Mattel has been around for 65 years – the brand is very popular among consumers. Brand-building is one of the most significant barriers to entry in this industry.
Through successful segmentation and diversification of the Barbie line into hundreds of styles, the average American girl had 8 Barbie dolls by the mid-1990s.
More recent efforts to increase brand awareness – opening of shops in NYC, Chicago, LA, Atlanta, Dallas, Boston, Minneapolis
Mattel sued a former Mattel employee and MGA Entertainment (owner of Bratz Dolls), claiming the creator of Bratz was still working for Mattel when the Bratz name and characters were developed. The creator was working at Mattel when he pitched the Bratz idea to MGA; a few months later, he left Mattel to work at MGA. In 2005, 4 yrs after the line was created, Bratz sales were at $2 billion. In 2008, the former employee settled with Mattel under an undisclosed set of terms. However the battle between Mattel and MGA continued. Also in 2008, a jury deemed MGA and its CEO liable for “intentional interference” regarding the employee’s contract with Mattel. As a result, Mattel received $100M in damages (although Mattel had originally requested damages of $1.8B).
Licensing agreements are important for toy manufacturers. Manufacturers are continually anticipating the success of movies and TV shows in order to produce toys based on their characters in an attempt to improve sales. However these products are typically only successful for a year or two following a release.DisneyHarry PotterNASCARNickelodeonTop 5 Formula One Race TeamsFerrariVivendi Universal Publishing– bringing Barbie and other toys into gamingOasys Mobile – agreement gave them the right to produce mobile games such as UNO and Ker plunkFisher-Price & Barney
The international environment complicates business transactions (different legal systems and cultural expectations). Workers must be paid at least minimum wage or a wage that meets local industry standards (whichever is greater). No one under the age of 16 or the local age limit (whichever is greater) may be allowed to work for Mattel facilities.
Through the Mattel Children’s foundation, the company promotes philanthropy and community involvement among its employees and makes charitable donations to better the lives of children in need. In 1998, Mattel donated $25M to the UCLA Children’s Hospital, which in honor of that donation, was renamed Mattel’s Children Hospital at UCLA. The Mattel Family Learning Program utilizes computer learning labs as a way to advance children’s basic skills. There are more than 80 labs throughout the United States, Hong Kong, Canda, and Mexico. Team Mattel is a program which allows Mattel employees to partner with local Special Olympics programs. Employees serving on boards of local nonprofit organizations or helping with non-profit programs are eligible to apply for volunteer grants supporting their organizations. In addition, Mattel employees contributing to non-profit organizations which serve children in need are eligible to have their personal donations matched dollar for dollar up to $5,000 annually!
In the mid-90s, other toys such as Beanie Babies, Furby, and Tickle-Me-Elmo, started taking market share away from Barbie. In order for Mattel to sustain growth, it turned to mergers and acquisitions.
In the mid-90s, other toys such as Beanie Babies, Furby, and Tickle-Me-Elmo, started taking market share away from Barbie. In order for Mattel to sustain growth, it turned to mergers and acquisitions.Tyco, Pleasant Company, Bluebird ToysAfter 2 yrs of strong growth in educational-toy market, The Learning Company seemed the best way for Mattel to enter into the more desirable high-tech and interactive media segmentMay 1999: The Learning Company Leading entertainment & educational software companySeemed the best way for Mattel to enter the high-tech & interactive media segment
Mattel needs to address their weakness in this area
Not all overseas manufacturers have adhered to Mattel’s high standards
Mattel's 2006 acquisition of Radica is the company's attempt to tap into the potential in the digital gaming industry, but Radica produces handheld electronic games (such as electronic devices that offer games such as 20 Questions, Checkers, etc) while the major growth in electronic games is in console gaming (Sony's PlayStation3, Microsoft's Xbox 360 and Nintendo's Wii). Without a major foray into video gaming, Mattel could stand to lose significant market share as youth turn to digital entertainment over traditional toys.Consider acquiring either a small console gaming maker or an upcoming online game developer (Zynga).
ANTES – Features/attributes important to the consumer & pre-condition for being in the game – All competitors do this.DRIVERS – Important to the consumers and Highly DifferentiatedNEUTRALS – Features that are Irrelevant to Consumers as not compellingFOOL’S GOLD – Distinctive features but do not drive consumer loyalty
Rising distribution costs – Combine with Raw materials bulletThis effect is augmented because oil prices play a primary role in Mattel's distribution costs related to transporting its products from manufacturing plants in Asia to customers and retailers around the world. A return to rising oil prices would put downward pressure on Mattel's profit margins.
Mattel's 2006 acquisition of Radica is the company's attempt to tap into the potential in the digital gaming industry, but Radica produces handheld electronic games (such as electronic devices that offer games such as 20 Questions, Checkers, etc) while the major growth in electronic games is in console gaming (Sony's PlayStation3, Microsoft's Xbox 360 and Nintendo's Wii). Without a major foray into video gaming, Mattel could stand to lose significant market share as youth turn to digital entertainment over traditional toys.
Mattel final 19_nov2010
Where to Begin…The Rise To Fame<br />Founded in 1945 by Harold “Matt” Matson & Elliot Handler. Their names smushed together make Mattel. They manufactured picture frames and doll houses<br />Handler’s wife, Ruth, later became president and is credited with establishing the Barbie line in 1959<br />1960: Mattel went public and was quickly listed in Fortune’s list of the 500 largest U.S. Industrial companies <br />By 1968: Hot Wheels was introduced <br />Mid 1970s: Mattel tried to get into electronic games but failed because others entered the market at a cheaper price<br />
The Bumpy Road (Past 10 Years)<br />In May 1999, Mattel acquired “The Learning Company” for $3.5B in stock (4.5 times annual sales)<br />In 2000, Mattel sold The Learning Company for a percentage of their future profits<br />Mattel closed its last American factory in 2002<br />On August 2, 2007 Mattel recalled almost one million Chinese made toys because of potential hazard of lead paint<br />On August 14, 2007 Mattel recalled over 18 million products because of the possibility of danger to children due to detachable magnets<br />
Sometimes Less Is More<br />Cash flows increased from $436M in 2008 to $945M in 2009<br />Improved execution across supply chain, realigned infrastructure, controlled costs and expenses (especially inventory)<br />Resulted in increased profitability, stronger balance sheet, improved cash flow<br />Used to lower debt, increase cash balance, and continue to reward stockholders with strong dividends <br />
To Infinity & Beyond! <br />Goals for 2010 and Moving Forward:<br />Gross Profit Margin: 50%<br />Operating Margin: 15 to 20%<br />
Vision Today & Vision Tomorrow<br />In 2000 Mattel’s senior management team created a vision for the company: “The World’s Premier Toy Brands – Today and Tomorrow”<br />In 2010 they launched a new vision for the company: “Creating the Future of Play”<br />What do you think of the different visions?<br />Where do they take the company? <br />
I Will Let You In On A Secret…<br />“…we don’t just make toys. We create emotional connections that last a lifetime by encouraging children to stretch their imaginations, creating joy and allowing children to become lost in play. That’s the real value of our toys. That’s the value of play.” (Bob Eckert, Chairman of the Board & CEO, Annual Report 2009)<br />Mattel is in the business of making kids’ leisure time fun and bringing magic back to their lives <br />
Management’s Six Key Strategies<br />Improve Execution of the existing toy business<br />Globalize the brand<br />Extend brands into new areas<br />Catch new trends, create new brands, and enter new categories<br />Develop people<br />Improve productivity, simplify processes, and maintain customer service levels<br />
Who Are Mattel’s Traditional Competitors? <br />
Key Notes on Industry Performance<br />Industry’s size is anticipated to contract over next five years<br />Forecast is predicting a 1.2% annual decline over the next 5 years to a total of about 680 producers in the US<br />Manufacturers were slow to respond to shifts in demand which lead to a decline in sales<br />Cheaper imports have created intense competition within the local market<br />Increased merger & acquisition activity within the industry has lead to the demise of numerous smaller operators <br />Message is simple: toys currently on the market are no longer meeting the demand for children<br />Toys need the “WOW” factor<br />Girls are now outgrowing Barbie by the age of eight, rather than the target age of 10 <br />
However, You’re Not Just In The Railroad Business…<br />Sports<br />Competitive Toy Manufacturers<br />Television<br />Internet<br />Video <br />Games<br />Mattel has to compete against any other activity that will take up children’s time <br />
Children Leisure Time Perception Map<br />*Healthy from standpoint of either educational or active <br />
Stuck Between A Rock, A Hard Place, and a Volcano About to Erupt<br />Manufacturers have an uphill battle. Have to satisfy three customers:<br />The Rock: Retailers buy, stock, and advertise the product<br />The Hard Place: Children ultimately have to find the product enjoyable and it has to have repeatable “play value”<br />The Volcano About to Erupt: Parents have to see the product as innovative, educational, or deem it as a “value.” In addition, parents will only buy products that reflect their family values. <br />Will look at the profile of each of Mattel’s “customers”<br />
The 100 Million Pound Gorillas<br />Retailers control:<br />Purchases from manufacturers<br />Shelf space and where products are viewed<br />Advertisements to children and parents that enter stores (coupons, in-store ads, etc.)<br />Retailers promote their own private brands<br />Mattel’s three largest retail customers account for approximately 40% of worldwide sales<br />
It’s All About The Psycho….Graphics<br />Lets take a look at the typical children that Mattel is trying to reach to and then we will profile a couple of “child customers”<br />Children (0-14) make up 21% of American population and this is predicted to remain stable over the next five years<br />Profile three of Mattels child segments<br />Cyber Possum <br />Grease Monkey<br />Fashion Queen Bee<br />
Cyber-Possum<br />Male or Female<br />Likes to be alone <br />Likes being inside <br />Quiet, Shy, Bashful<br />Use internet for social interaction and purchases<br />Not very confident<br />10-14 age group<br />Slightly overweight<br />Craves intellectual stimulation <br />Enjoys blokus products & video games<br />Focus on advertising interactive/electronic toys to this group along with internet games<br />
Grease Monkey<br />Male<br />8-12 Age Group<br />Likes simple toys<br />Likes being outdoors<br />Thinks the world wide web is something a big spider makes<br />Aggressive and extroverted <br />Wants toys to reflect real objects <br />In good physical shape<br />Craves adrenaline rush<br />Enjoys hot wheels products<br />Focus on advertising cars/trucks, military action figures, and sporting figurines to this group<br />
Fashion Queen Bee<br />Female<br />6-10 age group<br />Loves fashion world and dressing up<br />Enjoys outdoors and inside<br />Chatty and social <br />Views the internet as a chance to increase social network<br />Craves living life of glamour<br />Enjoys Barbie and American Girl Products <br />Focus on advertising barbie products with various accessories, horses/ponies figurines, and polly pocket games to this group<br />
If the Parents Dig It, They Will Buy It<br />Mattel always has to keep the parents in mind as well. <br />If the parents don’t see the product as educational, promoting an active lifestyle, or having a wow factor they won’t purchase it<br />In addition, if the parents don’t see the company producing the product as a quality brand they may question the purchase <br />So, at the end of the day the parents control the buying decision <br />And again Mattel does have a social obligation to this customer segment (even if only for profit reasons). Parents tend to buy toys that reflect their familial values. <br />
Key External Drivers <br />Per capita disposable income<br />Households with higher levels of disposable income generally spend more on toys and games<br />Downstream demand from hobby and toy stores<br />Regarded as specialist retailers for these goods<br />Number of children (0 to 14 years)<br />Age distribution of a region affects it demand for toy, doll and game products<br />Downstream demand from department stores<br />Due to sheer size and range of products they offer, many regard these stores as main customer for toy manufacturers<br />Import Competition<br />Despite often inferior quality, such toys have become popular among consumers due to lower prices and extensive varieties <br />See graph on next page <br />
Put Simply, The World Is Flat When It Comes to Producing Toys <br />
Industry Key Success Factors<br />Establishment of Brand Names<br />Brand name, reputation and image are important<br />Agreements to supply major companies with these attributes are equally important<br />Having a diverse range of clients<br />Ability to control stock on hand<br />Effective cost controls<br />Ability to quickly adopt new technology<br />Must comply with required product standards <br />
3Q 1999 – expected $50M in profits; instead lost $105M
4Q 1999 – expected earnings to be 70-80 cents per share; instead lost $184M (primarily due to TLC)</li></li></ul><li>Lack of Diversification<br /><ul><li>The popularity of electronic and interactive toys has contributed to a decline in the traditional toy market (Mattel’s core business)
This trend is expected to increase as children become more technologically advanced at younger ages
Mattel is seen as behind in electronic toys and educational toys</li></li></ul><li>Loss of Sesame Street Licensing Agreement<br /><ul><li>At the end of 2010, Sesame Street licensing agreement with Mattel expires, and has been granted to Hasbro</li></li></ul><li>Recent Product Recalls<br /><ul><li>In 2007, Fisher-Price recall due to lead paint in toys
A contractor in China subcontracted the painting of toys to another vendor. That vendor used paint from a non-authorized supplier (a violation of Mattel’s policies).
Also in 2007, additional product recalls due to magnets which could come loose and be ingested
Consumer confidence in the safety of toys purchased for young children was tarnished</li></li></ul><li>Response to Manufacturing Issues<br /><ul><li>At first, Mattel blamed Chinese subcontractors for the huge toy recalls
The company later accepted a portion of the blame, but still said Chinese manufacturers were largely at fault.
Mattel faced criticism by many consumers for denying responsibility and placing much of the blame on China
While Mattel audited its contractors, it did not audit the entire supply chain, including subcontractors.
Made changes to auditing procedures, including testing their products themselves instead of relying on subcontractors</li></li></ul><li>OPPORTUNITIES<br />
Mattel Opportunities <br />Educational Products<br />Perception Map identified whitespace for Mattel<br />Less reliance on retailers as the distribution network expands<br />Hospitals, Day Care Centers, Schools.<br />M&A with video games companies<br />Beyond Radica<br />Let’s take a look at gaming “Consumer Loyalty Matrix” <br />
Mattel Opportunities <br />Global markets (still not completely tapped by Mattel)<br />Approximately 50% of sales are international<br />The further the dollar falls, the more Mattel makes by selling its products abroad. Global sales partially insulate the company against a U.S. recession.<br />Where could they grow? China and India<br />China's toy market is fragmented, although Mattel estimates it is one of the leading players there. <br />Following its entry into China just eight years ago, Mattel now has about 40 licensing partners.<br />China is a double-digit growth market<br />Improved production capabilities<br />Cloud computing<br />Focused factories with just in time inventory management<br />Value engineering & 80/20 Principles<br />Barbie movie / American Girl<br />Follow Hasbro Blueprint<br />Sales kick back <br />
A Game Changing Product for Mattel<br />An interactive toy for boys and girls that integrates social media, community and most important physical activity<br />The first in a line of physical activity companions that connect to social media through usb connection.<br />Combination of a “doll” and “Digiwalker” pedometer that is then registered through company website<br />Digiwalker Doll clips onto waistband and logs caloric daily output<br />
Meet “Hoppin Henry” & “Va Amiga”<br />Outer shell of doll is a Frog boy for “Hoppin Henry” or Frog girl for “Va Amiga”<br />Sync with website for weekly, monthly and annual totals<br />Increase in caloric output increases Doll “health”<br />Connect through social media sites to establish guilds and teams<br />
Mattel Threats D.E.<br />Rising Raw Material Costs<br />fluctuations in oil prices affect input costs for making plastic-based toys<br />A considerable amount of Mattel's manufacturing cost comes from plastic resin, which accounts for approximately one-quarter of cost of goods sold. <br />Resin prices have soared because of a rise in prices of its key component: petroleum. <br />Oil prices skyrocketed in 2007-2008 before peaking in August 2008, when price began to fall drastically. <br />These price movements caused the price of manufacturing plastic-based toys rise considerably in 2008, hurting Mattel's profit margins (gross margin down to 45.4% in FY08 from 46.5% in FY07), but if the price of oil remains low, Mattel's costs would be significantly lower allowing the firm to earn higher profit figures. <br />Conversely, a return to rising oil prices would put downward pressure on Mattel's profit margins.<br />
Oil Volatility = Potential Rise in costs (Plastics/Distribution)<br />Rising Distributions Costs<br />Fluctuations in oil prices affect distribution costs for transporting products from factories in Asia to other parts of the world. <br />
Mattel Threats <br />Imports from Asian countries (wages, fact others can copy) – world is flat<br />Age compression phenomenon<br />Girls are now outgrowing Barbie by the age of eight, rather than target age of 10 <br />Rise in push for physical activity, could decrease toy sales <br />Because of America’s obesity epidemic<br />Economic downturn (less disposable income)<br />profit margins at Mattel and other traditional toy manufacturers are being squeezed by macro-economic factors largely out of their control<br />
Mattel Threats<br />Mattel’s three largest retail customers account for approximately 40% of worldwide sales. <br />WMT, TGT, and Toy’s R Us have considerable leverage over Mattel when negotiating prices.<br />Retailers also produce toys <br />The biggest concern is Internet and Videogames<br />Hasbro (2nd in revenue) is the obvious threat, but ……<br />Toy sales in the U.S. have been growing at a very low rate for the last few years. In fact, in 2008 toy sales in the U.S. fell 3%. This is mainly because of the shift from traditional toys towards video games. <br />In 2008, sales of video game software units (actual games as opposed to consoles) grew 15% in the United States and 26% in the United Kingdom.<br />
Possible Strategies Moving Forward<br />#1 – Stay The Course<br />#2 – You’re Not Just In the Railroad Business Anymore<br />
Strategy #1: Stay The Course<br />Advantages<br />Use their buying power to price out competitors<br />Leverage known brands <br />Cost cutting techniques and operational efficiencies have improved profit so far<br />Continue to maintain licensing agreements to corner the market <br />Disadvantages<br />Chaos Theory: Doing what you’ve always done doesn’t necessarily net the same results<br />You’re either innovating or getting left behind<br />Age Compression of children is causing the industry to change<br />Flat World allows others to copy toys easier<br />
Strategy #2: You’re Not Just In the Railroad Business Anymore<br />Advantages<br />Diversify business into high growth areas (video games, educational interactive)<br />Reduce impact of core business and brands shrinking<br />Opens company up into other leisure time activities, results in new business opportunities and markets <br />Disadvantages<br />Not prime on certain technologies<br />Certain ventures will be risky due to the unknown factor<br />Could dilute the brand <br />Excessive costs while trying to move certain products from R&D to market <br />
Mattel and “The Future of Play”<br />Circling back to one of the original slides<br />Which strategy should Mattel follow?<br />What does “The Future of Play” mean to the class? <br />And where does that statement leave Mattel?<br />