It's said that the third time pays for all, but apparently, the third toy recall by Mattel (NYSE:MAT) was more than Disney (NYSE:DIS) could bear. It gave the toymaker a vote of "no confidence" and said it would inspect the products on its shelves independently.
As the critical holiday shopping season approaches, toymakers -- whether or not they're tainted by recalls -- are stepping up efforts to safeguard their products and positions with consumers. It's too early to tell what the fallout will be for them; parents might eschew the traditional toys and brands they typically buy.
Problems with Chinese-made goods first appeared with the recall of Thomas the Tank Engine products made by RC2 (NASDAQ:RCRC). Parents were initially outraged, and probably promised to swear off any tainted brand indefinitely. But as the list of recalled products grew, even to include well-known products such as Barbie and Disney's "Cars" line of toys, alternatives are shrinking.
Mattel and its Fisher-Price division are considered particularly vulnerable, after recalling millions of toys because of lead paint concerns or pieces of toys that might be hazardous to children. Hasbro (NYSE:HAS), too, had to recall its popular Easy-Bake Ovens because of injury concerns.
Disney licenses its characters to some 2,000 companies, and it says it will test the 65,000 toys already on the shelves at a cost of several million dollars. In future, when the cost will run the company several million dollars annually, Disney intends to pass along those fees to toymakers in contract negotiations.
With the critical holiday period coming up fast, companies are working hard to reassure parents that its toys are safe to buy. Viacom's (NYSE:VIA) Nickelodeon announced in July it was adopting similar independent testing procedures in the wake of the Thomas & Friends recall. And retailers like Wal-Mart (NYSE:WMT) are also hiring independent laboratories to check the toys they sell.
That's what's driving Disney and Toys 'R' Us to announce plans to monitor the toymakers. The toy companies have proven themselves to be especially inept at protecting their brands proactively. In the wake of the recalls, everyone is mobilizing and putting on public relations shows to trumpet their resolve. Yet these safeguards were supposed to be in place beforehand to prevent such crises from arising.
Regrettably, each year there are numerous recalls for various reasons, with little bearing on where a toy is made. This year highlighted the risks for China as it dabbled in a market-based economy, and the challenges it placed on companies wanting to do business there. Its lax regulation and lower safety measures have caused the country to own up, belatedly, to the fact that some of its products are tainted. It still refuses to accept blame outright, and it says that the toy companies must share responsibility.
Right or wrong, the "Made in China" label on toys has a black eye, and any toy company with exposure to China wants to make sure it doesn't get knocked out, too.
