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SUNDAY, AUGUST 19, 2007
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Recalls put toy industry in tight spot

By Rachel Beck
AP Business Writer

NEW YORK — The first Barbie doll to hit the market in 1959 cost $3 each. Today, the fashion doll won’t set you back for much more.

That’s the economics of the toy business. Consumers demand low prices. Toymakers want fat profits. So manufacturing ambled off to China, which for a long time has been willing and able to please both.

Now a massive toy recall by Mattel Inc. reveals an ugly side to that cost-cutting drive. The sacrifice of safety just to provide cheap toys is something everyone will have to pay for.

The slogan “Made in China” has long stood for affordability. Thanks to the dramatically lower labor costs that China offered — estimated by some to be a fifth of what they are globally — toymakers could knock down their expenses by shifting production abroad.

That not only has boosted corporate earnings, but helped them gain shelf-space in retail chains like Wal-Mart Stores Inc. that insisted on low prices for the products they bought.

The merchants could then offer good deals to price-conscious shoppers, without losing any profits. The result is an industry that hasn’t seen its products’ prices soar much.

Many of today’s toys, when adjusted for inflation, may be less expensive than those decades ago, even though such things as raw material costs — like paper and plastic — have skyrocketed, according to independent toy industry consultant Chris Byrne.

“We can’t have ever-decreasing prices without something eventually being squeezed,” Byrne said.

That squeeze is what has been grabbing headlines lately. As millions of China-made toys have been recalled, suddenly Americans have become very aware — and scared — of the risks of manufacturing there.

It’s easy to see why the alarm bells are going off. When playthings with big-time brands’ names are considered health risks, that makes for much conversation among parents who are now dismayed about what’s lurking in their toy bin.

Imports

This puts the toy industry in a tricky spot. With more than 80 percent of U.S. toys imported from China, toymakers here can’t afford to abandon production. But if they want to keep customers, toy sellers must change their Chinese operations significantly.

Mattel Inc. is facing that new reality right now. This summer has been tough for the world’s largest toymaker, which has seen its reputation as a leader in manufacturing safety unravel after two highly publicized recalls in just as many weeks.

In total, El Segundo, Calif.-based Mattel has recalled almost two million toys worldwide because of lead paint concerns, plus millions more for other safety reasons.

Mattel has said it will take a $30 million charge to cover the cost of the recalls, but that doesn’t include what it will spend to convince the public that its toys are safe.

Analysts estimate that millions of dollars more will have to go toward monitoring its foreign vendors and creating a marketing program that assuages parents’ concerns.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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