Selling toys, as Jill Barad has discovered to her cost, is anything but child's play. When the chairwoman and chief executive of Mattel resigned last week from the world's largest toy maker she became the most prominent casualty of an industry in trouble.

This may come as a surprise to parents who had to shell out for Christmas Pokemon cards, Furbies or Toy Story 2 figurines. Mattel is not the only manufacturer facing problems.

Its arch-rival Hasbro has lost half of its stock market value since May, as sales of its Star Wars toys failed to live up to the pre-launch hype.

Retailers have also been hit. Shares in Toys R Us, the category-killer of the 1980s, have plunged by two-thirds in just over a year and eToys, an online toy store whose stock almost quadrupled on its initial public offering, has slumped to below the IPO price.

Even fast food chains have found their toy promotions hit-and-miss. The success of Burger King's Pokemon promotion was marred by product shortages and the chain had to withdraw one product after a safety scare.

Tricon, which owns Pizza Hut and Taco Bell, secured the only fast food tie-in to Star Wars: The Phantom Menace only for the promotion to prove a costly disappointment.

As manufacturers gather in New York this week for their annual Toy Fair, the mood is nevertheless mixed.

Despite the troubles of the industry leaders, 1999 was the industry's best year for a decade. Last month Toy Manufacturers of America, the trade association, reported that US sales jumped 8.8 per cent to $16.9 billion (€17.3 billion) at wholesale prices, as some 3.8 billion toys were sold.

Yet several factors have combined to shake traditional producers and retailers. The most common explanation is that children are losing interest in traditional toys at a younger age.

As the life cycles of successful products get shorter and children become more sophisticated in their demands, so the risk of manufacturers being caught out by the changing trends increases.

The success of game consoles from Sony, Nintendo and Sega has had a dramatic effect on their traditionalist rivals.

According to the International Council of Toy Industries, global sales of dolls, action figures and other traditional toys advanced just 3 per cent between 1996 and 1998, from $52.1 billion to $53.5 billion. In the same period, video games sales grew from $9.4 billion to $14.2 billion, or 52 per cent.

Manufacturers of traditional toys have tried to adapt to new technology to preserve their market share. Hasbro produced the talking Furby doll and incorporated electronic chips into its Star Wars toys to enable them to recite lines from the film. The Furby did better.

Mattel spent $3.5 billion on a CD-Rom publisher, The Learning Company, to turn itself into a technology-driven "entertainment and family products company". It was that disastrous acquisition, however, that brought down Ms Barad, who had made her name by reviving Barbie's fortunes.

Changing patterns of toy retailing have also taken their toll. In the US, 42 per cent of toys are now sold through discount stores such as Wal-Mart and Target, compared with 23 per cent at toy chains.

The discounters have forced retailers such as Toys R Us to tighten up on price and inventories. Mattel and other suppliers have found the adjustment painful.

Now the battle has moved into the Internet arena, as customers can browse eToys, Amazon.com, Wal-Mart.com and a host of other sites for the cheapest prices.

The need for e-commerce companies to establish their brands has resulted in aggressive discounting.

As with many consumer products, the best long-term hope for US toy manufacturers may lie in overseas markets.