Suitable for Children?

Counselor Investigates An Industry Category That's At A Critical Crossroad

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Children's ProductsWith heightened legal and regulatory awareness, there is currently an intense focus on children's products. Counselor investigates an industry category that's at a critical crossroad.

For Betsy Socci it began a few years ago with lead. Beginning in January 2009, "we did lead testing on our toys, on everything we had in inventory," says Socci, sales manager and owner of Artistic Toy Manufacturing Inc. (asi/37122).

By the start of 2010, the Allentown, PA-based supplier added custom orders to its testing protocol. A year later, the company had incorporated even more tests, always scrambling to stay ahead of the latest safety concerns. At $600 per product, testing wasn't cheap, says Socci.

But the way the team at Artistic saw it, they didn't have a choice. And, lately, neither has any other supplier or distributor in the industry. Since 2008, when Congress passed the Consumer Product Safety Improvement Act (CPSIA), forever changing how products, most of them child-focused, are regulated in the U.S., the ad specialty marketplace has been working to keep up. And, with good reason. In the first quarter of 2012 alone, nearly 647,000 products were seized by Customs officials, according to the Toy Industry Association Inc., based in New York.

And while distributors, suppliers and clients certainly want their products to be safe, many are left wondering how the promotional products industry can remain competitive when increasing safety concerns demand more testing, product reviews, design consultations and liability coverage costs. It's one thing for Target or Wal-Mart to absorb those costs and business changes. It's quite another for a distributor with only a handful of employees to do the same. For distributors whose product sales are largely child-based, some worry that new regulations may make it impossible to keep up.

"When the CPSIA law first came out, the increased costs alone were very scary," says Socci. "We were not sure how we would deal with it."

New Reality
Suddenly Artistic Toy's existing inventory (400-plus products) had to be tested at $600 apiece. "You can't sell half your stuff because you don't want to pay to test it yet," Socci says.

Recent regulatory changes have not only added to distributor and supplier expenses, but raised concerns about what it means to produce and sell a safe product. Toys that were deemed safe five years ago suddenly have to undergo multiple safety tests and be backed up with letters of compliance. Speaking to clients, Socci says, "there's absolutely nothing different about how I made your toy five years ago and how I make it today," but now she has to prove it.

That element of proof and the extra layers involved in attaining that proof is causing some in the market to wonder if the future of children's promotional products will be as bright as the past. That fact that products – toys in particular – are now more stringently regulated has certainly brought more management and sales headaches and challenges, distributors say. The question is: Do they want those headaches anymore?

For six years, Carolyn Schena, owner of Proforma Image & Design (asi/490605), a distributorship in Bloomfield Hills, MI, has been supplying a national food chain with children's products to hand out to customers. "I have a client that actually markets to children via children's premiums," Schena says, as if it's a rare phenomenon in today's risk-averse market.

Supplying the chain with over half a million pieces with each order, Schena says she's constantly alert to potential safety concerns. "You always worry about a choking hazard," she says. "Outside of lead concerns, it's a product's size and number of pieces, and more." Still, it's a lucrative order, and Schena maintains confidence in her products by purchasing them from trusted suppliers. "Doing children's products is fun," she says. "You just have to be very aware of every aspect."

Total Recall
While distributors are more aware than ever of safety concerns, so far additional regulations involving product materials and testing have done little to dampen sales, say many in the industry – in fact, some don't see product safety concerns as a concern at all.

"I don't think it's a big issue," says Mark Ziskind, COO of Caliendo Savio Enterprises (asi/155807), a Top 40 distributor firm based in New Berlin, WI. "I think there's always a knee-jerk reaction every time there's a recall."

Still, others believe the market for children's promotional products is destined to shrink. Call it an inverse relationship to the amount of regulations that have been introduced – the greater the regulation, the smaller the potential market for the products.

And, toy recalls, including 302 between 2008 and 2011, according to the CPSC, are causing panic among some distributors, since regulations are not just federally mandated, but driven by states as well. That's a daunting thought for distributors selling from one state into another. Washington and Maine, for example, have their own regulations in addition to federal legislation.

More to the point, what's deemed safe today may be declared unsafe next month or next year. Until now, "outdated and fundamentally flawed" laws that regulate chemicals in consumer products have done little to eliminate toxic chemicals from consumer goods, says Mike Schade, campaign coordinator with the Center for Health, Environment and Justice in New York.

"The Toxic Substance Control Act grandfathered in over 60,000 chemicals. Today we have an average of over 80,000 chemicals in commerce and only comprehensive testing for 200 of those chemicals," Schade says. "Since the 1970s the CPSC has only been able to ban five chemicals. So, out of 80,000 chemicals they only banned five."

It's possible, though, that that may be changing. In spring 2013, Congress is expected to vote on The Safe Chemicals Act, a bill sponsored by New Jersey Senator Frank Lautenberg that would put greater limits on chemicals used and introduced into the marketplace. If the bill passes, it could present a significant challenge for industry suppliers, says Schade, since many "don't have resources at their disposal to evaluate chemicals and materials" that may soon become illegal.

All of this is leaving distributors – who can't test and keep track of every chemical in every product they sell – overwhelmed. And though corporate behemoths like Disney have developed and maintain their own stringent product safety guidelines, the smaller companies that so many distributorships do business with may not offer such safety-conscious partnerships, says Sean Johnston, owner of Proforma Johnston & Associates (asi/491479). "Smart distributors are making safety the issue," Johnston says. "If you think about Corporate America, they're not looking to protect children as much as they're looking to stay out of trouble."

Sole Supplier Concern?
Many distributors we talked to said they're choosing to lay that burden at the feet of trusted suppliers who they've worked with repeatedly. That, though, may not be enough to free them of product liability, says Colin Kelly, a partner and product liability expert at Atlanta-based law firm Alston & Bird. And product liability insurance, which can cost upwards of $50,000 a year, he says, can be unaffordable for many distributors.

How much liability a distributor assumes in the event of a recall or product flaw is still legally fuzzy, and that fact is leaving many in the industry wondering if there's even a future for toys when so much controversy surrounds something as seemingly innocuous as a plush teddy bear.

For its part, Socci's firm includes a letter of compliance, along with test results and a product sample for every plush toy ordered. On its website are testing reports for 26 of the company's most popular items, such as the Brown Kirby Bear, which, as of 2011, passed testing requirements for phthalates, heavy metals, flammability and physical and mechanical tests. It's absolutely crucial to test every toy, Socci says, even if that means passing on testing costs to clients.

Even that may not be enough, though. And particularly troubling, says Jim Comodeca, a partner in the product liability group of Cincinnati-based law firm Dinsmore & Shohl LLP, "are these middlemen and small manufacturers out there who believe wrongfully that they have no responsibility when it comes to a toy recall."

Plenty of distributors we spoke to actually assumed they were absolved of product liability simply because they weren't the manufacturer. Comodeca says that's often not the case. In his state of Ohio, for instance, if a manufacturer goes out of business, prosecutors look for the next party responsible, often the distributor who put the product into the marketplace.

Then there's the issue of meeting rules just to get products into the country. "Premium products are, I would think, special targets for Customs officials because they pay particular attention to small toys, children's products and things like that coming from Asia," says Kenneth Ross, an attorney with Bowman and Brooke, a law firm in Minneapolis and an expert in product liability.

Part of the problem, insist some players, is that the industry is still playing catch-up to product regulations. "The industry's come a long way because I think many businesses were forced to with CPSIA," says Lenny Polakoff, executive vice president of client services for Zag Toys and Zagwear (asi/365552), based in Orangeburg, NY. But, he adds, "People probably still do the bare minimum to comply, rather than going that extra step to make sure they truly are putting out safe and compliant products."

Regulation Maze
For many distributors, single-handedly taking on the task of product safety, particularly home-based businesses consisting of just one person, is too much to ask. Even the CPSC acknowledges as much. And multiple experts, speaking off the record, admitted that CPSIA regulations were not only cryptic but, at times, unfair or unrealistic, particularly for small businesses.

That's a fair assessment, admits Neal Cohen, small-business ombudsman for the Bethesda, MD-based CPSC. Cohen, whose job was created two years ago to help small-business owners muddle through new regulatory details, agrees that CPSIA regulations were onerous and unclear initially. But a new site, www.cpsc.gov/gettingstarted, provides step-by-step instructions for small-business owners looking for tips on how to be compliant. In addition, Cohen says, some distributors and suppliers who have revenues of less than $1 million a year and produce fewer than 7,500 units of a particular product may not be required to conduct third-party testing.

Still, that doesn't mean small-business owners are off the hook. And distributors are not only feeling the pressure, but scrambling to protect themselves and future sales of children's products. Several years ago, Top 40 distributor Kaeser & Blair (asi/238600) was wrongly drawn into a lawsuit involving butane lighters that were purchased from a website that also contained K&B products, says Gregg Emmer, the Batavia, OH-based company's vice president and chief marketing officer. Though this incident did not involve children's products, the lawsuit illustrates how easily distributors can be pulled into legal issues, Emmer says.

"If somebody were to believe he'd been injured by a product through K&B, because the dealer isn't the last one in that transaction, most attorneys working on behalf of a plaintiff are going to include them in a lawsuit," Emmer says. "We successfully defended ourselves, but that cost us $65,000. That could have put an independent distributor out of business." As a result, today Kaeser & Blair indemnifies all of its dealers from any product liability.

For many, the guarantee of product safety lies in the initial design more than anything else. Yes, third-party testing is necessary, as is a guarantee that a child's product is manufactured safely, but just as important is the collaborative effort between distributors, suppliers and clients at the initial design stage, says Lorne Kotzer, president and owner of Blaine, WA-based Soft Stuff Creations. "Addressing any potential safety concerns at the concept stage is vital," and a key step to heading off product liability, Kotzer says.

There's too much potential in an industry focused almost exclusively on product testing to miss design flaws, Kotzer says. "Even if a child's product passes current regulation, to me that's not really the point," says Kotzer, who's been working with plush toys for 30 years. "I could design a toy that would pass regulation that wouldn't be safe."

As an example, Kotzer says, he recently revamped a plush animal toy designed with stiff whiskers. "I don't see anything wrong with stiff whiskers versus floppy whiskers in terms of regulation, but to me I feel more comfortable with floppy whiskers," he says.

A supplier like Kotzer may be diligent in this area, but not every company is, says Zag Toys' Polakoff. "This is an area that the industry is not up to speed on," says Polakoff, whose company periodically performs mock recall drills, despite the fact that it has never had a product recalled.

Ultimately, though, industry experts insist that the only way for toy suppliers and distributors to avoid damage is to take every step they can to protect themselves. That includes working with a network of trusted suppliers, asking for copies of letters of compliance on each product a client is interested in, and eliminating or not promoting products that might be potentially hazardous to children, even if they're meant for adults.

For instance, K&B sells baby bibs and sippy cups but does not promote these items in catalogs. "There are so many ordinary products that can be lethal to children that come with no warnings at all," says Emmer, naming a pencil as one. "A pencil is a six-inch-long dagger. It has an eraser on it that can be broken off and swallowed by a child, but we're not required to put any warnings on those items."

This is where some say distributors aren't being aggressive enough with pushing clients on safety concerns. Kristen Atamanchuk, owner of Proforma Pure Promotions (asi/300094), in Winnepeg, Manitoba, has been in the industry for 18 years and is well-versed in safety regulations, but clients don't always heed her warnings. "If they're set on doing a specific item or product that I'm offering and it's going to help build their brand or send the right message, well, the safety of it is not an overly huge concern," she says. In fact, Proforma Pure's sales of children's products are growing.

Even the most ardent safety steps can't always protect the industry. Products meant for adults often end up in the hands of children, and some children's products, although not deemed toys, still contain harmful substances. An August report by the CHEJ, for example, found phthalates in 80% of children's back-to-school supplies and included pictures of tainted children's products, such as a Spider-Man backpack and lunchbox. And while harmful chemicals in toys have been shown to have dropped dramatically as a result of new regulations, harmful plastics in children's products unaffected by these regulations (something Lautenberg's Safe Chemicals Act would address) are still a big concern, says CHEJ's Schade.

That, he says, should be a concern for the promotional products industry. "Testing products can be expensive, and for some small businesses, prohibitive," Schade says.

But even asking suppliers about product safety is crucial moving forward, Schade adds, not only to build a more aware, collaborative ad specialty marketplace, but to "send a message throughout supply chains that manufacturers and distributors are concerned about these issues."– E-Mail: betsycummings23@gmail.com