The toy supply chain: Fair play?

This summer’s toy story could hardly have been more downbeat – and the repercussions will be felt by retailers this Christmas and beyond.

Instead of a picture of delighted children’s faces, toys have been tarred with darker imagery – of poison, danger and ultimately threats to life.

Product safety – from toothpaste to cars and, most dramatically in light of the Mattel recalls, toys – is increasingly becoming a major issue for consumers and retailers alike. In the light of recent problems, especially those affecting toys, EU consumer protection commissioner Meglena Kuneva last week proposed a massive shake-up to address the threat.

Kuneva has announced a wide-ranging investigation into product safety that will focus on the entire supply chain. She is in favour of much greater focus on standards enforcement and product traceability, which could have a major impact on British toy retailers.

She says: “Too many and too frequent high-profile consumer product recalls have given us a clear signal that we should not ignore. But the toughest question still needs be answered: how can we be sure that toys are safe?” There is no such thing as zero risk, she says, but adds that she is determined to create a system that is fit for purpose.

Kuneva wants to ensure that producers, importers, retailers and governments are all well-equipped to identify and tackle problems as they emerge.

She says that there can be no compromise on consumer safety. “This is about European values; this is about high standards,” she insists. “It is in China and the European Union’s mutual interest to boost consumer confidence in the market.”

Three main focus points emerged from her initial findings. Firstly, she has announced an in-depth audit of business safety measures in the toy supply chain, which will be completed in the first quarter of next year. Secondly, she is demanding stricter monitoring to catch out companies that are not complying, using the problems that have afflicted Mattel as a starting point. And, thirdly, she is advocating a greater focus on the traceability of products throughout the supply chain, placing more responsibility on retailers.

The number of dangerous products – most of which were toys from China – across the board reported on a week-by-week basis in the EU this year has risen by 43 per cent compared with last year. And, under the EU’s rapid alert system for non-food products, known as Rapex, almost half the notices issued last year involved goods made in China, where 80 per cent of the world’s toys are manufactured.

Kuneva says: “The figures we have from Rapex give cause for concern. We take them very seriously. 50 per cent of alerts from goods of Chinese origin is too high.”

A TALL ORDER
But what does this actually mean for UK toy retailers?

Kuneva’s proposals could mean sweeping changes to the regulatory regime to set standards at all levels of the supply chain, including stores.

Traceability is key. Retailers would need to have far greater stock control in order to track and record where a product is in the market. But this could cause big problems because many retailers, particularly smaller ones, would not have the capacity to do that.

High street retailers would struggle to collate sufficient information – which some fear include collecting customer details, which could be hard to reconcile with data protection laws. There would also be the issue of cost. Retailers would need sophisticated systems to track every item sold and such infrastructure does not come cheap.

Kuneva’s proposals have outraged UK toy retailers, which have labelled her suggestions unrealistic and unworkable. The Entertainer founder and chairman of the Toy Retailers Association Gary Grant says: “Customers are already queuing for 40 minutes in the run-up to Christmas. It would be impossible to get the contact details, names and addresses of every person who has bought a toy. I recommend anyone who’s in the decision-making process to go and stand in a shop.”

He says the logistics behind this level of traceability would be ridiculous. “We have millions of sales per year; we wouldn’t have the computing capacity or staff to keep records of everything,” he explains. If the proposals go ahead, the Toy Retailers Association will lobby against them. “There will be a backlash,” he warns.

Grant argues that the problem needs to be eliminated further down the supply chain, to tackle it at source. By the time a product gets on to the high street, it is too late.

An Argos spokesman declines to comment until Kuneva reveals the results of her investigation early next year, but he says the issues highlighted are very important.

According to Lovells product liability lawyer Rod Freeman, only a small percentage of toys in a recall get back into the hands of the manufacturer. That is why traceability must be improved and why Kuneva is seeking to address this.

However, the obligation to ensure safety previously lay with the manufacturer and Kuneva is proposing a shift in responsibility, with retailers coming under greater regulatory obligation than before. The emphasis would be on sharing the burden along the supply chain, but retailers would shoulder a heavier weight than ever before.

Tougher rules and enforcement would also have an impact on the entire supply chain, because more stringent checks on exports could delay shipments.

“There is now significantly more red tape on all items leaving China,” Grant says. He flags delays in stocks, with containers being held up at Chinese ports, leading to shortages in key toys across the board. Retailer – and therefore consumer – prices are expected to rise between 10 and 30 per cent as a result.

A Mattel spokeswoman says: “We’re happy to work with the authorities and use their expertise. Consumer safety is of the utmost importance – but we also need to get a balance.”

The Chinese authorities have acted to address the toy crisis, but retailers wonder whether the right steps are being taken. Last week, AQSIQ – the department of the Chinese government for quality supervision, inspection and quarantine – announced that it has banned 750 Chinese companies from exporting toys (see box).

It takes several years to validate Chinese exporters and enable them to supply big toy distributors and retailers in Europe. The crackdown could mean that manufacturers and retailers start to look elsewhere for factories that can produce compliant products reliably and cheaply.

ROOT OF THE PROBLEM
However, Grant does not believe that this is the answer. He says: “Countries don’t matter; factories do. Moving a product from China to another low-cost environment will make the cost of manufacturing rocket. India, Africa or Vietnam won’t do any better. We need to stick with the people who know how to make toys. China has been making toys for 30 years. We need to tackle the problem at the source.”

Similarly, red tape is likely to pile up under Kuneva’s plans. At present, the CE mark on Chinese toys and other products, certifying compliance with EU standards, is verified by manufacturers in the EU. However, Kuneva wants to bring in a CE-plus mark, which would involve third-party CE testing and introduce an independent element to the process.

This could also involve the inspection of test certificates for toys at the point of import, which at the moment only applies to medical devices, animal/fish products and fruit and vegetables. This could again result in delays in shipments.

Regulatory affairs, food and trading law consultant Gordon Maddon says: “There is a danger of introducing blanket controls and increasing product costs without actually increasing consumer safety.”

The debate about product safety and toys also raises the wider issue of managing open markets and responding to globalisation. Freeman says: “The high-profile recalls of Chinese toys that we have seen in recent months do highlight the risks that can be associated with relying on contractors in distant emerging markets – even rapidly emerging markets.”

However, he adds that it is still too early to tell what will happen. “We’re moving into a time of change, with a new emphasis on enforcement. It could have very far-reaching effects for the toy industry,” he says.

Grant echoes this. “I really couldn’t tell you what next year has in store for us,” he says.

All are hoping that it will not be another year of horror headlines and praying that the prospect of nightmare price rises and more red tape do not throttle the toy retail sector.

MEGLENA KUNEVA:NO COMPROMISE
Meglena Kuneva is the European Union’s Commissioner for Consumer Protection, responsible for the protection of consumers’ rights. She took office on January 1, when her country, Bulgaria, joined the EU.

Following the high-profile Mattel product recalls this summer, Kuneva has launched an international investigation into product safety throughout the supply chain, from producers to retailers. She says there can be no compromise on product safety. “This is about European values. This is about high standards,” she says.

The results of her inquiry are due next year and the outcome is likely to shake up the entire toy industry.

The Mattel Story

Commission actions Mattel actions

July 22-26: Kuneva visits China
August 1: first lead paint recall
August 14: second lead paint recall; swallowable magnet recall
August 16: Kuneva calls for increased co-operation and vigilance between producers and authorities
September 4: Kuneva meets twice with Mattel. She announces two-month review of EU product safety controls
September 4: third lead paint recall
September 6: Mattel announces three-point action plan to deal with recall situation
September 12: Kuneva warns producers and authorities to “raise game”
September 20: Kuneva meets again with Mattel
October 25: fourth lead paint recall
November 9: fifth recall: swallowable parts
November 22: Kuneva launches investigation into product safety, following a two-month review
Quarter one, 2008: Kuneva to announce the results of her investigation