Image: Toy store
A.j. Olmscheid  /  AP
An iffy economy and recalls combined to make consumers wary about toy shopping this holiday season. Some retailers are trying to entice reticent parents with discounts.
updated 11/16/2007 4:33:25 PM ET 2007-11-16T21:33:25

Lead on toys was bad enough, but last week’s recall of a toy tainted with a date rape drug threatens to turn into a lump of coal for toy retailers just as the key holiday selling season gets started.

The recall of Aqua Dots comes just as the industry was starting to see shoppers return to toy stores after summer’s high-profile recalls of more than 21 million Chinese-made toys with high levels of lead or dangerous magnets.

Aqua Dots, distributed by Spin Master Ltd. in the U.S. but made in China, was on many retailers’ hot toy lists, and there are very few substitutes, retail executives say.

Reports of children knocked unconscious after swallowing the tiny colorful beads set off a whole new level of worry among parents.

The good news for shoppers is that they’re being bombarded with free shipping offers and fat discounts as rivals like Wal-Mart Stores Inc. and Toys “R” Us try to out do each other and draw reticent consumers. Most of the discounting had been planned, but at least one toy retailer — eToys.com — added a free shipping offer after a disappointing October.

The Aqua Dot recall is “scarier than all the others,” said Stacey Ryan, of New Providence, N.J., who planned to buy Aqua Dots for her three-year-old daughter Shannon. The summer recalls had already made her cautious about buying toys for Shannon and her two-year-old sister Bridget. But she reasoned, what could be worse than them swallowing the Aqua Dots? Little did she know that the beads were coated with a toxic chemical that metabolizes into gamma hydroxy butyrate or GHB — the so-called date rape drug.

Now, Ryan is focusing on bigger toys like baby dolls and stuffed animals — items her children can’t swallow. “If it looks like a piece of fruit or a snack, I just won’t buy it,” she said.

“I really don’t understand how a toy like that can have something like that put into it,” said Colleen Scanlan, from Sun Prairie, Wis., who is trying to find a replacement for Aqua Dots for her daughters, ages 5 and 8. “They’ve been asking for it for about a year, so that one will be a big disappointment.”

While many toy merchants say so far shoppers largely have not been rejecting Chinese-made toys — which make up 80 percent of U.S. playthings — they are being choosier. A poll done last month by Harris Interactive showed that one-third of Americans say they will be buying fewer toys this holiday season due to safety concerns, and 45 percent said they will avoid buying toys made in China.

What effect the souring economy will have on sales is also still unclear. Consumers are wary, but even the most frugal parent will buy some children’s toys come the holidays.

Target Corp. has said that its toy business has been “soft” this fall, while eToys.com’s CEO Michael Wagner reported that October sales were weaker than expected. Amazon.com said it’s been pleased with its toy business; many others declined to comment saying that the bulk of holiday sales is yet to come.

The industry is worried that parents’ frugality could derail holiday sales, which showed a meager increase last year after several years of declines. Toy sales were up 0.2 percent last year, according to the NPD Group Inc., a research company based in Port Washington, N.Y.

Already, aggressive price cutting has begun. Wal-Mart kicked off in early October, at least a week earlier than a year ago. Over the Nov. 2-4 weekend, Wal-Mart, Toys “R” Us and K-B Toys Inc. wooed shoppers with weekend discounts and door buster specials similar to what they would offer on the day after Thanksgiving.

Such heavy discounting could depress sales even more, analysts say. BMO Capital Markets analyst Gerrick Johnson noted that he now expects toy sales to be down from a year ago; before the summer recalls he had estimated that toy sales would be slightly up.

The Aqua Dot recall opened old wounds, said Johnson.

“This could be the straw that breaks mom’s back,” he said.

As toy buying kicks into gear, there seem to be plenty of contradictions in spending patterns. While some small toy stores report a sales surge in naturally stained wooden blocks and eco-friendly stuffed animals, plenty of Chinese-made mass products are big hits, such as Fisher-Price’s Smart Cycle and Jakks-Pacific EyeClops, a handheld device that magnifies objects.

Brands that suffered recalls — such as Mattel Inc.’s preschool brand Fisher-Price and RC2 Corp. — are rebounding, according to Toys “R” Us officials. They noted Fisher-Price has done better than other brands hurt by recalls.

Online specialty stores like Oompa.com and ebeanstalk.com that sell fancier, higher priced toys also report hefty sales increases from a year ago.

Sue Warfield, president of the American Specialty Toy Retailing Association, which represents about 500 stores, says her members, long battered by discounters, are bracing for a turnaround.

“One bright side is it’s made people aware there’s more to shopping than just picking something off the shelf,” she said of the recalls. “You have to think a little bit more. You have to pay a little bit more attention.”

Still, amid a challenging economy, plenty of parents will shop for the best price. Ryan noted that she will stick to shopzilla.com, a shopping site, to search for the best deals, avoiding small toy stores.

“I think the shoppers are out there looking for bargains,” said Geoffrey Webb, director of advertising and sales promotions at K-B Toys Inc., which stepped up price cutting from a year ago. This season, the retailer launched what it calls its “supervalue” program, which offers discounts on hundreds of toys.

Barb Hollenbeck, owner of Second Childhood Toys, in Hastings, Minn. whose toys are about 20 percent higher than items found at discounters, said she’s seeing some new customers and expects higher sales this season.

Still, she is realistic. While she doesn’t see sticker shock among her new customers, “a budget will be an important factor” for shoppers.

“They are out there looking before they buy,” she said.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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