The hamsters were running around inside their plastic cage, squirting through
transparent tubes and tackling a treadmill. Pretty typical.

But these furry critters are special. They don’t “poop, die or stink,” in the
words of their maker, Clayton-based Cepia LLC.

Cepia aims to make a huge splash this holiday season with Zhu Zhu Pets, a line
of electronic hamsters. The toys are gathering buzz as the possible breakout of
the season.

In the hyper-competitive world of toy retailing, will the hamsters burrow into
kids’ wish lists and parents’ budgets?

They’re off to a good start, grabbing a spot on the Toys ‘R’ Us holiday hot toy
list last month.

“They almost seem to have come out of nowhere,” said Robin Sayetta, vice
president of licensing at Highlights for Children, a kids’ magazine.

“The fact that it made that list is pretty amazing,” she said, pointing out
that a number of the most popular toy lines, such as Star Wars merchandise,
were backed by huge franchises.

In the fickle world of toy retailing, Cepia hopes the technology embedded
inside the fuzzy toys will help set them apart.

Little bumps on the cage floor touch the hamsters’ underbellies as they scurry
along, telling the hamsters which “room” they are in. The faux pets can make
teeth-brushing sounds in the bathroom and sleeping noises in the bedroom.

They squeak when petted on the nose — one of more than 40 sound effects. The
hamsters have “explore” and “nurturing” modes, depending on whether their
owners want them to be feisty or snuggly.

The idea for Zhu Zhu Pets was first conceived in May 2008, and the prototype
was delivered about a year ago. For Cepia and its 15 local employees, it’s been
a whirlwind since. The company expects to ship between 4 million and 5 million
hamsters by the end of the year. The toy went on sale in late August.

The toys’ target market is girls ages 4 to 11 and boys ages 4 to 7.

“It’s something that both parents and kids respond to, and that’s key,” said
Sayetta. “You can give your child the experience of having a pet without the
mess. This idea of a win-win for parents and kids is an important factor.”

Joe McGowan, Cepia’s director of product development and a two-decade veteran
of the toy-making industry, said he has never seen “anything like this.”

“As soon as we saw the first work in prototype, it was a slam dunk,” he said.
“This could be a really big deal for us.”

Zhu Zhu Pets are manufactured in China. Asked about the health scares
associated with toys shipped from China, McGowan said the company’s toys are
extensively tested.

The phrase “Zhu Zhu” conveys emotion in China. And on a more prosaic level,
it’s easier to get trademark protection for an unusual name like “Zhu Zhu,”
McGowan said.

The furry toys might help Cepia — a private company that does not release
financial data — reclaim the magic of years gone by. Russell Hornsby, the
company’s CEO, was a founder of Trendmasters Inc., a defunct St. Louis-based
toy company.

Trendmasters made Rumble Robots and Powerpuff Girls toys and had as many as 250
employees and sales of $150 million at various points. But that was before
several rounds of layoffs, a money-losing holiday season and a swift
liquidation in 2002.

A core group of staffers from Trendmasters founded Cepia that same year. But
they couldn’t make toys initially due to a noncompete agreement with the firm
that purchased the Trendmasters product lines, McGowan said.

So the company started developing lawn and garden products. When the noncompete
agreements expired, Cepia jumped back into the toy game and started churning
out mechanical lizards and glow-in-the-dark teddy bears.

‘THE NAG FACTOR’

Is the company betting the farm on Zhu Zhu Pets?

“Not at all,” said McGowan. “We’re already thinking about what’s next, what’s
going to replace (Zhu Zhu Pets) and come alongside it. To be a successful toy
company, you want to be in as many aisles as possible.”

Now the company is focused on stoking the buzz surrounding Zhu Zhu Pets.
Commercials are running on cable networks such as the Disney Channel and
Nickelodeon. It boosts “the nag factor,” said Natalie Hornsby, director of
marketing strategies and brand development. “It’s like, ‘Mommy, I want it, I
want it, I want it!’”

And this year, the company is pursuing a new tactic — working with “mommy
bloggers.” Cepia has sent Zhu Zhu Pets to a number of bloggers for “hamster
parties.”

“It’s better than using national ad campaigns,” said McGowan. “Those mommies
rule the world.”

The toys will be available in Wal-Mart, Target and Toys ‘R’ Us as well as in
smaller stores.

Generating buzz is critical in the holiday toy-shopping season.

“There’s always something that’s going to be hot, and that is the big focus for
kids around the holiday,” said Edward Jones retail analyst Matt Arnold. “It has
to be a buzz where kids are convinced they just have to have it.”

So far, so good. Occasionally, the toys don’t even make it onto store shelves
because customers snatch them off the stocking carts, said Wal-Mart spokeswoman
Melissa O’Brien.

“We’re very excited,” she said. “All the stores have a ton on order. It’s a
really hot item..”

Still, the retail environment is tough these days. Shoppers are nervous about
their finances. Store owners are cutting back on the number of items they carry
as they seek to conserve cash.

U.S. sales of toys were actually up 1.6 percent in the first eight months of
the year, to $10.5 billion, according to the NPD Group. But “it’s getting more
and more competitive,” said Sayetta. “Shelf space has been at a premium at
retail for many years. The current economic climate has made that worse.”

Even so, Cepia is confident that it has a winner on its hands. “A lot of toys
come and go really fast,” said McGowan. “We don’t see that happening with this.”

OCTOBER 1, 2009 – Cepia LLC Russell Hornsby has hit the jackpot with Zhu Zhu Pets, interactive hamsters that talk and move around in their own toy systems. Retailers are having a difficult time keeping the hamsters in stock.