By Aarthi Sivaraman

For 2009, manufacturers like Mattel Inc, Hasbro Inc, Jakks Pacific and LeapFrog Enterprises must tread carefully with their new lineups as consumers are torn between the desire to spend on their kids and the need to save money.

"Price, value and the economy are going to be the key focus," said Reyne Rice, a toy trends specialist for the Toy Industry Association (TIA).

"That is what retailers are looking for, and that's what they are hearing from their consumers," she said. "They want to make sure that the products on their shelves reflect not only what consumers are looking for, but what they can afford."

Toy makers are less than two months out of the 2008 holiday shopping season, which turned into the worst season in nearly 40 years for U.S. retailers as consumers cut spending sharply.

U.S. toy retail sales fell 3 percent to $21.64 billion in 2008 from a year earlier, according to market research firm NPD Group.

Both Mattel and Hasbro posted fourth-quarter profits that missed Wall Street's expectations as sales suffered around the holiday shopping season.

The 2009 American International Toy Fair is expected to draw hundreds of toy manufacturers and retailers on February 15-18 at the Jacob Javits Convention Center in New York.

The annual event last year was dominated by safety concerns after a sweeping recall led to millions of toys being yanked off store shelves and calls for higher testing standards.

SWITCHING GEARS

While worries about the safety of toys have largely been replaced by the dire economy, toy makers may not have had enough time to reshape plans to respond to the recession. New toys are usually designed one to two years in advance, said Gerrick Johnson, an analyst with BMO Capital Markets.

"They've had enough time to kill projects that may have been expensive," he said. "I don't know if there was enough time to develop a whole bunch of new, inexpensive toys."

This year, Mattel, the world's biggest toy maker, is betting on a "tweenage" Dora the Explorer doll as well as furry, red Elmo gloves and a game called Mindflex, which uses the electrical activity of the brain to control a small ball.

The Elmo gloves will retail for about $30, as Mattel tries to sell catchy items at lower prices. Last year, the Sesame Street character's Elmo Live doll sold for $60.

Mattel is also revamping its Barbie line, as it unveils a campaign for the doll's 50th anniversary next month.

Hasbro, for its part, will sell a $28 puppy called Lil' Patter Pup. Last year it sold Biscuit, a bigger toy dog, for roughly $180. The company is also banking on board games such as Monopoly and card games, which could see better sales when consumers opt for ways to entertain at home.

Hasbro's key toys for 2009 include the G.I. Joe and Transformers products, to be sold in connection with the movies that will come out later this year.

Smaller companies will also try to take a bite of sales this year.

Crayola, which is owned by Hallmark Cards, will sell a $10 Airbrush Painter with washable sidewalk paint and a $15 canvas which glows when written on.

LeapFrog is introducing new games that incorporate mathematical and science puzzles for its Leapster2 handheld gaming system.

Though the outlook may not be bright, next week's event promises to be interesting.

One of the toys to be launched at the toy fair is the "Bernie Madoff Action Figure" by Modelworks, named after the accused perpetrator of a purported $50 billion investment scam, the TIA said on its website.

(Editing by Michele Gershberg and Phil Berlowitz)