Can We Believe Mattel?

Right or wrong, Mattel (NYSE: MAT  ) is quickly becoming the poster child for toy recalls. Of course, such a reputation would be hard for the company to avoid, considering it has undertaken the massive task of recalling more than 20 million toys -- from Barbie to Polly Pocket to Dora the Explorer. Hasbro's (NYSE: HAS  ) Easy-Bake Oven recall and RC2's (Nasdaq: RCRC  ) Thomas & Friends lead-paint scare pale in comparison. And bibs produced by a division of Crown Crafts (Nasdaq: CRWS  ) were recently called out for containing excessive lead in the vinyl, but that case also didn't come close to reaching the level of Mattel's recalls.

That's why I found CEO Bob Eckert's missive in today's Wall Street Journal so disingenuous.

While appearing to be proactive about what Mattel is doing to calm jittery nerves, he instead strikes a defensive posture that's as off-putting as Chinese regulators blaming U.S. companies for their shady manufacturing problems:

More seriously, the character of Mattel has been maligned. We've even been accused of being 'unapologetic' by the very same newspaper in which we ran full-page ads apologizing. I apologize again.

Eckert should realize that consumers know and understand that Mattel is sorry about what has occurred -- sorry they got caught, anyway. What comes across as cold and uncaring is its stance that it needn't report instances of injury to the Consumer Product Safety Committee within 24 hours of learning about them. It has defiantly said it will investigate them first and report them when it deems it appropriate. Eckert may be sorry consumers won't be buying his toys this Christmas, but parents find it hard to be forgiving when a company takes such a cavalier stance toward their kids' safety.

And speaking of sales, Mattel's CFO announced at an investor conference that while the company will be taking a charge for the recalls this quarter, it'll be smaller than the $29 million one it took last quarter. Moreover, the CFO assured everyone that the toy maker will still enjoy good holiday sales. Is this believable?

As Eckert noted in his Journal piece, the overwhelming majority of the toys Mattel sells are safe and not subject to any recall. Yet that sounds as reassuring as Chinese officials noting that 99% of all Chinese-made toys are safe. It's true, I'm sure, but the old saying "one bad apple spoils the bunch" applies here. I mean, as a parent, would you be willing to take any chance that you could be giving your child a defective toy?

It's true that Chinese-made products are generally safe, and it's true that only an incredibly small percentage of toys Mattel sells are tainted. But the important thing here is the perception of what is safe and what's not. Consumers, at least this holiday season, are assuredly going to be more circumspect when it comes to noting the manufacturer and country of origin of the toys they buy. That's why even Disney (NYSE: DIS  ) and others are engaging in an additional round of testing. Everyone's being more careful.

Mattel-branded toys accounted for 60% of the company's sales in 2006, while the Fisher-Price line accounted for the other 40% (the company's Wheels, Entertainment, and American Girls segments were essentially negligible amounts in the overall scheme). The domestic portion of these segments was also responsible for most of the growth the toy maker saw last year, generating 10% and 8% growth, respectively. With these divisions at the heart of the recalls, it seems the toy maker will be hard-pressed to generate sales approaching those numbers. Despite Mattel's recently deployed and highly touted inspection and testing system, consumers are still going to be wary of the Mattel name.

Eckert ends his piece by saying "deeds, not words" will restore consumer confidence, and I agree. But it's not going to happen overnight, or even by Christmas, and it's not going to come by striking such defensive postures. As Hamlet's Queen Gertrude admonishes, "The lady doth protest too much, methinks."

Mattel should stop trying to jawbone what may very well be a horrendous holiday quarter and simply let its deeds speak for themselves.

Get further jawboning on the recalls with these related Foolish articles:


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