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LeapPad Shortage A Boon For Toy Scalpers This Christmas

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The price is $149, non-negotiable. You'll meet him in a public place in Manhattan, cash in hand. If you don't hurry, Fred may not have any left. LeapPads are selling fast, and prices are going up.

The LeapPad is the hottest toy this season, and Fred is a scalper. He is one of thousands of entrepreneurs making a tidy sum reselling the sold-out toy on eBay and Craigslist in the weeks leading up to Christmas.

While scalpers have been around for as long as there have been popular toys, the practice thrives in an uncertain economy. Many retailers this year have downsized their inventories for the holiday season, attempting to cut costs and avoid surpluses. And more struggling parents in need of holiday cash are ready to try creative ways to save -- or make -- money.

The LeapFrog LeapPad Explorer, a learning tablet for kids age four to nine, is long gone from the shelves at Toys "R" Us and Target. But on Craigslist and eBay, the toy is available for around $140 to $250, with many sellers asking more than double the retail price of $99. Fred, who asked that his last name not be mentioned because of the stigma associated with toy scalping, has sold about 40 LeapPads via Craigslist in the past month.

A recent search of Craigslist showed 45,100 LeapPad-related listings.

In a season that has yielded no hit toy akin to the ZhuZhu Pets Hamsters of 2009, the LeapPad comes closest, according to Gerrick Johnson, equity analyst at BMO Capital Markets. Branded as an iPad-like tablet for kids, the LeapPad has apps and games available for purchase. Johnson estimates that the product will sell 500,000 units over the holidays and 1.5 million in the upcoming year, each of which will bring an average of four additional purchases of software.

For many parents, LeapPad scalpers are this year's true Christmas grinches.

"They're schmucks," said Troy Shatus of Dallas, Georgia, who bought his 6-year-old's LeapPad on Buy.com. "People are trying to make money off of a kid and a kid's toy. As a businessman, I don't get it."

A FUN HOBBY?

Fred frequently receives emails accusing him of immorally profiteering off of Christmas.

From Fred's point of view, scalpers like himself are simply entrepreneurial. "Some parents even say, 'Thank you so much, you're saving me,'" he said. Indeed, many busy parents would rather pay double or triple the retail price to get a LeapPad under the tree on time, rather than face the wrath of a screaming child.

"I know how it is," said David, 40, a LeapPad scalper and a father of two from New Haven, Conn., who also asked that his last name not be used because of the stigma associated with toy scalping. "If it was something that my daughter needed, I'd do it too. I'd pay the extra money."

David, a school bus driver during the year, has never scalped toys before, but noticed that LeapPads were in short supply when he tried to buy one for his 3-year-old in November. Short on holiday cash, he decided to invest in a few more LeapPads to resell to last-minute shoppers.

"A lot of people aren't able to get to stores so early in the morning," he noted. "I help them out. It's like a service to help parents get the gift for their kid that they want."

Fred, who is "in his thirties," has no children and works a "regular office job" during the year, says he enjoys scalping for the hunt. He has made money this way for about two years, not only with toys but also with newly released electronics like iPads. He does it because it's a fun hobby, not because he needs the money. His office job pays just under six figures, he notes.

"It's the satisfaction of getting what other people can't," he said. "Or maybe the thrill of going after something that's hard to find."

Once or twice, Fred has bet on the wrong item, but it hasn't stopped the overall enterprise from being profitable.

Otherwise, the only other hazard of the job is surly buyers.

"I don't want to give my name because I don't want to get harassed," David said. "Today, I had someone texting me crazy stuff, writing that I'm trying to take advantage of parents. I'm just doing the legwork and trying to make a little extra something."

RETAILERS RUN SHORT

As Bob Friedland, Public Relations Manager at Toys "R" Us put it, "We've always found that the last place parents will cut back is on toys for kids at Christmas," even in an uncertain economy.

Still, with consumer spending something of a wild card this year, it has been difficult for retailers like Toys "R" Us to determine ahead of time which items will be hits. When demand skyrockets, retailers and manufactures must rush to catch up.

Every "little extra something" that David and Fred make through Craigslist is money that official retailers and manufacturers could be pocketing, had they anticipated demand.

"When LeapPad hit retail shelves five months ago, we knew it was going to be a hot item this year, but sales have surpassed our expectations," wrote Bill Campbell, president of sales of LeapFrog Enterprises Inc., in an email. "Demand outpaced our supply and we are working as quickly as we can to get more LeapPads to our retailers."

Gerrick Johnson, the BMO equity analyst, says that in an uncertain economy, many manufactures like LeapFrog Enterprises Inc. choose to play it safe and produce fewer items, as shortages are less risky than surpluses.

In addition to the LeapPad, this year's hottest and hardest to find toys include the Hot Wheels Wall Tracks, the Lalaloopsy Silly Hair Doll, and the Angry Birds Knock On Wood game, according to Johnson.

Retailers like Toys "R" Us have been "cautious of bringing in a new, untested product," he explains. "In 2007, we probably wouldn't be talking about some of these items being hard to find."

BARELY BREAKING EVEN

In 2007, it might also have been harder to find toy scalpers like Paul Marcel, who decided to resell LeapPads this year just to be able to afford one for his niece.

Marcel, 31, of Queens, N.Y., is unemployed and in the process of losing his home to foreclosure. He decided to resell LeapPads when he saw the prices at which they were selling on eBay. Selling six, he barely broke even.

Marcel would have liked to sell more LeapPads, but didn't have enough money to make a bigger investment. "My finances are low," he said. "But if I did have an option to purchase more and sell them, I would have."

Like their customers who pay exorbitant amounts just to get a toy by December 25, parent-scalpers are also willing to do almost anything to please their children.

"My household is tight as it is," said David of New Haven. "It's not like I'm making a killing. I made a little change, enough to help me with necessities. At Christmas, you got living expenses and shopping on top of that."

"You just want to see your kid happy," he said.

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