The domestic toy business still has a couple of silver linings, though, according to research from Christopher Byrne, an industry advocate known simply as The Toy Guy.
"Forty percent of the products on the shelves every year is new product that's never been sold before," he said, adding that innovation is key in toyland.
(Read more: GoldieBlox: Rebeling against the pink princess, toy complex)
The traditional toy industry, excluding video games, is expected to generate about $21 billion in U.S. sales this year, Byrne said. Adjusted for inflation, that pie is about the same size it was 15 years ago, according to his research.
McHugh said many entrepreneurs still dream of running the perfect little toy store. Curating the inventory by hand is a big draw for shop owners.
"They are the places that, if you want to be the cool aunt, that's where you shop," she said.
—Elisabeth Butler Cordova