• by Sarah Mahoney  @mahoney_sarah, August 15, 2007

As Mattel Inc. recalls millions more of its toys due to an expanding list of safety concerns, brand experts are wondering: How forgiving will consumers be?

Not very, says Robert Passikoff, founder of Brand Keys. Most brands can weather one recall fairly well, he says, adding that Mattel's Brand Keys measure declined just 7% after the first recall in early August. After yesterday's recall? It's already down 20%.

"People understand one problem, and they say, 'This stuff happens.' Consumers have come to expect a certain lack of quality control coming out of China." But from now on, he predicts consumers will hold Mattel--and not some nameless, faceless Chinese factory--accountable.

"The old saying that 'Once is happenstance, twice is coincidence, and the third time is enemy action' doesn't seem to apply anymore," he says. "People skip No. 2, and right now, they're seeing this recall as enemy action."

After telling consumers just weeks ago that certain Sesame Street and Dora the Explorer toys made by its Fisher-Price unit contained dangerous lead paint, the company is now recalling toys because of a serious risk posed by magnets. It's asking parents to return 7.3 million Polly Pocket play sets, 1 million Doggie Day Care play sets and about 345,000 Batman action-figure sets. Mattel also says it is recalling about 250,000 "Sarge" diecast cars containing lead paint.

The U.S. Consumer Product Safety Commission says three children have become seriously ill by swallowing more than one of the Polly Pocket magnets, causing internal perforations that required surgery and extended hospital stays.

"The safety of children is and always has been Mattel's number one priority, and we are deeply apologetic to everyone affected by the recall," the El Segundo, Calif.-based toymaker says in its statement. "Obviously, we don't want to have recalls, but in acting responsibly we won't hesitate to take action to correct issues to ensure the safety of children. Mattel has extremely rigorous testing and quality procedures in place, and we will continue to be vigilant in enforcing quality and safety."

It's hard to say whether consumers will believe that or not. Brand erosion is an especially big problem for Mattel, Passikoff says, because consumer expectations about products made for children are higher. "Mattel's brand equity is devastatingly eroding because of the recalls. You can't just fix the problem and have the issue go away. I am not sure they are going to be able to recoup the equity they lost--it puts them in an extraordinarily precarious position," he says.

Early in August, Mattel said the impact of the Fisher-Price recall would be some $30 million in pretax income. And analysts think the new recalls will cause additional damage. "It may not have a huge effect, but on the margins there will be some consumers who stay away from those Mattel brands," says Gerrick Johnson, a research analyst who follows toys for BMO Capital Markets. Johnson says he has lowered his sales estimated by $25 million for the back half of 2007.