Parents are likely to keep shopping cautiously as they worry about job security, despite an uptick in home values and a rallying stock market.
"Price is more of a driving factor this year than it was before, and we will probably get our shopping done earlier so there are more choices," said Decatur, Ga., resident Ingrid Allstrom Anderson, 32, whose husband's engineering firm has been hurt by the long slowdown in construction.
BMO Capital Markets analyst Gerrick Johnson predicts toy sales will fall 1 percent during the holiday quarter. They were $9.82 billion last year, according to data from research firm NPD Group.
That's a smaller drop than the 5 percent decline from a year ago, but still bad for a quarter when toy retailers make up to 40 percent of their annual sales. Toy makers can make up to half.
"I think its going to be weak, but I don't think its going to be the disaster it was last year," Johnson said. "Parents have a better idea of what their budgets are at this point, so parents will scrimp elsewhere, not on kids."
One bright spot comes from an unlikely place: a small manufacturer's toy hamster that retails for $8 to $10 and could be the first true "must-have" toy — that is, a toy that sells out, is hard to find and appeals to both boys and girls — since Mattel's Fisher Price TMX Elmo in 2006.
Cepia Zhu Zhu Pet Hamsters squeak and moves around, and they've been impossible to keep on shelves, Toys R Us and Wal-mart Stores say.
Laura Phillips, Wal-mart vice president of toys, says the furor over the hamsters is similar to the craze she saw for the furry robot Furby in 1998 and the electronic pet Tamagotchi in 1997.
"As soon as we're getting them in, they're literally selling from boxes. It's hard to get them on shelves," Phillips said.
Retailers certainly see the toy business as full of potential this holiday.
Walmart is expanding a $10 toy promotion to 100 items, up from 10 last year. Toys R Us is opening 350 temporary stores in malls and inside Babies R Us stores in an effort to gain market share since the demise last year of KBToys, which was the largest mall-based toy seller. Sears has also jumped into the fray with toy aisles in 20 locations.
"It's the year of competing for the consumers dollar," said Laurie Schacht, president of The Toy Insider, a trade publication that puts together a list of toys expected to be hot for the holidays. None in its top 20 are over $100 this year. Last year there were several, including a interactive plush golden retriever.
Top toys for the season likely will be ones that "drive innovation through creativity, not necessarily technology," said Jim Silver, an analyst at Timetoplaymag.com, which put out its annual "Most Wanted" list Thursday. The only item on the list that tops $100 is the "The Beatles: Rock Band" video game, which costs up to $249.
Examples of that on the list includes Hasbro's Candy Land Sweet Celebration Game, which retails for $29.99 and allows players to change the lengths of paths to make the game last longer or shorter.
Board games are expected to be strong, Silver said, because "you can play them over and over" and they're inexpensive. Construction sets from Legos and Mega Brands are also likely to get a boost.
Sensitive to parent's tight budgets, name-brand toy makers are targeting a variety of price ranges. For example, a Dora's Explorer Girls dolls that link to the Web retails for $59.99, there's a non-Web-enabled $19.99 version. Both are on the timetoplaymag.com's list.
Some shoppers are becoming more practical about their picks—and not everybody's thinking toys.
"The recession has made me think more about what my kids and other kids I buy for need — need vs. necessity," said Rebecca Sullivan, 37, a public relations consultant in Westwood, Mass., with a 6-year-old daughter and 3-year-old son. "I am thinking more about educational toys, items for creative play like art supplies or something they can use for longer than a few weeks."
She's planning to buy her daughter a suitcase so she can pack her own clothes for trips, and a watch for her son to help him tell time.