Retailers Keep Toy Makers in Line

Here's where we get to see whether consumers are all talk and no action, or if they really are committed to buying safer toys for their kids.

In the wake of toy recalls last year that amounted to an ugly scar on the industry, many consumers railed that manufacturers were profiting at the expense of children's health. While it seemed to mix a bit of xenophobia and nationalism with a smidgen of populism, the charge was that toy makers had farmed out safety to overseas manufacturers -- namely those in China -- to lower their own costs.

"Bring the jobs home!" they cried, "and we'll buy your toys."

The withholding of their dollars was certainly felt by the toy makers, most of whom were left reeling from falling sales. Mattel (NYSE: MAT  ) reported a 2% drop in revenue. JAKKS Pacific (Nasdaq: JAKK  ) was sent to the corner on its earnings miss. And RC2's (Nasdaq: RCRC  ) profits were hurt by a 17% decline in sales. Only Hasbro (NYSE: HAS  ) , the one toy maker not subject to lead-based recalls, had results that weren't trivial.

Toy sales in general fell 2% to $22.1 billion in 2007, according to the industry analysts at NPD Group, while those targeted to infants and toddlers -- the group most affected by the recalls -- dropped 5%.

But toy makers aren't exactly abandoning their Chinese counterparts. With 80% of all U.S.-bound toys made in China, the cost differential would probably be too great to remain profitable. So the stores that sell toys are using their not-so-invisible hand to move safety to the fore.

The latest to ratchet up safety guidelines is Wal-Mart (NYSE: WMT  ) , the world's biggest toy seller. Like Target (NYSE: TGT  ) and Toys "R" Us, which are phasing out certain plastics used in toys and kids' products, the giant discounter is issuing safety directives to suppliers. Moreover, it is "encouraging" toy makers to institute programs that allow toys to be traced back to the factory that made them. Disney (NYSE: DIS  ) was one of a number of retailers last year that said it would start testing toys on its own.

Like an emperor handing down a fiat, the toy makers will fall in line. If you want to sell toys in Wal-Mart, you'd better heed its call.

MGA Entertainment, which makes the Bratz dolls and says it supports Wal-Mart's move, also says it will raise production costs 5% to 7%, an expense that the consumer will ultimately pay.

Now we'll see just how supportive consumers are. Will they walk the more expensive walk, or were they just toying with the idea of paying for safer toys?

Catch up on the recall action from 2007:

Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 14, 2008, at 6:51 PM, truth2008 wrote:


  • Report this Comment On May 14, 2008, at 6:53 PM, truth2008 wrote:

    FYI..Hasbro actually does have a lead paint recall as of January for Cranium Cadoo..visit their website under recalls.

  • Report this Comment On May 14, 2008, at 9:34 PM, TMFCop wrote:

    Thanks truth2008. But in reality, the Cadoo recall actually happened before Hasbro bought the company (though after the announcement of the buyout). As they have since closed on the deal, it's incumbent on Hasbro to put the notice up on its site.


  • Report this Comment On May 16, 2008, at 2:28 PM, motleytoy wrote:

    Retailers keeping toy makers in line is pretty laughable.The retailers care only when the public cares and are partly responsible given the grind they put on margins and knocking off the manufacturers with their own in-house brands. Further, if you look deeper you'll see some of the retailers own in-house brands have been recalled as well. Outside of the serious issues with some of the magnetic toys, the balance of this is a bunch of inflated press that will ultimately cost the consumer in the end. America shouldn't WANT to manufacture toys, our youth should want to further their education, become something more then a factory worker in a toy plant. Let China have these jobs!

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