Safety concerns set to dominate New York toy fair
Concerns over product safety will loom large on Sunday when one of the world's largest toy fairs kicks off, after a year in which a series of high-profile recalls of China-made products hurt U.S. toy sales.
By Agencies |
NEWYORK: Concerns over product safety will loom large on Sunday when one of theworld's largest toy fairs kicks off, after a year in which a series ofhigh-profile recalls of China-made products hurt U.S. toysales.
As an estimated 15,000buyers from 7,000 retailers descend on the annual American International ToyFair in New York over the next week, many manufacturers will spend a chunk oftheir time touting tighter safety measures in addition to showing off the latesttoys. That all comes at a cost and could hurt the industry's margins at a timewhen it will be coping with a weakening U.S. economy. No one in the industrywants a repeat of 2007, when sales declined partly from negative publicitysurrounding the recall of millions of toys due to lead paint and faulty magnets."It's going to be a much talked about topic," said Anita Frazier, an analystwith market research firm NPD Group.
"There will be a lot ofdiscussion about the extra protocols and the measures being taken to assureproduct safety." Canadian toy maker Mega Brands , which was stung recently by aglobal recall of its Magnetix toys, on Thursday unveiled a re-engineered versionof the line that it renamed MagNext. Montreal-based Mega, Canada's largest toymaker, said it teamed with London testing firm Intertek Group to craft magneticbuilding sets featuring embedded magnets and parts that cannot be swallowed.
A Magnetix recall began in2006 and expanded into 2007 as one child died and 27 suffered serious intestinalinjuries from swallowing small, powerful magnets. The company paid $13.5 millionto settle a number of lawsuits in 2006 and has several still in litigation.Potentially dangerous magnets and lead paint also led industry-leader Mattel Inc to yank millions of its toys from shelves worldwide last year."Toy safety is a cost of entry into this industry. And so I think that everyonealways just assumed that there would be no holes," said Mega spokesman HaroldChizick. "None of the recalls happen on purpose ...
Everybody suffers from whathappened last year," he said. Earlier this week, data from NPD Group showed thenegative publicity from last year's recalls helped push U.S. toy sales down 2percent to $22.1 billion in 2007. Meanwhile, Mattel and Hasbro Inc each saw someweakness in their U.S. results, despite posting better-than-expected,fourth-quarter profits.
"Obviously the industry lost alot of consumer confidence last year," said Soren Torp Lorsen, president of LegoAmericas. "Therefore, the industry has to prove that there are very tightprocedures going forward that ensure we don't disappoint again," Lorsen said. OnSaturday, the Toy Industry Association will make a new toy safety assuranceproposal available to the public.
The TIA said the proposal ispart of a plan to formalize industry guidelines for product testing. DOWNBEATMOOD It isn't only the increased costs of improving safety that has the toyindustry in a downbeat mood heading into toy fair this year. Toy makers areconfronting the impact on costs of the rising price of labor and commodities,the appreciation of the Chinese currency, and higher inventories, analysts said.The weakening U.S. economy is threatening to compound these challenges, withpenny-pinching consumers less likely to buy more expensive toys this year."There's a lot of concern about costs -- manufacturing costs in China, even forcompanies doing well," said Needham & Co analyst Sean McGowan.
"There's a lot of concernabout how much worse the U.S. economy will get." Toy executives seem moreconcerned about the rising cost of doing business in China -- where most U.S.toys are made -- than the growing struggles of American consumers, BMO CapitalMarkets analyst Gerrick Johnson said in a Feb. 13 research note.
"We anticipate that grossmargin expansion -- particularly if sales volumes are disappointing -- could bevery hard to come by in the coming year."
As an estimated 15,000buyers from 7,000 retailers descend on the annual American International ToyFair in New York over the next week, many manufacturers will spend a chunk oftheir time touting tighter safety measures in addition to showing off the latesttoys. That all comes at a cost and could hurt the industry's margins at a timewhen it will be coping with a weakening U.S. economy. No one in the industrywants a repeat of 2007, when sales declined partly from negative publicitysurrounding the recall of millions of toys due to lead paint and faulty magnets."It's going to be a much talked about topic," said Anita Frazier, an analystwith market research firm NPD Group.
"There will be a lot ofdiscussion about the extra protocols and the measures being taken to assureproduct safety." Canadian toy maker Mega Brands , which was stung recently by aglobal recall of its Magnetix toys, on Thursday unveiled a re-engineered versionof the line that it renamed MagNext. Montreal-based Mega, Canada's largest toymaker, said it teamed with London testing firm Intertek Group to craft magneticbuilding sets featuring embedded magnets and parts that cannot be swallowed.
A Magnetix recall began in2006 and expanded into 2007 as one child died and 27 suffered serious intestinalinjuries from swallowing small, powerful magnets. The company paid $13.5 millionto settle a number of lawsuits in 2006 and has several still in litigation.Potentially dangerous magnets and lead paint also led industry-leader Mattel Inc
Everybody suffers from whathappened last year," he said. Earlier this week, data from NPD Group showed thenegative publicity from last year's recalls helped push U.S. toy sales down 2percent to $22.1 billion in 2007. Meanwhile, Mattel and Hasbro Inc each saw someweakness in their U.S. results, despite posting better-than-expected,fourth-quarter profits.
"Obviously the industry lost alot of consumer confidence last year," said Soren Torp Lorsen, president of LegoAmericas. "Therefore, the industry has to prove that there are very tightprocedures going forward that ensure we don't disappoint again," Lorsen said. OnSaturday, the Toy Industry Association will make a new toy safety assuranceproposal available to the public.
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The TIA said the proposal ispart of a plan to formalize industry guidelines for product testing. DOWNBEATMOOD It isn't only the increased costs of improving safety that has the toyindustry in a downbeat mood heading into toy fair this year. Toy makers areconfronting the impact on costs of the rising price of labor and commodities,the appreciation of the Chinese currency, and higher inventories, analysts said.The weakening U.S. economy is threatening to compound these challenges, withpenny-pinching consumers less likely to buy more expensive toys this year."There's a lot of concern about costs -- manufacturing costs in China, even forcompanies doing well," said Needham & Co analyst Sean McGowan.
"There's a lot of concernabout how much worse the U.S. economy will get." Toy executives seem moreconcerned about the rising cost of doing business in China -- where most U.S.toys are made -- than the growing struggles of American consumers, BMO CapitalMarkets analyst Gerrick Johnson said in a Feb. 13 research note.
"We anticipate that grossmargin expansion -- particularly if sales volumes are disappointing -- could bevery hard to come by in the coming year."
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