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Little things mean (and earn) a lot: Toys go small, reap big rewards

Toy story

According to the NPD Group, more than $19 billion dollars was spent on toys in the U.S last year. Still, in a time of high-tech playthings and Wi-Fi connected gadgets, tiny appears to be trending.

Last year, one of the biggest toy sellers were tiny one-inch items made of plastic, called "Shopkins. "

It's part of what observers say is a growing shift away from the traditional to the compact. According to Toy News, more than 200 million Shopkins have been sold worldwide, and they are a big hit online: Shopkins' YouTube channel has had 59 million views, and other YouTube videos featuring the toys being "unboxed" have more than 360 million views.

"They are everywhere, driven by YouTube, driven by the Internet age," Steve Pasierb, Toy Industry Association CEO and president told CNBC's "On the Money" in an interview. "Kids love them, they love to collect them. Moose Toys, a small company from Australia, really hit on it," Pasierb added.

Launched in the summer of 2014, Shopkins are colorful, miniature versions of common household items, ranging from milk cartons to shampoo bottles, from a high-heel shoe to a little microwave oven.

Priced between $4 and $35, Pasierb said, "they're at a price point that families can afford. They're cool little toys, they're enjoyable."

Read MoreTech, gadgets & toys: 5 trends from NY Toy Fair

Source: Toys R Us

Dana Points, Parents Magazine's editor-in-chief, said other toy makers like Lego and Hasbro are taking notice.

"The market has awakened to the fact that this is really hot," Points said, adding that Hasbro's Little Kingdom "has even tinier pieces." Points also told CNBC that "everybody's aware now if you have a product at a $10 price point, people might buy lots of them if they're collectible."

NPD retail data recently showed that U.S. toy sales grew by nearly seven percent year-over-year. Of the top five selling toys last year, Shopkins took #1 and #4 spots. A Paw Patrol vehicle, classics Hot Wheels and the Barbie Dream House rounded out the top five.

Barbie, the iconic doll that's been around for generations, continues to evolve. The 57-year old toy is getting several upgrades and innovations—including the classic dream house that is now available as a "smart home."

For $299, the automated dollhouse connects to Wi-Fi and reacts to voice commands. Last year, Mattel introduced Hello Barbie—a talking doll powered by artificial intelligence.

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Diversity matters

Earlier this year, Barbie announced a makeover is coming this spring. Mattel plans more diverse Barbie dolls in new body types, petite, tall and curvy. Additionally, the latest dolls will come in seven skin tones, more than 20 eye colors and hairstyles.

"Companies are understanding that their toys need to be a reflection of broader society," Pasierb told CNBC. "The broadening of race and diversity in toys are real important parts. Barbie is a representative of that."

Another example of that is American Girl's Melody Ellison. Mattel is set to launch a 9-year-old African-American doll that comes from 60's Motown-era Detroit. This is the brand's third African-American doll.

Why the obsession on toys? Toy Association's Pasierb insisted that playtime is not wasted time.

"Toys are the instruments of play. It teaches social skills, spatial skills, and negotiation in the case of something like Shopkins, where kids are trading them," he added.

"Play is an essential part of childhood development," he said. "Having your child play in unstructured play in particular is an important part of developing a well-rounded child."

On the Money airs on CNBC Saturday at 5:30 am ET, or check listings for air times in local markets.