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For eBay sellers, a holiday hamster hangover

The gift frenzy over Zhu Zhu Pets leaves some power sellers feeling like they've just run a marathon--but the steep price tags driven by scarcity lead to some impressive profits.

Zhu Zhu Pets, the battery-powered hamsters that became a huge kiddie craze this holiday season.
Cepia LLC

With toy store shelves and television commercials chock full of eye-popping video games and fancy tech playthings, it came as a surprise to many that some of the hottest toys this holiday season were inexpensive, relatively low-tech battery-powered hamsters imported from China called Zhu Zhu Pets. The fuzzy toy rodents manufactured by Cepia LLC, which came in models with names like "Num Nums" and "Mr. Squiggles," could barely stay on shelves for most of the end of 2009, and nobody really saw it coming.

For avid eBay sellers, it was the perfect recipe for profits--if they managed to jump on the trend early enough.

Jorge, a field inspector for a Southern California insurance company, had no idea what Zhu Zhu Pets were when his daughter asked for one for her seventh birthday late in the summer. "She saw the commercial on TV and asked me for a Zhu Zhu Pet," Jorge, who asked that his last name be withheld, told CNET via phone. "I went to my local Toys-R-Us, where I have friends who work there. I asked for the Zhu Zhu Pets. They didn't even know what it was. They had four of them, but they'd promised them to some lady in LA."

This is what piqued Jorge's interest: He, and his local Toys-R-Us, are hundreds of miles away from Los Angeles. Someone far away was looking for these toys, which signaled to him that they must have been, for one reason or another, difficult to obtain. This was relevant to Jorge because, as a side project, he'd been selling toys on eBay for about a year.

The story began, as so many do these days, with unfortunate circumstances induced by the recent recession. "The reason why I got into eBay was that I was laid off from work. I was off work for about 10 months," he related to CNET. As the parent of a young child, he had an in-house market research indicator. And when he found a new full-time job, he had to accept a significant salary cut, so he kept selling toys. "Going through eBay has afforded me to survive."

He ended up buying seven Zhu Zhu Pets, all for the market price of about $8. He kept one for his daughter's birthday. The rest, he put on eBay. They were sold the same day. For the next few months, Jorge's e-commerce hobby turned into a combination of an intense strategy game and the low-grade '90s comedy "Jingle All The Way," about the hyper-competition over a hard-to-get holiday toy (which starred, somewhat ironically, the actor who is now governor of the state where Jorge was undertaking his Zhu Zhu Pets retail operation).

"That week, I started picking them up, buying them anywhere I could--Wal-Mart and Toys-R-Us were the only two that were carrying them at the time," Jorge said. "I never held any of them for more than a day. I would find out when Toys-R-Us was getting their next shipment. Wal-Mart would get their trucks later at night, so I'd go at 10, 11, 12 o'clock at night to Wal-Mart, go home, and put them on eBay. By the time I woke up in the morning, they were sold."

This is right about when the trend began to take off. eBay says that from August to September, sales of Zhu Zhu Pets and related items (that is, "accessories" for the little furballs) escalated 1,500 percent. Between October 15 and November 15, four times as many Zhu Zhu Pets were sold as had been sold in the entire year to date. At the beginning of Thanksgiving week, they became the top searched term on the site. Over 100,000 were sold in the first week of December. A scare over potential recalls and toxic materials in "Mr. Squiggles" didn't do a thing to slow down the momentum.

Gambling on boom times
Jorge, for one, began to focus his eBay operations almost exclusively on Zhu Zhu Pets, though he said he did keep selling a few other surefire holiday hits, like the Mattel brain-game system MindFlex. Other products were relegated to the back burner as the average price for a Zhu Zhu Pet on eBay started to skyrocket from somewhere around $20 to a peak between $40 and $50. This is the reality of being a certain breed of e-commerce seller: You have to be ready for the rush, and equally ready for the day when a retail fad will suddenly fall back down to earth.

Remember back in high school or college biology class, when the curriculum turned to evolution and explained the competing theories of gradualism versus punctuated equilibrium? It's not all that different from the disparate strategies that eBay merchants can pursue. E-commerce sellers can opt to maintain a steady, fairly traditional electronic storefront with a wide selection of goods. Plenty of them make a very stable living this way, though it can take snails-pace growth to get there.

For someone like Jorge, capitalizing on the hottest trend of the moment, profits can come quick if you're lucky. But it's a far riskier gamble, and boom times can be interspersed with long periods of stagnation before the seller in question manages to seize the proper timing and supply-chain structure again.

But wait, there's more! Power sellers of Zhu Zhu Pets also profited from selling accessories for the little robotic hamsters, like this 'adventure ball.' Cepia LLC

Though he's been involved in eBay sales for over a year now, Jorge said he hasn't become actively involved in the e-commerce site's "power seller" community. He did, however, say that competitors started to encroach upon him quickly. "At first, I was the only one buying [Zhu Zhu Pets], so that was nice, and no one was paying attention to them, but there were other collectors in the area who saw what these things were going for, and it became kind of hectic," he told CNET.

It got ugly. "I had at least 5 to 10 collectors that I had to compete with just in my city," Jorge said. "It got to the point that they knew who I worked for and started complaining. (My employer said) that whatever I do on my lunch time and my break time is my business." He even encountered a local Wal-Mart employee who would buy up Zhu Zhu Pets with an employee discount and then put them on eBay--they're allowed to do this, he said, as long as they aren't on the clock; Toys-R-Us, on the other hand, doesn't permit employees to purchase inventory and then resell it online.

Jorge said that he never purchased Zhu Zhu Pets online to resell, saying it simply wasn't profitable. The only way that he could make money off the sales was by purchasing the hamsters in brick-and-mortar stores, but that was growing increasingly difficult as toy stores started to impose limits on how many hamsters a single customer could buy in a day.

So Jorge got even more strategic. "I recruited some friends. I had, any week, between 5 and 10 friends. I'd give them the money and they'd get what I needed," he said, adding that in return he offered them compensation but that most turned it down. "I think they enjoyed the rush. They're very competitive individuals." He added that another friend works as a truck driver who regularly makes cross-country trips, and that he would check for Zhu Zhu Pets in the cities where he stopped., bringing them back to Jorge.

Ruthless? Maybe. Jorge's tactics proved controversial to some.

"I got hate mail from moms who bad-mouthed me for picking up Zhu Zhu Pets when they weren't able to pick them up for their children during Christmas," he said. "I e-mailed them back and let them know to find out when their stores were receiving the shipments. I told them Toys-R-Us is pretty good about telling you when they receive their shipment and that they know 24 hours ahead of time what's going to be on the truck. You just need to show up early."

He said that Zhu Zhu Pets must have been more difficult to obtain on the East Coast, particularly New York, as that's where he shipped the vast majority of the toy hamsters. His top buyer was actually the owner of a store in Brooklyn who wanted to be able to restock his shelves. But eBay says that the Zhu Zhu Pets trend was nationwide: The region that bought the most Zhu Zhu Pets off the site was actually the Bay Area city of Alameda, Calif. In second place was Stillwater, Minn., followed by Shelton, Conn.; St. Paul, Minn; and Bethlehem, Penn.

When CNET spoke to Jorge late in December, he'd sold as many as 500 Zhu Zhu Pets and pocketed as much as $6,000 in profits from the hamsters and accessories. But now that the holidays are over, the demand has more or less vaporized. "It's kind of died down right now, so I'm not selling them," he said. "I have my eye on them to see if they'll come back up."

The cutthroat competition didn't faze him, either; in fact, Jorge said, he'd love to do it again. He's hoping to be ready for the next big retail fad. "I constantly try to monitor through newspapers or through the Internet to see what's hot and what's not," he explained. "Then I go to my local stores to see if they're selling. I have friends who work at Toys-R-Us and Wal-Mart, and I always ask them what people are asking for."

It's not clear whether someone like Jorge, who experienced big-time success with a hot holiday gift trend, will immediately be able to seize another hit before it happens--the numbers of factors that have to be in a seller's favor is more or less on a par with total planetary alignment. That said, because being an eBay merchant isn't his full-time job, Jorge is able to operate on the fast, anticipate-the-demand principles that could prove too risky for someone whose e-commerce storefront is a primary source of income. But regardless of the uncertainty, he's looking forward to keeping it up.

"It pays the bills," Jorge said.