase "popular items" during the hours when the store is closed to the public.

"I told them I would bring the things back. It's not worth losing my job over. It's an $8 toy," he told the Buffalo News. "But they said there was nothing they could do."

Well, it looks like there was something they could do -- after the story got picked up by the media, of course. Target announced last night that it had reconsidered the company's policy and reinstated Lawrinowicz after deciding it had been slightly overzealous in enforcing the rules.

The six other employees who were let go for unauthorized Zhu Zhu purchases were also hired back.

Looks like it'll be a Christmas without poop, death, or odors, after all. At least for those lucky enough to get their hands on the elusive Zhu Zhu pet.
No positions in stocks mentioned.
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