Toy Business: American Girl, On The March

Beth Miller--an Atlanta mother with daughters 5, 7 and 12 years old--will visit the new American Girl doll store when it opens in her city this fall. "I'm sure I will have to," she says. AG owner Mattel is counting on moms like Miller to boost its $440 million in revenue last year--up just 1 percent from $436 million in 2005. "We wanted to bring the success of our flagships to smaller markets where we know we have customers," says AG president Ellen Brothers. Last year 3 million people made pilgrimages to the three existing AG stores in Chicago, New York and Los Angeles to ogle the $87 dolls and their pricey accessories. This fall Mattel is opening AG "boutiques" in Atlanta and Dallas. The new stores will be smaller, without live theater. "The big, big stores are a once-in-a-lifetime experience for many girls," says Brothers. "We didn't want to have too many of those around the country." Is bigger better? Next year AG is moving its 40,600-square-foot Chicago stand-alone store to a 52,300-square-foot spot in a nearby mall. But a proliferation of mall stores may make the dolls seem "less special," says Gerrick Johnson, a toy analyst for BMO Capital Markets. "What you don't want to see is--a few years down the road--that same kind of pressure driving them into Wal-Mart and Target."

James Lattin, professor of marketing at Stanford University's Graduate School of Business, says this is what William Sonoma did--figure out through catalog sales where the customers were, and open stores there. AG stores have a "Disneyland" or "destination quality" to them and shouldn't be on every corner, he says. Nashville mother Angela Thompson, whose daughter, Camille, now 11, considers Chicago her favorite city because of a 2003 family trip to the AG store there, agrees: "I want to make sure they don't get so caught up in the commercial. Keep it more on the educational side." Indeed, this year the company plans to introduce a new historical doll--its first since Native American Kaya hit shelves in 2002.