Troubles mount in toyland

In this good-news, bad-news year for U.S. toy sellers, a two-pronged battle is shaping up for the industry just in time to cloud the crucial holiday shopping season.

On one front: The industry is fighting to repair its image as consumers continue to question toy safety. On the other: a bruising price war among toy titans looms.

Sales for the fiscal year ended in June were up 2 percent over the 2005-06. However, toy merchants are still worried that shoppers may turn away from Chinese-made items after the recent recalls of more than 20 million playthings manufactured there. Such a boycott could be disastrous for the $22.5 billion industry, since more than 80 percent of the toys sold in America come from China.

Yet a shopper boycott hasn't materialized.

The industry has mounted an effective public relations offensive, experts say, by touting ramped-up testing and acknowledging consumer concerns.

Still, shoppers like Marla Sykes, an Elk Grove mother of boys ages 3 and 6, remain perplexed about toy safety as they look ahead to holiday gift-giving this year.

"After all the news about those recalls, I went through my kids' toy boxes," Sykes said as she browsed the toy aisle at Target on Calvine and Bruceville roads in south Sacramento. "I didn't have to throw out anything, but now I'm thinking all the time, 'How do I know for sure that the toys I'm buying are safe?' "

Consumer anxiety was heightened again last week when more than a half-million Chinese-made items, including "Pirates of the Caribbean" and Baby Einstein toys, were recalled.

Similar concerns prompted RC2 Corp. to take back some of its Thomas & Friends wooden train toys. It was the second time this year that the Oak Brook, Ill., company recalled toys inspired by the popular children's TV show.

"People are being a lot more cautious about what they buy, especially parents with kids under 3," said Christine Hildebrand, owner of the Alphabet Moon toy store in Davis. "Some people are saying that they don't want anything made in China. Others are concerned but not totally freaked out."

Carter Keithley, president of the New York City-based Toy Industry Association, said that retailers "have been working hard" to make sure that what they are selling is safe and to reassure consumers.

For example, KB Toys Inc., the mall-based toy specialty chain based in Pittsfield, Mass., has "significantly increased our independent toy testing since August," said company spokesman Geoffrey Webb. "Parents can look forward to a vast selection of safe toys on KB's shelves for the holidays."

Toys "R" Us said it, too, is examining what it puts on it shelves.

"Parents are concerned about toy safety, no matter where the toys come from," said spokesman Bob Friedland. "We're very optimistic about the holiday shopping season, especially with the unprecedented level of testing this year."

Next week, the industry will roll out a Web site to alert consumers to recalls and educate them about what the industry is doing to promote toy safety.

"We do think there will be more recalls," said Keithley, the toy association's president. "But that really means that we will indeed have one of the safest holidays ever because of all of this retesting."

He said retailers have doubled their outlays for extra safety testing, adding about 2 percent to their cost of goods.

That expense could be passed along to consumers, Keithley said, "but we hope not. Hopefully the burden will spread around between all the parties involved."

The added testing has put upward pressure on retail prices just as the nation's biggest toy seller, Wal--Mart Stores Inc., is rolling out discounts on some of its most popular toys.

The company, based in Bentonville, Ark., takes in about 25 cents of every dollar Americans spend on playthings, so its announcement will likely push rivals to respond.

"Wal-Mart is saying, 'We're not going to mess around,' " said Doug Fleener, president of Dynamic Experiences Group, a retail consulting firm based in Lexington, Mass.

The timing of the announcement could also indicate that Wal-Mart anticipates sluggish sales, said Mark Rein, a Chicago-based retail consultant. The company held off on holiday toy discounts until mid-October last year. Two years ago it held the line until November.

The National Retail Federation estimates that total holiday sales this year will grow 4 percent, more than half a percentage point below last year.

And a recent survey of 100 retail chief financial officers by accounting firm BDO Seidman LLP found 59 percent believed the biggest impact on consumer confidence came from the declining housing market, interest rates or the subprime mortgage crunch. About 29 percent surveyed by the Chicago-based firm said fuel prices had the most influence.

"When you consider that high fuel prices have been with us for some time now, the shift in concern towards issues such as interest rates and the subprime lending crisis seems to indicate a growing anxiety about a potential credit crunch for consumers," said Al Ferrara, a partner in BDO Seidman's retail division.

Economic concerns and Wal-Mart's early discounting will probably prod Target and Toys "R" Us to aggressively cut prices. Each company accounts for about 13 percent of the nation's toy business. Both declined to comment specifically on their holiday pricing strategies. Webb of KB Toys said that his company has started offering Tuesday discounts to grandparents and has cut the prices of some items by up to 50 percent.

About the writer:

• The Bee's Jon Ortiz can be reached at (916) 321-1043 or jortiz@sacbee.com.