Recalls may hurt holiday toy sales

NEW YORK (CNNMoney.com) -- The U.S. toy industry may have a subpar holiday season as nervous parents look for alternatives to traditional toys, according to a new report from Standard & Poor's Equity Reseach.

S&P's survey of holiday spending and attitudes anticipates slower toy sales because of fallout from this year's recall of millions of toys for lead-paint hazards and other safety issues.

The report said the lack of a "must-have" holiday toy, combined with hot demand for electronics, especially gaming consoles like Nintendo's Wii, was also denting toy demand.

The survey, which polled 1,100 consumers in November regarding their holiday spending plans, found that 25 percent of respondents said they were concerned about toy recalls although 31 percent said they weren't too concerned.

"One way in which consumers may be expressing their concerns is by looking for options that aren't touched by any of the issues at the center of the recalls," Michael Souers, S&P retail analyst, said in the report.

"We think this may be good news for consumer electronic and gaming retailers. Nintendo's Wii may be as close to a must-have item as there is this season."

As parents' worries about safety issues may hurt this year's toy sales, the industry is working toward introducing stricter testing rules for toys sold in the United States.

In a hearing Tuesday, the Consumer Product Safety Commission and representatives from the Toy Industry Association (TIA) and the American National Standards Institute (ANSI) met to discuss the details of possible new safety measures, which were outlined in a set of recommendations that the TIA and ANSI issued in September.

These broad recommendations include: beefing up existing U.S. safety standards and supporting new federal requirements that would make safety testing and inspection of toys mandatory.

TIA members, which include Mattel (Charts, Fortune 500) and Hasbro (Charts), are currently only asked to do voluntary safety tests of their products that are sold in the United States.

"We will soon have a vital new component in our U.S. toy safety system," said TIA president Carter Keithley. He told CPSC commisisoners that "this new component will address directly the toy safety issues that have arisen over the past several months."

The TIA expects to announce the final recommendations on Dec. 31.

Despite the concerns expressed in the S&P report, Wal-Mart (Charts, Fortune 500) and Toys "R" Us, two of the nation's biggest toy sellers, maintained that holiday toy sales are going according to plan.

Wal-Mart spokeswoman Melissa O'Brien said toy sales picked up after the retailer chopped prices on thousands of toys in October, but she declined to provide specific sales numbers for the category.

"Parents still want to pile a lot of toys under the tree and give their kids a great Christmas," O'Brien said. The Fisher-Price Smart Cycle, Transformers toys and Wii are among the most popular products at Wal-Mart stores, she said.

Kathleen Waugh, Toys "R" Us spokeswoman, said the retailer doesn't tout one toy as being a "must-have" for the holiday. "A hot item definitely helps to generate buzz but a hot item for a four-year-old won't be a hot item for a nine-year-old," she said. "We like to promote lots of hot toys."

Waugh also declined to provide holiday sales numbers. Waugh said the retailer was well-positioned for the next two weeks and would continue to aggressively discount its inventory leading up to Christmas.