• by Sarah Mahoney  @mahoney_sarah, November 21, 2007

Just a few days before the start of the holiday shopping season, the toy industry has gotten a few new kicks in the teeth.

Throughout the fall, it almost seemed that toy companies had gotten a grip on the onslaught of lead and safety recalls that began last summer. But last week, 4.2 million Aqua Dots, one of the season's hot toys, were recalled--turns out the made-in-China toys use coating chemicals that can turn toxic when ingested.

Earlier this week, California announced that it is suing Mattel, Toys "R" Us, Wal-Mart, KB Toys, and others, saying they knowingly continued to sell lead-tainted products.

And on Tuesday, the U.S. Consumer Product Safety Commission (CPSC) launched an initiative to remind parents of a wide variety of toy safety hazards. While the government agency's message reassures consumers that the CPSC has stepped up its inspection efforts, and that the Chinese government has signed new agreements to prevent lead-painted and other unsafe toys from being exported, it's also a strong reminder to parents that there are plenty of dangerous products out there. "CPSC recalled 61 toys involving more than 25 million product units in 2007," the agency says.

And then the U.S. Public Interest Research Group PIRG, a leading consumer advocacy group, released its "Trouble in Toyland" report--pointing out that "hazardous toys are still sold in stores across the country."

Experts say the rapid succession of black eyes may have repercussions far beyond fourth-quarter sales. "It's going to take toy companies a long time to earn back the trust of consumers," says U.S. PIRG Consumer Program Director Ed Mierzwinski. "The toy manufacturers have dug a deep hole for themselves. For years, they've fought responsible regulation. And now, they're claiming to be for it, since they've shot themselves in the foot."

PIRG is backing legislation that would reduce all lead levels to 40 parts per million--the level recommended by the American Academy of Pediatrics--increase the budget for the CPSC, which currently only has one toy tester, and require companies to guarantee their products' safety. Retailers are trying to be more responsive. Toys "R" Us, for example, released a sweeping "Commitment to Safety" policy just before the California lawsuit, which includes a "No Quibble" return policy. "This means all Toys "R" Us stores nationwide will take back a recalled product whether it was purchased at Toys "R" Us or not--with or without a receipt," the company says.

The California lawsuit "was expected," says a spokesperson. "Toys "R" Us shares the California AG's commitment to product safety. We look forward to his office playing a valuable role in ensuring our vendors continue to be held accountable for the safety of the products they supply to us. Safety is, and has always been, our company's highest priority."

Mattel--perhaps the most battered brand name among those vendors-- has also stepped up its testing. "Mattel has taken significant actions, which include implementing a strengthened three-point safety check system, meeting with vendors to ensure they understand these new procedures and increasing oversight of vendors," it says in a statement released following the California suit. "Parents and caregivers can be confident that toys this holiday season will be the safest ever."

And the toy industry itself is reaching out to parents, launching a toll-free hotline and a new site called toyinfo.org to provide another source of recall information, along with toy-safety buying tips.

In the meantime, consumers are flocking to U.S.-made toys. The Quality Not Made in China Toy Store at nmctoys.com, for example, is advertising its toys in The Wall Street Journal.

Crisis-management experts say it will take time to restore confidence among parents who have lost faith in brand names, retailers and even in the government agencies intended to safeguard against such problems. "Consumers are very wary right now about toys and other products produced in China and the drumbeat of attention about problems," says Robert L. Dilenschneider, founder and chairman of The Dilenschneider Group. "It will take some time and considerable effort for the Chinese and for various manufacturers--especially toys--to do this."

Unfortunately, it likely won't happen in time for Christmas--and for toy companies, the fourth quarter is critical. "We've had plenty of parents call and tell us they're just not going to buy their kids any toys for Christmas," says PIRG's Mierzwinski. "People are that concerned."