Despite the recall of more than 20 million playthings, toy sellers do not fear widespread boycott of Chinese-made toys. Merchants are reporting an improvement in business, including strong early sales of certain key holiday items.
Still, shoppers' concerns over safety are still high. And mounting financial concerns could force shoppers to pull back.
"Consumers are still confused," said Ron Boire, president of Toys "R" Us Inc.'s North American division, noting that there are some parents still concerned about where products are made. But he is not seeing "a sea change."
Ed Schmults, chief executive of FAO Schwarz, agreed, noting that there is no "abandonment of Chinese-manufactured toys. A lot of people are looking ... but we are not seeing a correlation between where toys are made and their sales."
That is a big relief for the nation's merchants, since more than 80 percent of toys sold in the United States are made in China.
Still, consumers like Kristen Chase, 31, the mother of a 3-year-old girl and an 8-month-old boy, say they are being more cautious in selecting toys.
"I am not avoiding all Chinese products," said Chase, who is part of a social networking site called Cafemoms.com and runs a Web site called coolmompicks.com, a shopping blog for moms that focus on small businesses. "I am just looking at safe toys."
A bigger worry, Boire said, is the economy. "Clearly, the economy has changed. Obviously, that is a question mark for the holiday season."
The toy industry is less vulnerable to a challenging economic environment than other sectors like apparel, since parents usually cut back on spending on themselves before reducing their buying for their children. Still, if parents buy only one or two fewer toys each this holiday season, that collective frugality could derail the industry's rebound made since late last year.
Meanwhile, Wal-Mart Stores Inc. fired its first salvo in the holiday discounting toy wars, announcing on Monday price cuts from 10 percent to 50 percent on products including some new holiday toys like Hasbro Inc.'s interactive parrot called Squawkers McCaw. Laura Phillips, Wal-Mart's chief toy officer, promised that the world's largest retailer will be unveiling more price reductions on holiday toys every week in October.
The timing of Wal-Mart's price reductions is about a week earlier than last year's discounting campaign. Phillips also noted that Wal-Mart is being more aggressive this year in cutting prices on the current season's hot toys.
"We clearly understand the concerns around spending," Phillips said.
Still, Toys "R" Us' Boire wasn't fazed by Wal-Mart's move, saying Toys "R" Us remains an authority on toy selling, citing special deals every week. KB Toys' Geoffrey Webb, director of advertising and sales promotion, said that the retailer just launched what it calls its "supervalue" program, which offers discounts on hundreds of toys.
But price competition is just part of the problem - the toy industry needs to keep churning out big hits to compete with the array of electronic gadgets like cell phones and iPods.
Last fall, the industry was abuzz over TMX Elmo from Mattel's Fisher-Price brand; the more high-tech version of the popular fuzzy, red character became an instant hit with shoppers, drawing customers into the stores early in the season. At the moment, there isn't one must-have for this holiday season.
Still, retailers say they are encouraged by early strong sales of some of the holiday toys that just hit stores in recent weeks.
According to Jim Silver, editor of Toy Wishes magazine, which is set to reveal its predictions for the season's top dozen hot toys Tuesday, there are more toys this year that are connected to the Internet or to a TV monitor.
"Kids are becoming more high-tech, and manufacturers are really changing their offerings," he said.
According to retailers and analysts, toy sellers are enjoying strong sales of anything related to some of Hollywood's hot properties like Walt Disney Co.'s "High School Musical" and "Hannah Montana," and the summer hit "Transformers," released by Viacom Inc.'s Dreamworks and Paramount units.
Wal-Mart and Toys "R" Us reported strong early sales of Aqua Dots Super Studio, from Spin Master Ltd., an activity set that involves using colored beads. Toy experts said they are also bullish on toys that interact with the Internet like Zizzle LLC's Spotzmaker, which produces colorful buttons that interact with a Web site called Spotzgirl.com.
Other key items that are expected to do well are JAKKS-Pacific's Eye-Clops, an electronic magnifier that plugs into a TV, and Red Octane's "Guitar Hero III, Legends of Rock," the latest in a series of video games that allows consumers to hook up guitar peripheral to a game console like the Sony PlayStation, Microsoft Xbox or Nintendo Wii.
Toy merchants have been closely monitoring to see whether shoppers are boycotting specific brands hit hard by recalls, but so far it has been a mixed bag.
While Boire noted that Mattel, bruised by three high-profile lead paint recalls this summer, saw a sales slowdown at first, sales have bounced back. In particular, the toy line from the Disney-Pixar movie "Cars" has been extremely popular despite a recall of "Sarge" cars based on a character in the movie. In mid-August, Mattel announced a worldwide recall of 436,000 die cast "Sarge" cars because they contained excessive amounts of lead paint.