Wal-Mart bets these toys will make your kid's Xmas list

With back-to-school promotions in the rear-view mirror, retailers are already looking for ways to promote their brands for the holidays.

Following Kmart's anti-Christmas commercial that rolled out last week, Wal-Mart on Wednesday released its second annual Chosen by Kids Top 20 Toys List—a list it hopes will get parents spending on the troubled toy category, and help it identify hot items to prevent out-of-stocks and lost sales.

The discounter also said it would "continue to be unwavering" on offering the lowest price.

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"When we saw specific trends emerge, we worked closely with our toy suppliers to make sure we were stocking our toy shelves … with the items kids really want," said Anne Marie Kehoe, vice president of toys for Walmart U.S.

The Disney "Frozen" Snow Glow Elsa Doll
Toys 'R' Us
The Disney "Frozen" Snow Glow Elsa Doll

By putting hundreds of kids between ages 18 months and 12 years old in a room to play with 80 toys—and then having them vote on their favorites—the company identified five toy trends ahead of the holidays:

Creativity and crafts, such as the Spin Master Sew Cool Sewing Machine ($34.97) and the Maya Group Make Your Case Cell Phone Cover Kit ($24.99).

Licenses, especially for items related to Disney's "Frozen" and the TV show "Doc McStuffins."

Electronic toys, such as the Leapfrog LeapTV gaming system ($149.97) that will be released later this year or the Spin Master Flutterbye Light Up Fairy ($39.88).

Rebooted classic brands, such as Mattel's Barbie Glam Camper ($83.78) and Hot Wheels Street Remote Control Flying Car ($54.86).

Scooters and ride-on toys, such as the Razor Crazy Cart Spinning Go Kart ($349).

Wal-Mart said it would promote the toys through in-store displays that call them out as chosen by kids, on a landing page on Walmart.com, and through online, social and print marketing.

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The company on Sept. 12 will also kick off its layaway program for toys that cost $15 or more in baskets worth $50 or more, and will use its Savings Catcher program to match prices from local competitors. The tool compares local advertised prices from a customer's receipt, and if it locates a lower price, it will make up the difference on a Wal-Mart gift card. This price matching does not include Amazon.

"Our focus is on having great prices all season long across our toy assortment," Kehoe said.

Trouble in toyland

Toys have been a trouble spot for retailers over the past few years, as extreme price competition, the lack of a must-have toy and the popularity of mobile gaming have cut into profits. In 2013, toy sales fell 1 percent to $22.1 billion, according to The NPD Group.

The sting has been felt at companies from Toys R Us to Mattel, with declining sales at Barbie contributing to Mattel's 9 percent sales drop in the most recent quarter.

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The industry's bright spot has been for brands that have ties to popular movies or TV shows. LEGO, for example, which has gotten a boost from the "The LEGO Movie" product line, and recently surpassed Mattel as the largest toy maker when its first-half sales rose 15 percent compared with the prior year.

Image Source: Kelli Grant | CNBC

The findings are in line with a report released by The NPD Group reported earlier this year, which said sales of licensed toys outperformed the industry as a whole by rising 3 percent in 2013.

"I think 'Frozen' has definitely shown everyone this year how strong kids and little girls are engaging with that property," Kehoe said, adding she predicts the Jakks' Snow Glow Elsa Doll will be the hottest item this year.

Another race to the bottom in 2014?

Wal-Mart's affirmation that it will once again compete to bring shoppers the lowest price may sound alarm bells in the industry, which last year saw margins take a beating as retailers made aggressive pricing moves to undercut one another.

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According to data from price intelligence firm 360pi, over the past year through June—which includes the past holiday season—Wal-Mart has consistently offered lower prices than Target or Sears in the sports and toys category (though a severe price dip over the summer brought Sears' prices much closer to Wal-Mart's). Amazon's prices were consistently cheaper.

Top trending toys for 2014
Top trending toys for 2014   

In a recent call with 360pi and Retail Systems Research, RSR analyst Paula Rosenblum said the "big lie" is that in a race to the bottom on pricing, the company with the lowest costs wins.

"In fact what we find is that in a race to the bottom nobody wins," she said.

—By CNBC's Krystina Gustafson