U.S. companies pay for cheap imports

U.S. companies rushed to China and other developing countries to produce low-cost goods for price-conscious U.S. consumers, saving money through lower overseas labor and material costs.

Now they are paying the price in “the year of the recall.”

Retailers and manufacturers are reeling from major recalls of Chinese-made goods this year, from tires to seafood to toothpaste to toys.

In the latest recall, Mattel Inc. said last week it was recalling several hundred thousand toys worldwide, including Barbie doll accessories and Fisher-Price toys, because of high lead levels. It was the third recall by the toy maker in recent weeks.

More than 60 percent of the recalls announced this year by the Consumer Product Safety Commission involved Chinese goods, and all 40 toy recalls were in connection with products made in China. About 80 percent of toys sold in the U.S. are imported from China.

When it announced last month that it was recalling almost 19 million toys made in China, Mattel said it would take a $29 million charge to cover the cost.

While that is unlikely to affect the bottom line — Mattel earned $592.9 million on sales of $5.65 billion last year — analysts expect the recalls to hurt the company’s sales. And class-action lawsuits against the company already have been filed.

BMO Capital Markets analyst Gerrick Johnson, in an August report, adjusted his estimates of the company’s revenue downward by $25 million this year and by $40 million in 2008, according to Business Week.

Pulling the toys and other items from store shelves cost retailers millions of dollars, with expenses ranging from increased labor costs and not being able to sell the items to replacing them on the shelves with something else and lost shoppers.

Retailers that choose not to remove recalled products risk losing customers, and the lifetime cost of losing a customer is “tremendous,” according to Joanna Kennedy, who works for Tomax, a Salt Lake City firm that provides labor scheduling, price management and other types of software for stores.

In addition, cascading reports of problems with Chinese imports could drive consumers away from the “Made in China” label. If retailers cannot adapt to that shift, they could lose customers, she said.

Customers who pull away from Chinese-made goods are likely to pay more, driving up their own costs.

In a recent Associated Press-Ipsos poll, 71 percent of respondents said U.S. consumers deserve some of the blame for the current wave of recalls and food warnings because they insist on buying low-cost items.

“If we find something for $1 instead of $1.10, it’s like a herd instinct, we’ll all trot over there,” Carol Mason, 59, a retired telephone company office manager in Butler, Ala., told the Associated Press. “Well, the lowest price is not always the best if you want a quality product.”

Increased wariness about Chinese products may be the most visible consequence of the current scare.

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