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Toy Recalls Expected to Lead to Higher Toy Prices

Jan 8, 2008 | Parker Waichman LLP

New toy safety initiatives sparked by this year’s record number of toy recalls could soon mean higher prices for consumers.  According to one Chinese toy industry executive,  toy prices could rise by 10 percent due to the new safety measures.

Over six million toys have been recalled this year because of lead; the highest number ever due to product defects.  Lawsuits now include Fisher-Price; Michaels Stores; Sears, Roebuck and Co.; Costco Wholesale; Eveready Battery; KMart; and Marvel Entertainment for Ernie, Elmo, Big Bird, SpongeBob, and Thomas the Train products.  But lead isn’t the only problem.  Toys with small parts and small magnets can pose choking hazards and at least one toy—The CSI Fingerprint Analysis Kit—was recalled for containing two types of asbestos.

Tougher safety measures implemented due to last year’s numerous high-profile toy recalls will likely drive up the cost of China-made toys.  Hong Kong toymakers, most of which have production lines in Mainland China, have been struggling to repair reputations damaged by the recalls of millions of toys.  Added checks along the supply chain are driving up costs and production time, said Michelle Chong, assistant to the director of The Toy Company (Hong Kong) Ltd., the buyer for a toy wholesaler in Germany.  Chong said her company expected to spend $1 million this year on quality control, up from $300,000, to test each painted toy they buy before they are shipped to the wholesaler.  These safety precautions could push up prices by an extra 10 percent this year and dent their competitiveness, she said.

"I'm not particularly worried about (the quality of) our export," Chong said.  "I'm more concerned about the production period, which now takes longer as we have to comply with the more stringent safety requirement."  Chong's company was one of 2,000 exhibitors from 36 countries at the annual Hong Kong Toys and Games Fair, running through Sunday.  The fair was organized by the Hong Kong Trade Development Council—a semi-government agency that promotes Hong Kong goods—and was operating alongside a second, similar event this week.  Both events were trying to rebuild trust in the Hong Kong and China brand.

Jeffrey Lam, chairman of the trade development council's toy advisory committee, said the recalls of China-made toys were having a limited impact on Hong Kong, the world's second-largest toy exporter after Mainland China.  Hong Kong toy exports grew 25 percent to $11.4 billion in the first 11 months of 2007 versus the previous year, he said.  Noting rising labor costs, commodity prices, and the strength of the Chinese currency, Lam said the council was looking for "a comfortable growth" this year but told reporters "it will not be as big as previous years."

Mattel Inc.—the world's largest toymaker—issued a recall for millions of Chinese-made toys last year because of concerns about both lead paint and tiny magnets that could be swallowed. Beads in another China-made toy, called Bindeez in Australia and Aqua Dots in the United States, were found to contain a chemical that metabolizes into the powerful date-rape drug gamma hydroxybutyrate (GHB) when ingested.  At least nine children in the U.S. and three in Australia became sick after swallowing the beads—two children became comatose for hours and one child was hospitalized for five days. The toy was distributed through a Hong Kong company.


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