A Time of Change

It started positively enough: an incremental sales gain in 2006 set the stage for what many anticipated would be an even better year for a U.S. toy business long overdue for a rebound. But then the toy recalls started ... and kept going, and going and going some more. History will be the judge of their impact, but, for better or worse, a new era for the toy business began in 2007.

After recording a 6.3 percent increase in 2006, retail sales are forecast by the National Retail Federation (NRF) to grow 4.8 percent in 2007, hampered by weakening consumer spending power in the face of a housing market slowdown and rising energy costs … Wal-Mart names a new chief merchandising officer as it reorganizes its U.S. stores' buying team … Former Brio head Peter Reynolds returns with The Little Little Little Toy Company … RC2 discontinues several of its best-known die-cast, model kit and collectible lines after sales in the prior year fell … In acquisitions news, Front Porch Classics merges with Sababa Toys and Toysmith purchases Broadway Toys, known for its role-play items.

Toy Fair kicks off on a positive note following news that industry sales rose 0.34 percent in 2006, the first annual gain in several years … Talk heats up over moving the show elsewhere while the search for a Manhattan showroom center continues unsuccessfully … In other show news, JPMA says this will be the last year for its annual show … T.M.X. Elmo takes the Toy of the Year and Fisher-Price's Neil Friedman is inducted into the industry's hall of fame … In the courts, Spin Master sues Hobbytron over sales of micro helicopters … Hasbro recalls nearly a million units of its latest Easy Bake Oven … Pre-order sales of the final Harry Potter novel open and set new records.

With TIA moving its fall show to Dallas, the search for a new showroom building officially ends … Toys “R” Us names Karen Dodge its new chief merchant … After four consecutive quarters of losses, Borders slows its expansion plans … MGA touts the Bratz dolls' triumph over Barbie in sales … HIT Entertainment launches a program to better promote Thomas the Tank Engine at specialty toy stores … In the courts, PlastWood sues Mega Brands for “poisoning” the market in the wake of recalls of Mega's Magnetix sets … Fisher-Price is fined $975,000 for not notifying the U.S. Consumer Product Safety Commission (CPSC) quickly enough about problems with its toys.

Toys “R” Us returns to profitability, helped by a 40 percent jump in net income and 16 percent increase in Q4 sales in 2006 … Hasbro's Q1 numbers jump as revenue soars in advance of the debut of Spider-Man 3 toys … Mega Brands recalls its Magnetix toys, again … MGA buys a controlling stake in France's largest toymaker, Smoby-Majorette, as it enters bankruptcy protection … Bicycle maker Huffy enters the outdoor play environment business … Stung by losses from the unsuccessful launch of the Games Expo show, Games Quarterly magazine shuts down and its catalog business is sold … 200 Fifth Avenue is sold to a firm planning to revert the former showroom site back to commercial use.

Hasbro spends $200 million to repurchase from Lucas Licensing all of the warrants for its stock offered in 2003 in return for extended Star Wars toy rights ... In a busy month for mergers and acquisitions, Hobbico buys model kit maker Revell Monogram, RC2 acquires baby gear maker Compass, Diamond Select buys Art Asylum, and Upper Deck's takeover bid for Topps goes public, setting off a well-watched back and forth ... HIT Entertainment reorganizes its consumer products group … Wizards of the Coast patents a “constructible strategy game” system, leading competitor WizKids to sue … Discovery Channel Stores begins liquidation proceedings for all of its store locations.

In licensing news, Mattel deals for master toys rights to D.C. Comics' entire universe of characters, Lego plans Indiana Jones toys and Jakks Pacific says it can revive The Wiggles … Funrise and Shelcore merge … Russ Berrie publicly rejects a takeover attempt … University Games buys U.K. game maker Upstarts! … At retail, Andrew Bailen replaces Greg Staley as head of KB Toys, Build-A-Bear Workshop seeks “strategic alternatives” after a poor Q2 and Wal-Mart scales back store growth plans … RC2's recall of 1.5 million Thomas the Tank Engine toys kick starts what will become the year's top story: rolling waves of lead-tainted, mostly Chinese-made toys being pulled from shelves worldwide.

Mattel reports that Barbie sales had their best quarter in almost four years, with double-digit gains internationally offsetting a drop in sales in the U.S. ... Bandai marks 15 years of bestseller-ness for its Mighty Morphin' Power Rangers action figures ... Hasbro recalls its Easy-Bake Oven for the second time in 2007 ... Wholesaler Horizon Hobby purchases the assets of Levin & Schneider Distribution ... TIA organizes the first in a planned series of one-day Washington “fly ins” to keep key government figures updated on toy industry issues ... The NRF says back-to-school sales are expected to climb nearly 7 percent, fueled by greater demand for electronic products today's kids consider necessary for their academic success ... In the wake of RC2's recall, TIA urges U.S. manufacturers to have their Chinese production partners attend a safety summit in Guangzhou ... RC2 says its Thomas recall could cost the company $8 million.

Fisher-Price recalls 87 SKUs—967,000 toys in all—bearing Sesame Street and Dora the Explorer licenses because of illegal levels of lead paint, which Mattel blames on Chinese vendor Lee Der Industrial. Lee Der's chief executive commits suicide days later ... Mattel launches a media blitz to reassure parents of its toys' safety after recalling 253,000 die-cast vehicles because of lead and 18.2 million magnetic toys worldwide due to design flaws. Lead-related recalls of Toys “R” Us vinyl bibs and Schylling tin toys follow shortly thereafter. Congress summons toy business leaders to testify about the industry's safety efforts ... KB Toys says it plans to close at least 30 stores in the coming months ... Small World Toys declares bankruptcy and names a new CEO ... Curiosity Kids creator Susan Magsamen returns to advise the arts & crafts brand's current owner, Acton Products.

Mattel recalls another 774,000 Barbie and Fisher-Price toys due to lead ... TIA announces new safety assurance efforts and comes out in support of stricter toy testing standards. The Chinese government promises to ban the export of toys containing lead paint. Toy business leaders appear before Congressional committees to generally positive reviews. Later in the month, RC2 recalls an additional 200,000 Thomas toys—and the replacement toy given out in its earlier Thomas recall. Target recalls 350,000 children's lifestyle products due to lead ... In merger news, outdoor toy maker Step2 buys infant and preschool products producer Infantino, Manley Toys acquires candy toy maker ToyTeck Corp., and WowWee is sold to a Canadian e-commerce services company ... K'Nex signs up for Sesame Street rights, the construction toy maker's first licensing deal ... American Greetings says Strawberry Shortcake merchandise sales have topped $2 billion since the property's reintroduction in 2003.

TIA's first fall show in Dallas gets good reviews. Texas becomes the event's home through 2010 ... KB Toys' previously announced plan to close “at least 30 stores” expands to encompass between 120 and 160 locations. The retailer reverses its strategy of competing over first-run toys in favor of returning to its roots as a close-out specialist... Brio signs on for Disney licensed toys ... Fundex acquires Great American Puzzle Factory ... FAO Schwarz opens a boutique in a Chicago Macy's, potentially the first of many at the department store chain ... Wal-Mart begins its holiday promotions, lowering prices on 15,000 items across the spectrum of its merchandise ... The CPSC warns lead-wary consumers that home test kits are unreliable ... Mega Brands unsuccessfully tries to stop publication of a magazine story that says one of Mega's toys tested positive for higher-than-allowed levels of lead ... China suspends the export licenses of hundreds of its toy factories over safety concerns.

The recalls continue. Aqua Dots, an Australian arts & crafts lines distributed in North America by Spin Master, is pulled from shelves after kids fall ill upon swallowing its beads, which turn out to metabolize in a way similar to the drug GHB. Lead sparks the recall of 175,000 Curious George plush toys by Marvel and additional Schylling tin products. Fisher-Price removes 155,000 kitchen toys due to a design flaw. Mega Brands' stock price hits an all-time low as recall costs sink its quarterly results. Senators and government officials appear at public events at Toys “R” Us Times Square and the Chicago Toy & Game Fair ... FAO Schwarz buys Best & Co., the luxury children's lifestyle retailer popular with celebrity moms ... The Atari 2600 video game system, Raggedy Andy and the kite join the Strong National Museum of Play's National Toy Hall of Fame ... Russ Berrie says its sales soared nearly 30 percent in the third quarter on the strength of its Shining Stars plush—considering by many specialty retailers an easier-to-stock alternative to Ganz's Webkinz.