China vs. Vermont: A Toy Story

A recall of some Chinese-made Thomas & Friends trains due to lead paint both boosted and created challenges for a Vermont wooden-toy maker

In mid-June, toy maker RC2 (RCRC) pulled about 1.5 million of its Chinese-made Thomas & Friends brand wooden train sets and accessories—found to be decorated with lead paint—off store shelves across the U.S. In the days following the recall, manufacturers and retailers, from large chains to small mom-and-pops, fielded questions from concerned parents who wanted to know if the trains their kids were playing with were safe.

Their concerns followed recent recalls of pet food (see, 4/3/07, "A Growing Appetite for Healthy Pet Food"), tires, and toothpaste from China that are prompting some consumers to search out domestic products instead (see, 7/6/07, "Shoppers Concerned About Chinese Goods").

Brian Miller, president of Geppetto's, a chain of seven California-based toy stores, says, "I like to look for things that are made in the U.S. That's attractive to my customers. But it's harder and harder to find." Indeed, some 80% of the world's toys are manufactured in China, according to Carter Keithley, president of the Toy Industry Assn., who calls the Thomas & Friends recall "an unfortunate incident and an aberration." Large domestic toy makers and retailers, including Mattel (MAT) and Toys "R" Us, responded to the recall by assuring customers they have rigorous standards in place and conduct multiple tests during every stage of production to ensure the safety of their products.

What's Good for Thomas

For smaller manufacturers, such as 30-employee, Middlebury (Vt.) company Maple Landmark, which makes popular wooden toys—including train sets—using wood and other materials from local producers, the scandal is a mixed blessing. Mike Rainville, 43, the company's founder and chief executive officer, now has a great opportunity to showcase his 28-year-old company's reputation as a domestic alternative to toys made overseas. "I've always been about low waste, sourcing products locally," says Rainville. "It's exploring these things further and finding what more we can do for our customers and our planet."

But at the same time, Rainville says a hit to Thomas & Friends could harm sales of his core product, the Name Trains, which is compatible with the Thomas & Friends train sets. The product now accounts for 50% of his business. "I don't really want to see the Thomas business damaged. It's not good for our business. You don't have to be around four- to five-year-olds long [to understand this]. They get very excited by Thomas and it helps keep trains alive for the rest of us."

Both of Rainville's grandfathers were carpenters. As a child he made toys using tools that were lying around the house. He sold his earliest products, including cribbage boards and spool holders, to neighbors and at flea markets. In 1979, he made his first business-to-business sale to a distributor to New England gift shops. When he graduated from college in 1984, he concentrated on the business full-time. By 1999, Rainville's business had expanded tenfold, and train sets composed of letters called Name Trains made up 80% of his business.

Train Cars…or Video Games?

But in 2000, consumer and industry trends caught up with the company, and sales flattened. National toy sales declined through much of the decade (though it showed slight positive growth from 2005 to 2006), as children gravitated to video games and computers. Competition from cheap Chinese imports pushed prices down, and profit margins narrowed.

Rainville responded by offering more toys as well as customized options. He now sells three times as many types as he offered eight years ago. Business is up from the end of the last decade—the company had about $2 million in sales in 2006, he says.

Since the recall, Maple Landmark is receiving more phone calls from customers and retailers who want to find out more about the products and place orders. For now, it's seizing the opportunity to emphasize its mission of bringing safe, domestic-made products to consumers. And with June sales on the company's Web site up by 60% from a year ago, Rainville is sure his longtime strategy is paying off.

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