Though I’ll note that this morning’s read-through of the law (my 130th, lol) leaves me a bit more optimistic about at least parts of my business. (I mean, hell, I was up at 4 with a baby who just wasn’t sleepy, why not read thru some boring legislation??)
Anyway, this snippet is copied from the National Bankruptcy Day page. It’s part of an email to some Congresspeople from Richard Woldenberg of Learning Resources, Inc.
I am writing to follow up on the below email on the cost of testing under the CPSIA. The attached document is a quote we received to test ONE telescope product under the CPSIA. The cost of the testing is a mere $24,050 for this single item. The average annual sales of this item are approximately $32,000 over the past two years. Needless to say, we cannot afford to spend $24,050 to test this (or any) item. I presume that Congress intended this result and wants us to stop selling telescopes to keep everyone safe. I guess kids can see the planets by squinting from now on. Thanks, Congress!
And this post gives an excellent run-down of the problem with the high expense of testing. (What he doesn’t delve into is another aspect of testing that will be burdensome for one-person businesses like mine – just simply managing the paperwork, the process, etc. I don’t have an office staff to do that for me. If CPSIA compliance takes, say, two hours a week, well that’s two hours a week I cannot spend making inventory or helping customers.)
Nevertheless, to prove compliance, we will apparently have spend $6,144.06 on myriad tests. The product will be no more or less safe after this expenditure. No child will be safer or better protected. Our company will simply be much poorer.
High testing costs will have a significant effect on our business and businesses like ours. First, the cost of testing has increased about 5x – 20x under the new law. We do not believe these costs can be recovered because under current economic conditions, raising prices is not an option. Thus, the breathtaking increase in cost becomes part of our overhead.
The testing costs cannot be absorbed by small and medium-sized businesses. At typical net profit levels prevailing in the children’s products industry, the $6,144 cost of testing probably exceeds the anticipated total net profit derived from three or more years’ sales of the item. This does NOT take into account the cost of development, the cash expense of buying the inventory or the cost of owning inventory (usually estimated at 2.5% per month). Given that children’s products have finite commercial lives (three years is a good life for a consumer product), the CPSIA test costs might exceed the present value of creating a new item for many, if not most, businesses. So, will this product ever come to market? Not under the CPSIA. The only products left for sale will be mass market items where the scale of their production runs can support this wasteful expense. I believe this “mass market world” is not in the national interest as specialty companies like Learning Resources are an important means by which consumers obtain the products and services they need in our economy.
Notably, the gross cash expense required to finance these tests right now is literally unbearable. The law requires that all of this testing must be completed on all products in our line all at once. Several years of “catch-up” testing must be financed in just a matter of a couple months, bunching up the vast expense into one or two financial statements. Together with other excessive costs suddenly imposed by the CPSIA (for instance, lot traceability infrastructure), the economics of producing children’s items are being distorted into an unrecognizable form. If children’s products companies cannot produce a fair profit, they won’t be able to attract financing or risk capital, and the jobs (and products) will disappear. This problem needs a solution fast, and if we can’t come up with one, no one in Congress or the CPSC should be surprised to see bankruptcies rise inexorably as a result. The price will be paid.