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Toys' Origin Not An Issue, But Holiday Forecast Is Shaky

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By ANNE D'INNOCENZIO The Associated Press

Published: October 3, 2007

NEW YORK - Toy sellers' fears of a widespread boycott of Chinese-made toys have not taken hold so far, despite the recall of more than 20 million playthings made there. Merchants are reporting an improvement in business, including strong early sales of certain key holiday items.

Still, shoppers' concerns over safety are still high. And mounting financial concerns could force shoppers to pull back.

'Consumers are still confused,' said Ron Boire, president of Toys R Us Inc.'s North American division, noting there are some parents still concerned about where products are made. But he is not seeing 'a sea change.'

Ed Schmults, chief executive of FAO Schwarz, agreed, saying that there's no 'abandonment of Chinese-manufactured toys. A lot of people are looking ... but we are not seeing a correlation between where toys are made and their sales.'

That's a big relief for the nation's merchants because more than 80 percent of toys sold in the United States are made in China.

Consumers such as Kristen Chase, 31, mother of a 3-year-old girl and an 8-month-old boy, say they are more cautious selecting toys. 'I am not avoiding all Chinese products,' said Chase, who is part of social networking site Cafemoms .com and runs coolmompicks.com, a shopping blog for mothers that focuses on small businesses. 'I am just looking at safe toys.'

A bigger worry, Boire said, is the economy. 'Clearly, the economy has changed. Obviously, that is a question mark for the holiday season.'

The toy industry is less vulnerable to a challenging economic environment than other sectors, such as apparel, because parents usually cut back on spending on themselves before reducing their buying for their children.

Still, if parents buy only one or two fewer toys each this holiday season, that collective frugality could derail the industry's rebound made since late last year.

Wal-Mart Cuts Prices

Meanwhile, Wal-Mart fired its first salvo in the holiday discounting toy wars, announcing on Monday price cuts from 10 percent to 50 percent on products, including some new holiday toys, such as Hasbro Inc.'s interactive parrot called Squawkers McCaw.

Laura Phillips, Wal-Mart's chief toy officer, promised that the world's largest retailer will be unveiling more price reductions on holiday toys every week in October.

The timing of Wal-Mart's price reductions is about a week earlier than last year's discounting campaign.

Phillips also said that Wal-Mart is being more aggressive this year in cutting prices on the current season's hot toys.

'We clearly understand the concerns around spending,' Phillips said.

Still, Boire of Toys R Us was unfazed by Wal-Mart's move, saying that Toys R Us remains an authority on toy selling, citing special deals every week.

KB Toys' Geoffrey Webb, director of advertising and sales promotion, said the retailer just launched what it calls its 'supervalue' program, which offers discounts on hundreds of toys.

But price competition is just part of the problem. The toy industry needs to keep churning out big hits to compete with the array of electronic gadgets, including cell phones and iPods.

Last fall, the industry was abuzz over TMX Elmo from Mattel's Fisher-Price brand. The more high-tech version of the popular fuzzy, red character became an instant hit with shoppers, drawing customers into the stores early in the season. At the moment, there isn't one must-have for this holiday season.

However, retailers say they are encouraged by early strong sales of some of the holiday toys that just hit stores in recent weeks.

More High-Tech Toys

According to Jim Silver, editor of Toy Wishes magazine, which revealed predictions for the season's top dozen hot toys Tuesday, there are more toys this year connected to the Internet or TV monitor.

'Kids are becoming more high-tech, and manufacturers are really changing their offerings,' he said.

According to retailers and analysts, toy sellers are enjoying strong sales of anything related to some of Hollywood's hot properties, such as Walt Disney Co.'s 'High School Musical' and 'Hannah Montana,' and the summer hit 'Transformers,' released by Viacom Inc.'s Dreamworks and Paramount units.

Wal-Mart and Toys R Us reported strong early sales of Aqua Dots Super Studio, from Spin Master Ltd., an activity set using colored beads. Toy experts also are bullish on toys that interact with the Internet, such as Zizzle LLC's Spotzmaker, which produces colorful buttons that interact with Web site Spotzgirl.com. Other key items expected to do well are JAKKS-Pacific's Eye-Clops, an electronic magnifier that plugs into a TV, and Red Octane's 'Guitar Hero III, Legends of Rock,' the latest in a series of video games that allows consumers to hook up a guitar peripheral to a game console such as the Sony PlayStation, Microsoft Xbox or Nintendo Wii.

Toy merchants are watching closely to see whether shoppers are boycotting brands hit hard by recalls. So far, it has been a mixed bag.

Although Boire said Mattel, bruised by three high-profile lead paint recalls this summer, saw a sales slowdown at first, sales have rebounded. In particular, toys from the Disney-Pixar movie 'Cars' has been extremely popular despite a recall of 'Sarge' cars, which are based on a character in the movie. In mid-August, Mattel announced a worldwide recall of 436,000 die cast 'Sarge' cars because they contained excessive amounts of lead paint. Sales of RC2's Thomas & Friends Wooden Railway sets have been mixed, he said. The company announced its second recall of train products in less than three months.

'Some are back and others are still struggling,' Boire said. 'The big brands are going to do well, but the marginal brands are suffering.'

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