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Worries About SARS Crimp Toy Industry's Buying Season

REBECCA BUCKMAN / Wall Street Journal 30apr03

HONG KONG -- This time last year, about 30% of Christmas orders already were booked at Color Rich Ltd., a Hong Kong company that makes squishy ducks, frogs and other stuffed animals at a factory just over the border in southern China.

70% to 80%
of the world's toys
are made in China

But so far this year, orders have trickled in, says Gracie Chan, the company's general manager. The problem? Asia's outbreak of severe acute respiratory syndrome, or SARS, has scared away buyers who normally would be visiting right now to check out her wares. Buyers "want to touch, they want to see," Ms. Chan says, standing alone in her booth at a nearly-deserted trade fair here this week, where nurses dispensing sanitizing hand gel seemed to outnumber customers.

An astounding 70% to 80% of the world's toys are made in China, starting point for the scary SARS epidemic. Now, some people in the $11 billion global industry are starting to worry that SARS could turn into the germ that stole Christmas.

Many small toy retailers and distributors -- companies that ordinarily would be doing their Christmas buying now -- are avoiding travel to Asia. If SARS gets worse and Asian factories are unable to process a flood of late orders, parents may find a limited or thin selection of toys in neighborhood and specialty stores later this year.

Most big toy companies have restricted employees' travel to the Far East, too. But personal visits aren't as critical to the players with the most clout. Asian suppliers will send samples overnight to their big U.S. clients; meetings can be held via videoconferencing. "It's just a slightly more inconvenient way of doing business," says Michael Glazer, chief executive of Pittsfield, Mass., retail chain KB Toys. "But it doesn't slow things down a heck of a lot."

The largest U.S. toy retailers, including Wal-Mart Inc. and Toys 'R' Us Inc., placed their 2003 holiday orders months ago, meaning chances are slim that shoppers will see bare shelves come November and December.

A spokeswoman for Toys 'R' Us, Paramus, N.J., says the company's factories are on track to meet Christmas deadlines. "For the most part SARS hasn't been an issue yet for us," says Ursula Moran, a Toys 'R' Us spokeswoman. A Wal-Mart spokesman says SARS has had "no detrimental impact" on business so far.

In contrast, smaller toy importers and wholesalers, who might work with smaller, less-established Asian manufacturers, usually find travel to the Orient a necessity. Most don't have readily available alternative production sites to turn to if SARS continues to spread in China. Smaller-name toy and game makers in the U.S., Europe and Japan, also are growing alarmed about possible SARS fallout.

Without a visit to Asian plants, some companies might not be able to select the right paint shade, or make sure all the parts of a toy or game fit together perfectly. In the toy business, "nothing substitutes for standing there with the individual," says Tom Conley, president of the New York-based Toy Industry Association, which represents 250 manufacturers and retailers.

Toys are just one industry that could be hurt if factory workers -- many of whom are housed in crowded dormitories -- fall ill with the deadly atypical pneumonia, causing plant shutdowns or slowdowns. Health authorities have said they believe the SARS outbreak has peaked in Hong Kong, Vietnam, Singapore and Canada. But it is rampaging through China, which reported 202 new cases and nine new deaths Tuesday.

So far, no worker at Toys 'R' Us contract factories in mainland China has fallen ill from SARS, the company says. If workers do fall ill, the company says it is confident other workers can be found.

Taking precautions in factories isn't easy. Jeffrey Lam, managing director of Forward Winsome Industries Ltd., of Hong Kong, says managers at the company's 10,000-employee plant in southern China encourage workers to wash their hands often and stay away from karaoke bars and other crowded places in their free time. The company, which makes plastic and "plush" toys for overseas brands, also has told employees to take their temperatures every morning before coming to work. Fever is a telltale symptom of SARS.

Mr. Lam acknowledges not all employees do that: The company hasn't been able to provide them all with thermometers. "We have to trust them," Mr. Lam says of his workers. The company is trying to buy an infrared camera that would check employees' body heat as they file past it on their way inside, he says.

At the smaller Neu Kreation Ltd. toy factory in Bao An, China, managers had to abandon a plan to require employees to wear face masks, a simple preventive measure common on the streets of Hong Kong. Workers weren't comfortable wearing the masks, says James Wong, the company's president. Neu Kreation's factory is also noticing more customers delaying orders these days, which could lead to problems as Christmas approaches -- and certainly if workers fall ill.

Executives brave enough to visit Asia get the royal treatment. Zane Murdock, whose Lake Tahoe, Calif., company, NSM Resources Corp., relies on a Chinese manufacturer for a line of sports-action figures, paid three visits to his business partner's mainland plants from Hong Kong last week. Instead of going by ferry or train, as he usually does, Mr. Murdock was shuttled to the plants in a private car and "didn't spend much time walking around," he says. "I went to one room in the factory and then left."

--Joseph Pereira contributed to this article.

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