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FROM CHINA, WITH LEAD

WILL REVELATIONS ABOUT LEAD PAINT IN CHINESE IMPORTS POISON TOY STORE SALES THIS HOLIDAY SEASON?

By Rodger Brown

August was a cruel month for Mattel. El Segundo, Calif.-based Mattel, the world’s No. 1 toy maker, took hits to both reputation and stock price after announcing a series of toy recalls linked to lead paint and potentially deadly magnets.

But the aftershocks are not Mattel’s alone. Not only have the recalls of some 20 million Mattel items worldwide called into question the toy industry’s quality assurance procedures, they have also severely tainted the “Made in China” label. This is something U.S. retailers, reliant as they are on Chinese manufacturers, can hardly afford.

“You’re seeing iconic brands, gold-standard brands in this business, like Barbie, Fisher-Price, being drawn into a story about lead poisoning,” said Brian Dobson, owner of Ridgefield, Conn.-based Dobson Communications, who has provided crisis management consulting services to the makers of such toys as Teenage Mutant Ninja Turtles. “Something like this damages the entire industry.”

The toy recalls that have resulted in a storm of bad publicity for Chinese manufacturers and U.S. retailers began before Mattel. In June the Oak Brook, Ill.-based RC2 Corp. recalled some 1 million parts from the Thomas & Friends Wooden Railway product line because of lead in some of the paint. Just as the lead-tainted railroad cars were fading into the distance, on Aug. 1 Mattel announced the recall of 1.5 million Fisher-Price toys, including Big Bird, Dora the Explorer and other popular characters. Retailers cleared shelves. Parents checked toy boxes. Mattel tried to reassure consumers by telling them it was limited to a single factory in China.

Then it happened again. On Aug. 14 Mattel recalled a mind-boggling 18 million items worldwide, and this time the hazard involved small magnets. But there was even more to come. On Sept. 4, as media outlets around the country reported that parents were beginning to shun anything made in China, Mattel CEO Robert Eckert announced that not even Barbie was safe: the Barbie Dream Puppy House and Dream Kitty Condo were recalled. Nearly 1 million more toys got pulled.

Obviously, something had gone terribly wrong. “Mattel’s inability to get its product under control quickly enough so that it could make one, possibly two announcements gives rise to the question of what did they want to know,” said Dobson. “This string of recalls seriously undermines consumer confidence.”

It is not just consumers. On the very day of the Barbie recall announcement, The Wall Street Journal reported that the U.S. Consumer Product Safety Commission, which oversees recalls, was alleging that Mattel dragged its feet before reporting the hazards. The newspaper said the commission has twice fined Mattel for “knowingly” withholding information about hazardous products that “created an unreasonable risk of serious injury or death.”

“Something like this doesn’t stop with just pulling product off the shelf,” Dobson said. “The cycle of news on these things is that crisis begets crisis. If you have a crisis for a product recall, get your hat and attaché case ready, because you’re heading to Washington for the second crisis.”

This is what is happening now. Mattel had settled those earlier claims of the commission without admitting any wrongdoing, but this tension between the authorities and the toy makers has drawn in the U.S. Congress, which has launched probes into the matter.

The impact of these toy recalls on retailers is still under observation. But what they are dealing with above all is getting sufficient merchandise on their shelves for Christmas, says Scott Krugman, vice president of industry public relations at the National Retail Federation. “A lot of shipments do go out in September to fill shelves for the holiday season, so there’s time to still prepare,” he said. “Retailers are looking at what’s best-selling and what they anticipate will sell well and are working with a variety of suppliers to be sure their shelves are filled.”

Though the recalls involve a tremendous number of pieces, the overall impact on retail sales is confined to a small section of the market, Krugman says. “The recalls aren’t going to have a cataclysmic impact on the holiday season, because toys are marketed toward such a specific subset of the population,” said Krugman. “It is a staple of the holiday season, because the first thing we think about when we think about Christmas is toys, but if you look at toys in terms of holiday sales, the biggest in terms of dollars is apparel — always has been, always will be.” Consumer electronics and video games are big sellers too, and there are no safety issues there at this time.

But the very narrowness of that “subset” of consumers, Krugman says, also happens to be driving the panic, because toys are aimed at those perceived to be the most vulnerable: children. The Toy Industry Association recognizes this all too well, and by the time the third Mattel recall was announced, the association had prepared a response, a three-point program involving support for new federal laws for testing and inspection, new industrywide procedures to verify those tests and new criteria for certifying the laboratories doing the testing.

“In the near term, toy brands and retailers are redoubling their testing efforts to ensure toy safety,” said Carter Keithley, the president of the association, in a press release last month. “We are out to make sure that toys are among the safest things parents bring into their homes this holiday season.”

But just behind that concern for children’s safety is an equal concern for the reputation of Chinese-made products. “There is a stigma there,” said Krugman, who points out that the toy recalls came on the heels of the summer’s earlier story involving toxic Chinese pet-food exports. “There is a fear factor whenever something like this happens, but when that subsides, I think consumers tend to return to their normal consumption habits as long as they’re confident that the right precautions are in place.”

Wal-Mart responded immediately after the first recall, because restoring confidence in products made in China is critical to such retailers, which rely on that country to supply low-cost products. “We feel honestly that there will be great product from China that we know is safe, because they’ve been a great supplier to us for many years,” Laura Phillips, Wal-Mart’s merchandise manager of toys, told the Associated Press in early August. “And with increased testing we know that product will be safe for our customers.”

Wal-Mart said it would step up its own testing at independent labs to 200 items a day and that it would share the results with other retailers. “Wal-Mart also stands ready to help leaders in China who are implementing new testing procedures to ensure the highest safety standards for toy products,” the company said in a press release.

As U.S. retailers work with Chinese manufacturers to repair the damage, observers note that no one has much choice but to continue with business as usual. Tom Mitchell, who reports in Hong Kong for the Financial Times, told American Public Media’s radio program Marketplace that “they’re just hoping this rash of cases is going to stop. I don’t think anyone is talking seriously now about any kind of wholesale defection from China. You’re not going to move 80 percent of the world’s toy production back to the North Pole.”