Product recalls are not just a logistical nightmare – they can also weaken consumer confidence and damage a brand. Liz Morrell reports on the steps retailers can take to minimise risks
Earlier this month, Harrods issued an urgent recall of one of its 2008 Christmas toys. The teddy bear, of which it had sold 800, was found to contain potentially harmful levels of skin irritant formaldehyde.
In June, Ikea recalled a relatively new product – its Barnslig baby sleeping bag – after two customers complained that the zip had come apart during use, presenting a potential choking hazard.
Last year, the European Commission dubbed the holiday season “a summer of recalls” after it received 56 per cent more consumer safety alerts from member states in the first 10 months of the year than in the same period the previous year. According to research company Navigator Customer Management, the number of alerts in the UK rose by 125 per cent between 2004 and last year.
A product safety scare can be extremely damaging to a retailer’s brand, as well as being disruptive to its business and a logistical nightmare. According to Getting it right – product recall in the EU, a report published by the retail and consumer goods team at City law firm Freshfields Bruckhaus Deringer, 45 per cent of companies that have had a product safety issue in recent years reported damage to their corporate reputation, brand or customer loyalty and almost a third cited adverse financial effects as a result.
Last year, toy manufacturer Mattel recalled three products. Although subsequent recalls were a consequence of the stricter investigations that the company undertook when it first realised there was a problem, the impact on consumer confidence was considerable, in part because children’s products are such an emotive area.
Gary Grant, chief executive of toy chain The Entertainer, experienced first-hand the problems such recalls can cause. “You must be honest with people and wherever possible deal with all the issues in one go. It took Mattel weeks to test all the products and it did three recalls. As a result, it was as though there were lots of dangerous toys out there,” he says.
Supply chain control
Product recalls can be a logistical nightmare if procedures and policies are not in place within the supply chain to help deal with the problem. Gary Hanifan, head of supply chain at management consultancy Accenture, says: “You need to be able to send product out, pull product back and send out replacement product if needed.” Product traceability throughout the supply chain is also vital, and yet the Freshfields report shows that 35 per cent of businesses anticipated difficulties in this area.
Hanifan adds that retailers need to be able to pinpoint not only the source of the supply but those customers who bought the products, too. This can help minimise the amount of publicity needed to warn customers of a problem. “It’s about how much media response you want – that’s when the ability to trace the consumers who bought that product becomes even more important,” he says.
Loyalty programmes are a good way to trace such customers. Ikea was able to track down many of those who bought its sleeping bag through its Ikea Family loyalty card – sending letters to those shoppers that were affected.
Retailers also need to ensure they have an incident or recovery plan in place – the Freshfields report noted that one in 10 companies did not. Andrew Austin, senior associate in the product risk and liability team at Freshfields, says: “Make sure you have an incident plan and nominate an incident management team.” Hanifan adds: “You need a recovery plan that highlights the obligations and responsibilities of all the people in the supply chain.”
Speed is of the essence
Retailers and producers have legally proscribed time limits they must adhere to where product recalls are concerned, but there are other reasons why speed is of the essence. “It’s important that you act quickly,” says Grant. “Toys are far more emotive than other products so they tend to hit the headlines.” Hanifan agrees. “The more vulnerable the consumer of the product is – such as children or the elderly – the bigger the splash it’s going to have in the media. Those are the areas where it’s even more important to be able to track and trace,” he says.
John Blain, partner and head of the product risk and liability team at Freshfields, says that sticking to a product recall timeline is essential. An incident team must be established to consider necessary action to be taken within 24 hours of a potential safety issue being raised. “The timeline is such that unless you have an incident plan in place, you won’t be able to meet the 72-hour deadline for informing the regulators of a [serious] problem,” he says.
Recalls are generally graded according to their risk, but Ikea says it has a zero-tolerance policy when it comes to product recalls – whether it is a children’s toy or a piece of furniture. “If there is any seed of doubt, we will act first and then investigate. It means from a health and safety point of view we always put our customers at the top of the tree,” says Ikea PR manager Nicki Craddock.
Recalls are instigated by Ikea Sweden but handled locally by the retailer’s UK communications department. “Communication is absolutely key, both from an internal and external point of view,” she adds. “It is important communication is controlled in a very tight manner. I am usually the first person that will get the information and I will then liaise with Trading Standards and sales so we can understand how many we’ve sold. Trading Standards will usually advise us on the risk and therefore how many recall notices we place – in other words, ‘Do we need to go big with national press advertising?’”
But despite this, Craddock says the retailer is increasing its communications around recalls. “We usually place at least three or four national newspaper ads on the day the recall starts and then there are press releases and communication in stores and on our web site. It’s never a question of cost,” she says.
The length of the recall is also dependent on how much product Ikea is obliged to recover, as well as the progress of the recall. “We will monitor calls and do everything we can to reduce the risk. It’s not a case of putting posters up and taking them away. Week on week we will keep on top of the figures and take a value judgement,” Craddock adds.
The reasons for the apparent increase in product recalls are not clear. According to the Freshfields report, most companies believe that the majority of recalls are a by-product of tighter regulation and not the consequence of poorer-quality products as a result of outsourcing or supply chain globalisation. EU regulation governing the safety of consumer products and foodstuffs has tightened dramatically within the past five years.
Hanifan disagrees. “48 per cent of recalls involve products sourced from China,” he says. “People aren’t paying attention to their suppliers’ suppliers and there is increasingly a need to be more conscious about where the raw materials are coming from,” he says. “Everyday consumer goods, which traditionally have never had recalls, are now being recalled. It’s an evolution,” he says.
Hanifan believes that punitive action must be the first step in tackling the problem. “Suppliers are a commodity and many retailers can swap suppliers, so for them, protecting brand, image and customer base is the most important point, rather than thinking about suppliers,” he says.
Grant says it is more about strengthening supplier relationships to ensure standards are being met. “Lessons learnt include doing more factory inspections,” he says. “Product recalls are expensive in terms of both time and cost.”
Austin agrees quality assurance must be a priority. “You have to make sure you are monitoring complaints, because that’s your early warning sign. Ensuring traceability, building relationships with regulators in markets where it is appropriate to do so and preparing communications and other material in advance will all help ensure a positive outcome,” he says. “Successful companies put a great emphasis on quality assurance, but you can do everything and
still suffer – you need to plan on something going wrong,” he says.
Managing the consumer message
However, product recalls may not even be necessary. The EU legislation describes them as a last resort. Yet, according to the Freshfields report, 53 per cent of companies that have managed a product safety incident in recent years have recalled products from consumers on at least one occasion – with many preferring an overly cautious response than to be seen to risk health and safety. Austin says: “Recalls are just one solution open to business. For some minor issues, it may not be practical and just withdrawing products from retail, but not from consumers, may be enough,” says Austin.
A well-managed recall can reinforce the message that you care for your consumers, he says, “but there is the risk of consumers becoming desensitised if the solution is always a product recall”.
Product recalls can be a nightmare if the retailer is ill-prepared, but ensuring that the business can handle them is relatively straightforward. It doesn’t require a vast and complex system or advanced technology. As Hanifan says: “A lot of it is just about good record keeping and knowing where your supply comes from. It doesn’t have to be over-engineered.”