Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Team 1- PM 107 (440) 799-2324
Ohio University College of Business ka074912@ohio.edu
Copeland Hall
Athens, Ohio 45701
Date:...
Prepared for:
Dr. Hossein Javadi Asl
Professor Tom Marchese
Professor John Keifer
Dr. Nadege Levallet
Prepared by:
PM 107 ...
Executive Summary
Purpose and Preview
The purpose of this report is to identify key success factors of the toy industry an...
Table of Contents
Table of Contents
Introduction
By the request of Copeland Associates, we
have completed an extensive research on the
toy industry and have d...
Mattel Company Analysis
Introduction Companies Key Factors Conclusion
Mattel is a major toy firm based out of the
U.S that...
Introduction Companies Key Factors Conclusion
Mattel Company Analysis
Mattel’s most popular global brand is the
children’s...
Introduction Companies Key Factors Conclusion
There are some key issues with obtaining loyal
customers with Mattel, as man...
Introduction Companies Key Factors Conclusion
Competitor Analysis: Hasbro
Hasbro is a major toy firm based out of the U.S....
Introduction Companies Key Factors Conclusion
Competitor Analysis: Hasbro
Brand Segment
percentage of Hasbro’s supposedly ...
Competitor Analysis: Jakks Pacific
Introduction Companies Key Factors Conclusion
Jakks is aim to appeal has been committed...
Competitor Analysis: Jakks Pacific
Introduction Companies Key Factors Conclusion
Novelty/seasonal toys include dress up
pr...
Key Success Factors Summary and Criteria
Ability to successfully penetrate Asia-
Pacific’s emerging markets
Ability to inn...
Introduction Companies Key Factors Conclusion
Introduction
Middle Class Population by 2030
(In Billions)
Although the age ...
Introduction Companies Key Factors Conclusion
Over the past 10 years, the toy industry in
China has seen a dramatic growth...
Introduction Companies Key Factors Conclusion
India is considered to be the second most
populated country in the world. Li...
Introduction Companies Key Factors Conclusion
Progress on Expansion to India
Factor 1: Evaluate The Companies
China
Accord...
Introduction Companies Key Factors Conclusion
Progress on Expansion to India
Factor 1: Evaluation of Companies
India
Hasbr...
Factor 2: Expand to global markets and create strong
brand recognition through licensing
Introduction Companies Key Factor...
Factor 2: Expand to global markets and create strong
brand recognition through licensing
Introduction Companies Key Factor...
Mattel has a tendency to maintain strong relationships with existing licensors. Mattel tends to be patient
and sit back in...
Introduction Companies Key Factors Conclusion
When asked about Lego’s success over the past
20 years, CEO Jorgen Vig Knuds...
In the past 5-10 years, there has been an
obvious shift from traditional toys to handheld
technology and wireless communic...
Factor 3: Ability to innovate around the box and engage
consumers through customer feedback and cross-over toys
Datasource...
Introduction Companies Key Factors Conclusion
Mattel’s decrease of sales in the past few years is credited to many things,...
Introduction Companies Key Factors Conclusion
Recommendations
Mattel has held the spot of the number one toy
company in th...
Introduction Companies Key Factors Conclusion
Recommendations
3. Innovation2. Licensing
23
Over the past several years, Ma...
Introduction
References
Allen, K. (2015, September 30). The hottest new start-up ... makes toy cars. Retrieved February 14...
References
Ernst and Young. (2013, April 25). By 2030 two-thirds of global middle class will be in Asia-Pacific [Press
rel...
References
Hasbro Is Set For A Strong Return. (2015, October 27). Retrieved February 14, 2016, from
http://seekingalpha.co...
References
Komando, K. (2015, December 22). Why You Should Say Goodbye to Hello Barbie. Retrieved February
29, 2016, from ...
Pathk, S. (2013, December). Competition From Everywhere Has Hasbro , Mattel in Toyland
Showdown. Retrieved from http://ada...
Tansel, U. (2015, November 15). Asia Pacific: World's Most Heavily Licensed Toys Market. Retrieved
January 26, 2016, from ...
Appendix A: Industry Analysis
Industry Overview
The toy industry is defined as a series of
categories that include buildin...
Appendix A: Industry Analysis
Retail Channel Segments
Top Retail Channels- U.S.Top Retail Channels- Europe
The channels in...
Appendix A: Industry Analysis
The toy industry is largely dominated by a
few key players: Mattel, Hasbro, Lego,
JAKKS, and...
Appendix A: Industry Analysis
The toy industry has seen a strong
performance recently, generating $19.4 billion
in the US ...
Appendix B: PESTLE Analysis
Political
Social
Technology
Legal
Environment
Currently, around 75% of the toys in the
world a...
Introduction
Appendix B: (Continued)
Social
Technology
Legal
Environment
There are many laws and regulations that
must be ...
Appendix C: Porters Five Forces
Political
Threat of New Entry
Threat of Substitution
Buyer Power
Competitive Rivalry
The t...
Appendix D: SWOT Analysis
Political
Threat of New Entry
Threat of Substitution
Buyer Power
Competitive Rivalry
• Strong br...
Appendix E: Business Model Canvas
Political
Threat of New Entry
Threat of Substitution
Buyer Power
Competitive Rivalry
Wal...
Appendix F: Common Size Balance Sheet
Common size
2014 Balance sheet Mattel Hasbro JAKKS
Cash and equivalents 14.45% 19.71...
Appendix F (Continued)
40
Common size
2013 Balance sheet Mattel Hasbro JAKKS
Cash and equivalents 16.14% 15.50% 26.02%
Mar...
Appendix F (Continued)
41
Common size
2012 Balance sheet Mattel Hasbro JAKKS
Cash and equivalents 20.47% 19.64% 34.12%
Mar...
Appendix G: Common Size Income Statement
Common size
2014 Income statement
Mattel Hasbro JAKKS
Cost of sales 50.18% 40.18%...
Appendix G (Continued)
43
Common size 2013 Income statement
Cost of sales 46.35% 40.98% 75.39%
Royalties - 8.30% -
Product...
Toy Industry Analysis
Toy Industry Analysis
Toy Industry Analysis
Toy Industry Analysis
Toy Industry Analysis
Toy Industry Analysis
Toy Industry Analysis
Upcoming SlideShare
Loading in …5
×

Toy Industry Analysis

18,444 views

Published on

  • Snaptits big-breasted girls snaps only. View pics... ♣♣♣ http://t.cn/AiuW9zn5
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Tap Into The Magic of The Universe. Discover the Universe's 7 sacred "Sign Posts" that lead the way to your heart�s greatest desires! Register now for a free report. ★★★ http://ishbv.com/manifmagic/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Earn a 6-Figure Side-Income Online... Signup for the free training HERE ★★★ http://dwz1.cc/G9GauKYg
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Does Penis Size REALLY Matter? The truth comes out... ★★★ https://bit.ly/30G1ZO1
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Does Penis Size REALLY Matter? The truth comes out... ♣♣♣ https://bit.ly/30G1ZO1
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

Toy Industry Analysis

  1. 1. Team 1- PM 107 (440) 799-2324 Ohio University College of Business ka074912@ohio.edu Copeland Hall Athens, Ohio 45701 Date: February 14, 2016 To: Hossein Javadi Asl, John Keifer, Nadage Levallet, Tom Marchese, and Catherine Penrod From: Team 1- Kaylee Anchulis, Oliviah Cook, Kelsey McKinley, Jacob Stankiewicz, and Jiang Zenhui Dear Senior Partners: Subject: Analysis of the Toy Industry As requested by the Copeland & Associates Senior Partners on January 11, 2016, we are pleased to submit our report on the toy industry. Attached you will find A Look into the Global Toy Industry: External Analysis, Company Analysis, and Key Success Factors of the Toy Industry. This report contains details about the current state of the industry and defines key success factors focusing on Mattel, Hasbro, and Jakks Pacific. The key success factors that we have selected to be most essential to the industry are: • Successful penetration into Asia-Pacific’s emerging markets • Expansion to global markets and creation of strong brand recognition through licensing • Ability to innovate “around-the-box” and engage consumers through customer feedback and crossover toys This report provides research consisting of graphs, appendices, and an analysis of the industry's strengths, weaknesses, opportunities, and threats (SWOT). These items were used to identify key success factors relating to the development of Hasbro, Jakks, and especially Mattel. In conclusion, we will provide strategic recommendations for our company of focus, Mattel. Thank you to our senior partners and peer mentor for providing us with insight on the report and assisting us outside of class. We would like to personally thank Hossein Javadi, John Keifer, Nadage Levallet, Tom Marchese, Catherine Penrod, and Marie Strasbaugh for setting aside time to provide and contribute to the development of our report. We appreciate the opportunity to analyze the toy industry and slowly progress as a team. If you need further assistance with the information in this analysis please do not hesitate to ask. We can be reached by phone at (440) 799 2324 or by email at ka074912@ohio.edu. Sincerely, Team 1- PM 107 Kaylee Anchulis, Oliviah Cook, Kelsey McKinley, Jacob Stankiewicz, and Jiang Zenhui
  2. 2. Prepared for: Dr. Hossein Javadi Asl Professor Tom Marchese Professor John Keifer Dr. Nadege Levallet Prepared by: PM 107 – Team 1 Kaylee Anchulis Oliviah Cook Kelsey McKinley Jacob Stankiewicz Jiang Zenhui A Look into the Global Toy Industry External Analysis, Company Analysis, and Key Success Factors of the Toy Industry
  3. 3. Executive Summary Purpose and Preview The purpose of this report is to identify key success factors of the toy industry and provide an in-depth analysis of one of the biggest toy companies in the world, Mattel, Inc. The toy industry is growing at an annual rate of 5-7% and is worth $84 billion (Statista, 2014). The largest portion of global market share is held by the US, Europe, China, and Japan, being held responsible for 65% of total market share (Study of the Competitiveness). In this report, strategic recommendations for future success of Mattel are provided as well as current financials and financial impacts of these recommendations. Problems in the Toy Industry Due to the fact that consumers are fairly price sensitive and there are low barriers to enter the toy market, this industry is very highly competitive. Because of this, companies tend to outsource manufacturing to third party facilities, thus loosing some control over product safety and regulation. Although improving, toy safety and recalls are still a big issue in the industry. Also a problem for the toy industry is the strengthening of the U.S. dollar. Because the dollar is currently stronger than most foreign currencies, many U.S. corporations are losing money by operating overseas. This makes exports more expensive and causes toy companies to lose millions of dollars in translation. Mattel vs. Hasbro and Jakks Pacific Hasbro is in a more favorable position than Mattel and Jakks Pacific. Although Mattel has made progress towards emerging into Asia-Pacific, they lost one of their biggest license deals to Hasbro and are lacking innovation, especially in the cross-over toy market. Jakks has virtually no international presence and only has a few small license deals in their portfolio. Hasbro is gaining momentum as they form new relationships with the entertainment industry along with successfully focusing on emerging markets, resulting in growth that surpasses both Mattel, Inc. and Jakks Pacific, Inc. Conclusion After determining that Mattel needs to improve to keep up with competitors, recommendations for improvement include • Localize toy design, adjust prices in emerging markets temporarily to deal with currency issue, and form relationships with retailers in the region • Regain and form new relationships with the entertainment industry, contemplate merger with another company to reduce competition • Invest in more R&D to look at the needs and wants of consumers, take time to get back to the basics This report analyzes the key success factors in the toy industry and relates them to current markets of Mattel, Hasbro, and Jakks Pacific.
  4. 4. Table of Contents
  5. 5. Table of Contents
  6. 6. Introduction By the request of Copeland Associates, we have completed an extensive research on the toy industry and have determined both the current and future state, trends that will directly affect business, and multiple environmental analysis of the toy industry as a whole. By doing this research, we have determined three key factors that will lead to success in this industry. Based on these three factors, we constructed careful recommendations for our company of focus, Mattel, that will ultimately result in maximum profit for both companies and shareholders. The table below shows the three key success factors shown with a number. Number one meaning the most important while three meaning the least. The raw score is how well each company used their abilities towards each key success factor. This raw score is out of five possible points. The weighted score puts the company into proportion with the weight of the success factor, with emerging markets having the most weight and innovation having the least. The raw score of each company is multiplied with the weight of each key success factor to arrive at the final weighted score . After all of this was taken into account, Hasbro emerged with the highest weighted score of 2.8, followed by Mattel at 2.25, and finally Jakks Pacific at 1.35. Introduction Purpose and PreviewPurpose and Preview Introduction Companies Key Factors Conclusion Scoring Breakdown Key Success Factors Weight Mattel Raw Score Mattel Weighted Score Hasbro Raw Score Hasbro Weighted Score Jakks Raw Score Jakks Weighted Score 1. Emerging Markets 45% 2 0.9 2 0.9 1 0.45 2. Licensing 35% 3 1.05 4 1.4 2 0.7 3. Innovation 20% 1.5 0.3 2.5 0.5 1 0.2 Total 100% 6 2.25 8.5 2.8 4 1.35 1
  7. 7. Mattel Company Analysis Introduction Companies Key Factors Conclusion Mattel is a major toy firm based out of the U.S that designs, manufactures and markets toys worldwide. The company is divided into four major brands including Mattel Brands, Fisher-Price Brands, American Girl Brands U.S Canada and Mexico, and Construction and Arts and Crafts Brands. Mattel’s strengths come from the brand recognition of their popular brand names that make them a global market leader as well as the diverse line of products in their portfolio. Mattel has significant segments geographically and in items of product diversity in the market. The North American segment, which consists of the US and Canada, the International segment, and American Girl. The North American and International segments sell products in the Mattel Girls and Boys Brands, Fisher-Price brands, and construction and Arts and craft brands. As of 2014, Mattel earned 54% of revenues from North America which is their highest market segment. Mattel earned 25% from Europe, 13% from Latin America, and 6% from Asia Pacific (Mattel, 2015Mattel, 2015). Mattel’s international markets develop and market through the North America segment. Mattel has a very solid international presence with some of their products and segments, especially the American Girl segment. It’s a big international market for their historical dolls, books, and accessories (Mattel, 2015). Source; (Statista, 2016) Overview Market Assessment Figure #1 Figure #2 Global Toy Market Share Datasource; (Study of the Competitiveness, 2013) 2 Compared to the other two companies, Mattel is the largest toy company. While comparing the past six years, it showed that revenues increased since 2009 to 2013 from 5.43 billion to 6.49 billion, and decreasing to 6.02 billion in 2014. Mattel has an advantage in revenue compared to the other two. Mattel's financial debt equity ratio is quite lower than Hasbro and Jakk’s; at .71 compared to Hasbro 1.24 and Jakks at 1.49. This shows that Mattel is in good financial standings.
  8. 8. Introduction Companies Key Factors Conclusion Mattel Company Analysis Mattel’s most popular global brand is the children’s doll, Barbie. Barbie is meant to inspire girls and remind them anything is possible. Recently, however, the five decade popular Barbie doll has diminished her popular brand name. Mattel developed “Hello Barbie” which uses technology similar to Apple’s Siri. This new Barbie had many concerns that involved privacy and security and caused parents to stray away from purchasing it (Komando, 2015). Mattel actually expected this new product would reverse their 16% decrease of sales they had in the first half of the year, however they got a lot of backlash on it and there were even campaigns started against it (Fickenscher, 2015). Things are starting to look up it seems, as Mattel released news of their new Barbie project, offering a diverse reflection in the 21st century. (Time, 2016). The Barbie includes different shapes, hair colors, and heights that girls can relate to better. This is great opportunity for Mattel in bringing Barbie back in the global market. In 2014, Mattel bought out one of the trusted leading global brands, MEGA Brands. This brand creates building blocks and construction toys. MEGA brands is the No. 2 player in the $4 billion construction building sets category. This acquisition represents one of the key avenues for achieving Mattel’s global growth strategy to help them enter strategic categories that can benefit their popular brands. Mattel expects this will help them create even higher brand recognition by being the main competitor to Lego . They plan to keep the manufacturing location in Montreal and Tennessee and also plan to maintain the headquarters in Montreal, Canada (Mattel, 2015). Another brand, Fisher- Price, includes toys such as little people, BabyGear & Learn, Imaginext, Thomas the Train, and Dora the Explorer. Lastly, the American Girl segment is a direct marketer that publishes books, known for their historic dolls, and their award winning American Girl Magazine (Mattel, 2015). (Datasource: CSIMarket, 2014) (Datasource, Statista, 2016) Mattel Company Analysis Brand Segments Figure #3 Figure #4 3
  9. 9. Introduction Companies Key Factors Conclusion There are some key issues with obtaining loyal customers with Mattel, as many products recently introduced do not meet satisfaction to children and parents. These recent failures explain the profit loss of Mattel throughout the last few years. An example is when their Hello Barbie did not meet the standards of parents needs. Lastly, the last problem with their consumer market is not meeting the quality needed in products that consumers are expecting. In 2007, Mattel had an outrageous recall count of 19 million items that were sent and manufactured from China. Although improving, memories of this recall haunts parents and may cause them to chose other companies when buying products for their children. Mattel’s business relies on consumers investing in their products. Mattel must be able to adjust to consumer wants and needs now and in the future. Consumer preferences change all the time based on social and cultural changes.. Kid’s are maturing faster and moving past playing with traditional toys at a younger age to digital products. Today in the US, 59% of children from the ages of 2-12 own a tablet and 71% own a smartphone (Shaftoe). Mattel is forced to adapt to the new trends that are attracting kids attention. They recently started Apptivity, where they combined technology with a physical toy to try and meet consumers expectations. This was not carried out in the best way and Mattel was forced to toss many of the games and features of this product due to lack of sales and interest. Mattel Company Analysis Mattel’s partners with many stores to expand their brand name. During 2014, Mattel’s largest customers were Walmart, Toys “R” Us and Target. Walmart was number one with 1.1 billion dollars worth of sales , Toys “R” Us second at $0.6 billion and Target third at 0.5 billion dollars (Mattel, 2015). Mattel is a global company that sells products to a large variety of stores. In North America, they sell mainly to department stores, retail store outlets, and wholesalers. Partnering with these partners helps Mattel to be a competitive firm in the market. A firm must connect with these popular store names in order to form good relationships and expand in the industry. Mattel also has independent stores that sell their American Girl brand which amounts to about 18 current stores. Although most of Mattel’s products are sold in toy stores, they also sell some of their products online through websites. Another important key factor in the toy industry is licensing. A 20-year-old partnership has recently broken apart as Hasbro took the rights of Disney from Mattel. The princess line from Disney brought in more than $4 billion a year, accounting for around 7% of Mattel’s sales Mattel’s recent weakness in licensing has forced them to lose one of their main products they are known for, dolls. The princess doll line generates 1 billion dollars worldwide (Beckman, 2014). Mattel relies heavily on dolls, the category alone made up 40% of its total revenues. Partners and Consumers 4
  10. 10. Introduction Companies Key Factors Conclusion Competitor Analysis: Hasbro Hasbro is a major toy firm based out of the U.S. that uses their brand blueprint to focus on reinforcing storylines associated with several outlets including television, motion pictures and digital media. The brands are broken down into franchised brands, challenger brands, gaming mega brands, and key partner brands. They market their brands under four categories: boys, girls, games, and preschool toys. This gives Hasbro the advantage of marketing to consumers easier, as they have something to appeal to everyone. Over the past few years, Hasbro has had increased success in the franchised brand segment of the market and has made this their primary focus because it provides global potential. In 2014 alone, franchise brands grew 31% and represented 55% of Hasbro’s total revenue (Hasbro, 2015). In order for Hasbro to generate more revenue and profit in future years, they need to focus on making their brands bigger and more global. Overview Overall Hasbro is broken down into segments. The three main sections they break their company down into is U.S and Canada, International and entertainment and licensing. The international market consists of Europe, Asia Pacific, and Latin and South America. Hasbro focuses on re-creating its existing brands in order to ignite new brands to help draw the attention of the consumer. Due to Hasbro’s strong strategy of licensing with strong brand names like Star Wars and Jurassic World, their boy category rose 28 percent in sales (Das, 2015). Hasbro reported that an 8 percent quarterly revenue based on consumers was for their toys based on Transformers. In the second quarter, international sales rose 17 percent; driving double digit growth in Europe, Latin America and Asia Pacific (International Sales, 2014). Market Assessment The toy industry overall is a very competitive industry because it is very cost sensitive and has very low barriers of entry. Mattel is Hasbro’s biggest competitor in the toy market. Mattel generates more revenue and has a bigger company base than Hasbro, but over recent years Hasbro has been closing the gap (Sharma, 2015). Hasbro has a great international segment in the eastern markets. The entertainment and licensing segment includes lifestyle licensing, digital licensing and gaming and movies and television. Although the entertainment and licensing segment only accounts for 5% of the revenue compared to the U.S. and Canada and International represent each around 47% of total revenue. While this looks like a small 5 Source; (Statista, 2014) Hasbro Net Revenue 2006-2014 (in millions) Figure # 5
  11. 11. Introduction Companies Key Factors Conclusion Competitor Analysis: Hasbro Brand Segment percentage of Hasbro’s supposedly strength of licensees, this number will most likely go up in 2015. Hasbro has secured a merchandise license with Star Wars through 2020. Due to kids shifting to gadgets and other technological toys, Hasbro as well as Mattel has seen declining sales. Revenues in Hasbro’s game fell 8 percent in the third quarter. Their franchised brands like My Little Pony also fell at 28 percent. This decline shows a huge decrease in their sales because girls and games account for half of Hasbro’s total revenue. However, over the past years Hasbro has had increased success in the franchised brand segment of the market and has made this their primary focus. Since Hasbro is divided up into gender segments by their toys, they can focus on a variety of consumers more consistently. Hasbro has continued to address girls’ wants and needs in the market. and has focused on consumer insights and storytelling to sell products. Hasbro’s main focus in brand products is their franchised brands. Franchised brands represent brands that are not entirely owned by the company but mostly controlled by the company. These franchised brands are My Little Pony, Monopoly, Transformers, Magic: The Gathering, NERF, PLAY-DOH, and Littlest Pet Shop. In 2014, 6 out of 7 of Hasbro’s franchise brands grew in the international segment. The only brand that saw a decrease in sales was The Littlest Pet Shop. They then made changes to it and launched it in second half of 2014. After the relauch, the product was back off to being a success for the second half of the year. Licenses Hasbro owned, not entirely, but developed under partners and licenses Hasbro makes efforts to put the consumer first in every aspect. A lot of consumer engagement is happening outside of developed countries. In 2014, the international segment of the toy industry grew 8%. “As we are focused on re- imagining, re-inventing and re-igniting our many brands and imagining, inventing and igniting new brands, we have a global marketing function which establishes brand direction and messaging, as well as assists the selling entities in establishing certain local marketing programs” (Hasbro 10k, 2014). This shows that Hasbro is taking traditional toys and games and coming out with new innovative idea’s and recreating these toys in order to keep consumers engaged. Another main focus of Hasbro is to build a strong brand among consumer groups. A strong brand name gives a company the potential to engage consumers on a global level. Consumers Partners Category Breakdown (2014 Revenue) 6 Figure # 6 Source; (Hasbro is Set, 2015) Hasbro economics differences may have a huge impact on their customer segment. Walmart, Toy’s “R” Us inc and Target are their main retail customers. Walmart being number one with 16%. Hasbro is heavenly reliant on these stores in order to be successful (Hasbro 10k, 2014).
  12. 12. Competitor Analysis: Jakks Pacific Introduction Companies Key Factors Conclusion Jakks is aim to appeal has been committed to helping children smile, play and succeed through their products. Jakks is also committed to being successful for the community by volunteering their products to schools, hospitals and large non-profit organizations. With supporting local communities by volunteering their time and toys, Jakks introduced their philanthropy called Jakks Cares. Jakks Cares focuses on helping the greatest number of children who are under-privileged and to aid families (Company Overview, 2015). In order to help the greatest number of children, they distribute products through their strategic philanthropic partners which include Big Brothers Big Sisters, Ronald McDonald, Feed the Children, Toys for Tots and many more (Company Overview, 2015). With expanding opportunities internationally, Jakks is now focusing on being more cost efficient by optimizing product lines and placing strict guidelines on new products. Jakks manages their existing and new brands through including new products, modifying existing products and extending product lines (Company Overview, 2015). Jakks believes that foreign markets such as Europe and Asian can offer opportunity growth for a global standpoint. Market Assessment Brand Segment Jakk’s has two brand segments, traditional toys and novelty/seasonal toys. Traditional toys include action figures, playsets, dolls with accessories, electronics products and construction sets. Traditional toys include licensed characters from Batman, Star Wars, Nintendo, Disney Princess and Fairies and Cabbage Patch Kids. Figure #7 Figure #8 Overview Jakks Pacific is a multi-line and multi-brand leading toy company that focuses on having a diverse range of products that incorporate classic and popular brands that appeals to today’s sophisticated consumers. This toy company designs, produces and markets it’s products including toys and toy related products, electronics, kids indoor and outdoor furniture and many other products. Source; (Statista, 2014) Net Sales of Jakks Pacific by Geographic Area 2008-2014 (in millions) 7 Source; (Statista, 2014)
  13. 13. Competitor Analysis: Jakks Pacific Introduction Companies Key Factors Conclusion Novelty/seasonal toys include dress up products, seasonal or outdoor products, indoor and outdoor kids furniture and everyday costume play. Novelty/seasonal toys also include products for boys and girls based on well-known brands such as Disney Frozen, Black 7 Decker, McDonald’s and Dora the Explorer. The company offers everyday costumers for all ages from licensed brands including Spiderman, Iron Man, Power Rangers and Disney Princess (Jakks Company Profile, 2015). Trendy toy designs are expanding and broadening Jakks consumer market. Jakks is expanding and building strong brand awareness by continuing to grow licensed deals with their key franchises. Jakks have two main focuses when it comes to having the upper hand on other toy companies. Those are, knowing how to acquire licensees cheaply and getting fast distribution to retail stores, and having productive supply chains that do not have recalls because of the strict safety standards put in place. Partners and Consumers Jakks Pacific target market is aimed at children between the ages of 4 through 16 and operates through two segments: traditional toys and novelty/seasonal toys. Jakks main merchandiser companies are Target, Toys R Us and Walmart. Walmart accounts for 20.5%, Target accounts for 15.3% and Toys R Us accounts for 11.6% of net sales for Jakks (Jakks Announces Results, 2015). Jakks has licenses from internationally known trademarks like Star Wars, Hello Kitty and Nickelodeon. By engaging in popular licensing trademarks, it creates a high rate of products being purchased. Jakks renews a multi-category license agreements with DC Comics Brands which includes Batman, Superman, Justice League, Green Lantern, Wonder Woman, The Flash and many more (Jakks Announces Results, 2015). Jakks has recently reached a new license agreement around the release of Batman v Superman and is projected to deliver strong sales for Jakks in the next year. This new license agreement includes new products like action figures with accessories, games, wagons and vehicles (Kalogeropoulos, 2015). This new agreement also includes domestic and international opportunities for the full DC Comics and will yield a number of great products for kids and collectors. Jakks is planning to launch its new Batman v Superman product line around when the movie is released on March 25, 2016 (Kalogeropoulos, 2015). Figure #9 Source; (Buck, 2014). 8
  14. 14. Key Success Factors Summary and Criteria Ability to successfully penetrate Asia- Pacific’s emerging markets Ability to innovate around the box and engage consumers through customer feedback and cross-over toys Engage to global markets and create strong brand recognition through licensing Factor 1: Factor 2: Factor 3: Introduction Companies Key Factors Conclusion • Focus on expansion to China • Focus on expansion to India • Problems dealing with expansion • Improving the basics • Listening to customers • Adapt to technology and create successful cross-over toys • Driving global sales and building customer loyalty • Advertising • Global perspective Key Success Factors and Criteria 9
  15. 15. Introduction Companies Key Factors Conclusion Introduction Middle Class Population by 2030 (In Billions) Although the age of traditional toy sales are diminishing in the Western hemisphere and more people are adapting to technology, the rise in traditional sales are soaring in developing countries. The fast paced economic growth in the Asia-Pacific region including South Korea, Thailand, Indonesia, and especially China and India have seen a drastic growth in sales of traditional toys from 2007 to 2015 (Timms, 2014). According to Euromonitor, Asia is expected to have the largest toy market and will pass North America in 2017 reaching 20.4 billion in annual sales. While the toy industry in Asia-Pacific grew 31% as a whole, China and India alone were responsible for most of the growth (Iyer, 2015). Prophesied to be “the biggest seismic shift in history”, emerging markets in Asia-Pacific are expected to take the lead in middle class expansion over the next 20 years. In 2009, the region was home to 28% of the world’s middle class. That percentage is expected to increase to 54% in 2020 and increase again to 66% by 2030 (Bourque, 2014). This means in just 20 years, Asia will go from holding under one-third of the global middle class to over two-thirds, reducing the share of both North America and Europe drastically. The 525 million people in Asia’s current middle class already surpasses the European Union’s total population (Hitting, 2013). There are multiple reasons why the region is seeing huge successes. Rising disposable incomes is a huge factor, increasing by 17,084 CNY (China Yuan Renminbi) from 2006 to 2014- the equivalent of nearly $2600 per capita (National Bureau of Statistics of China).Not only is the middle class growing at an unprecedented rate, it’s comprised of a younger crowd that’s seeing a cultural shift in parenting from traditional studies to educational playtime, which provides the toy industry with a huge opportunity (Iyer, 2015). One of the problems with toys in this region, however, is the presence of counterfeit toys. According to Euromonitor’s research analyst, Matthew Hudak, in order to succeed, companies have to build and maintain strong relationships with retailers in these countries and try their best to keep their designs as secret as possible. Traditional Toys and Games Value Sales Source: Euromonitor International Factor 1: Ability to successfully penetrate Asia-Pacific’s emerging markets Introduction Growth of Middle Class Datasource; (Ernst and Young, 2013) Figure #10 Figure #11 10
  16. 16. Introduction Companies Key Factors Conclusion Over the past 10 years, the toy industry in China has seen a dramatic growth rate, recording a 90% increase from 2008-2013. They prospered even in the global financial crisis of 2008-2009. China alone now accounts for 43.8% of Asia-Pacific’s toy market (Emerging Markets, 2014). China’s increase of their middle class provides explanation of the extreme rising of annual sales in the market. Their disposable incomes have been growing faster than their GDP which expands their middle class and allows more people to be able to afford toys and games (Gordon, 2013). Within ten years, the middle class is expected to grow by 430 million (The Wild, Wile East, 2015). Four years ago, China was only third in sales of traditional toys. Today, however, this developing market is dominating in sales and is rising to the top, growing at an annual rate of 7-8%. By 2017, China is expected to have a 27% global market share in traditional toys (Timms, 2014). China also has a large percentage of children in their population, with 16.5% coming from kids 15 years old or younger. This number continues to increase due to the end of the 35-year law stating that families could only have one child (World of Toys, 2015). This factor is expected to contribute to the growth of retail sales as well. According to the World Economic Forum, retail sales in China are expected to be around $6.5 trillion in 2020, showing a 50 percent growth rate in just five years. Their main retail channels are specialty children shops, supermarkets, and shopping centers, but they don’t have as many mass merchants as countries like the US does. Although Walmart and Toys-R-Us exist in China, small toy shops are much more prevalent. This could be a tough hurdle while discussing distribution from major toy companies like Mattel and Hasbro due to the lack of relationships with retailers in Asia. However, online retail is on the rise and young Chinese citizens are spending not only more money in a year, but are shopping with much more frequency because of this. Sales are on trend to grow from $600 billion to $1.6 trillion in 2020, creating yet another opportunity for toy companies to generate profits by expanding their websites and online presence in Asia. China: total income by band 2010-2020 (annual income, thousands of people) A Focus on Expansion to China The graph above explains the projected increase of Chinese people with incomes in the upper- middle class throughout the next five years. It shows that the number of people with incomes of $15-30 and $30-50 a day will increase dramatically in the span of 10 years, creating the middle class that is talked about on this page. Factor 1: Ability to successfully penetrate Asia-Pacific’s emerging markets Focus In China Source; (Ernst and Young, 2013)Figure #12 11
  17. 17. Introduction Companies Key Factors Conclusion India is considered to be the second most populated country in the world. Like China, their rising middle class is helping them significantly in the future of the toy industry. Since the number of people in their middle class is increasing, it’s providing toy companies with benefits in this developing market. India’s small organized toy market shows they have a large opportunity for growth in the future. Similar to China, India’s population contains a large portion of children. 20% of the global population is in the age group of 1 to 12 years old (site). India’s market is growing at a steady rate of 7% and expects inflation to remain low, showing a strong growth rate overtime. Although India’s middle class is not as big as China’s, it consists of around 50 million people, totaling 5% of their entire population. This is expected to grow steadily over the next decade, reaching 200 million in 2020 (“China and India”). India’s expected household income is also expected to increase, multiplying four times in two decades between 2005 and 2025 (McKinsey Global Institute). Because of the increase in annual household income, the percentage of those in the middle class will rise, increasing purchasing power overtime. India’s consumer markets have the potential to be strong driven by the middle class and the rise of income levels. India’s consumer market is expected to be the fifth largest consumer market in the world by 2030 (Singh, 2015). One major shortcoming for the two companies expanding to emerging markets is the currency problem. For example, according to Hasbro 2015 investment day presentation, the 2014 revenues of Hasbro were $369 million lower at current rates as the U.S currency continues to strengthen against multiple counties, such as the Euro, the Canadian Dollar, RNB, Russian Ruble, etc. Comparing with the average in 2014, the current spot is decreasing 17% for Euro, and 36% of Russian Ruble. A Focus on Expansion to India Potential Problems with Expansion Factor 1: Ability to successfully penetrate Asia-Pacific’s emerging markets Focus In India Problems Expanding Rating Factor Emerging Markets received a 45 percent because it was the most important key success factor. A company that can expand into developing countries and with efficient strategies can benefit their overall sales globally. A company can also build strong relationships and benefit from this in the future. China and India’s Dramatic Rise The graph above shows the average increase in percentage point share of global GDP per decade Datasource; (Fisher, 2012) Figure #13 12
  18. 18. Introduction Companies Key Factors Conclusion Progress on Expansion to India Factor 1: Evaluate The Companies China According to Mattel’s 2014 annual report, their international revenue accounted for 46% of global sales. Of that 46%, Asia-Pacific represented 15% and amounted to over $465 million in revenue. Asia-Pacific is an important emerging market for Mattel, with China accounting for nearly 5% of their current total sales with an expected growth rate of 80%. Mattel’s 2014 transcript shows they were speeding up the pace of growth in China by doubling their size of investment in China during 2016. Mattel also decided to expand its retail sales as the distribution infrastructure in China is extended deep into the hall country. One recently successful global project of Mattel focused on Hot Wheels. Hot Hot Wheels is now growing at an exceptional rate as they have gotten half of school age children in their market by moving into shops nearby schools. India Mattel has moved part of their product from China to Brazil and India. As manufacturescontinue to shift more to the east and away from the west, Companies like Mattel are reliant on their customers and retailers. In India, Barbie’s are being assembled and packaged on a small scale. An example of these packages is a pack of Uno Cards with Mattel’s name on the back. Mattel has a production facility in India which helps contribute to the localized market and its needs. Localized Barbie’s that are manufactured in India are also transported to the rest of the world. Mattel is taking globally-known products like Fisher-Price and Hot Wheels and alternating them to fit the local Indian market. Mattel is present at 80 to 90 towns in India while the work with wholesalers and business partners take them to different cities. Mattel Hasbro China Hasbro also realizes the great importance of the emerging market. Hasbro’s 2014 annual report shows that net revenues of Asia Pacific have increased 10% from the previous year. Recent data from Hasbro’s 2015 annual report shows a 16% increase from 2014. The annual report also shows that the net revenue of Russia, Brazil and China have increased 20% from 2013, making China a major part of Hasbro’s emerging market. According to Hasbro’s 2014 full presentation, the revenue of emerging markets is 16% of total revenue. Hasbro has made a retail expansion plan in emerging markets, especially China, as the disposable income in China is rapidly increasing-indicating that the Chinese will be able to afford to increase their consumption of toys. 13
  19. 19. Introduction Companies Key Factors Conclusion Progress on Expansion to India Factor 1: Evaluation of Companies India Hasbro is now moving some of their manufacturing to India. For example their transformer line, one of their most popular products, is now being produced in India instead of China. They have invested in several different factories in India. Hasbro has contracts in Indonesia, Turkey, Vietnam, and China and now have big plans to expand to India due to the growth of their middle class and increase of household income . China and India Because Jakks main distributors are Walmart, Target and Toys R Us, stores in Europe and Latin America are creating new pricing structures and centralized shipping. These stores are saving on shipping costs by opening more production facilities that ship from central warehouses located in China. Based on current market trends and conditions today, expanding to Europe and Latin America are subject to certain risks and uncertainties. With all of these factors in place, Jakks expanding into these emerging markets allows for the advancement of the company globally and reduces variable costs that connect with production. Jakks Pacific Hasbro (Continued) Mattel Raw Score: 2 Weighted Score: .09 Jakk’s Pacific Raw Score:1 Weighted Score: .45 Hasbro Raw Score:2 Weighted Score:.09 14
  20. 20. Factor 2: Expand to global markets and create strong brand recognition through licensing Introduction Companies Key Factors Conclusion % Growth of Licensing Licensing has a major impact on the toy market and drives the global sales on toys. Year after year we continue to see growth in the market penetration for license toy sales globally. Over the past year, about 31% ($5.7 billion) of toys sold on the market were from licensing agreements. Sales in the toy industry also grew 7% overall in 11 different global markets (Riley, 2015). The US is the birthplace of current entertainment trends that has expanded to the global market. American made movies and have a big effect on the sales of licensed toys throughout the world. The United States has the highest market penetration for licensed toys in the world, but half of the top 10 most heavily penetrated markets are from Pacific Asia(Tansel, 2015). From 2009-2014 every country in Asia Pacific gained an increase in percent sales of licensed toys sold, thus showing how important licensing is for success in the toy industry. Another reason that licensing is projected to keep growing steady globally is because countries in the Asia pacific are expected to have an increase in disposable income. (Tansel, 2016). This means that people in Asia pacific countries should have more money to spend and there is going to be an increase the middle class. Licensing a brand is very essential in order to expand brand recognition in current markets. A strong brand name is essential because it’s the way customers view your company. A brand name has the potential to make or break a business. (The Power of Brands, April 2015). Licensing is crucial to brand recognition because it demonstrates value and helps build a company’s reputation. In order to create a strong brand, it needs to be memorable (Why License?, 2016). In todays society social media can have a big impact on a companies reputation. As a result, companies must make sure that they satisfy the customer now more than ever. Driving Global Sales Building Customer Loyalty Datasource; (NPD Group, 2015) Figure #15 Figure #14 15
  21. 21. Factor 2: Expand to global markets and create strong brand recognition through licensing Introduction Companies Key Factors Conclusion Advertisement has a major impact on the number of licensed toys sold each year. Advertising enhances the awareness of the consumers about the products on the market because they’re based off movies and TV shows that are currently popular. Creating this exposure, licensed toys are in high demand among children. The advertisements catch the eyes of the children and then parents are having trouble saying no because they want to avoid guilt and want their children to fit in with others. With the impact of an economy crisis in past years, parents are now faced with buying toys for their children that they cannot afford otherwise. Asia-Pacific is one of the fastest growing regions in the world for licensed toy sales. The two countries in this region that make up for most of the sales are China and Japan. Japan leads the world in global licensed toy sales making about 1.7 billion in 2014. China didn’t fall far behind with about 1.4 billion in sales. Another reason that the Asia-Pacific region is on the rise is because many countries, including South Korea, Singapore and Indonesia, have over a 40% market penetration for licensed toy sales. This means that over 40% of the toys sold in these countries are licensed. On the other hand, China and Japan have very low percentage of penetration in the licensed toy market, falling below 20%. Even though the penetration percentage is low in Japan, they still make up 35% of the licensed toy sales among Asia Pacific countries. The US market has the highest penetration in toy sales in the world. The licensed toy industry has been on the rise over the past few years in the US. Last year the US experienced about a 7% growth in the sales of licensed toys. This is more than two times quicker than the growth of the rest of the toy market. The US is making tremendous growth in licensed toys, but so are many other countries. As of last year, the US was the sixth fastest growing country in terms of licensed toy sales. In the future the US expects to still see growth in licensed toy sales. Western Europe is currently the second largest licensed toy market in the world. From 2013-2014, four out of the 5 leading countries in licensed toy sales in Western Europe have had growth. Italy is has leading country for percent penetration in licensed toy sales in Western Europe. In 2014, about 31.8% of the toy sales in Italy were on licensed toys. Advertising Global Persepctive Rating Factor Licensing received a 35 percent, being the second most important key success factor. A company that connects with licenses can have a competitive advantage in the toy industry. As a company builds relationships with partners, this helps them to be recognized globally and expand their brand name. Source; (Euromoniter, 2015) Asia-Pacific Penetration of Licensed Toys vs. Annual Disposable Income Figure #16 16
  22. 22. Mattel has a tendency to maintain strong relationships with existing licensors. Mattel tends to be patient and sit back in the market of licensing because Hasbro has already established dominance in this segment of the toy industry. Over the past several years, Mattel has been decreasing in the number of licensed toy sales. (Global Licensing Trends, 2013). Mattel has instead been looking to capitalize on its global opportunities by growing their key brands like Barbie, Hot Wheels and American Girl. Mattel’s main source of licensing agreements is with third party companies . Mattel just lost current ties with the licensing of the Disney princess doll to their leading competitor, Hasbro. This will have a big impact on Mattel, decreasing the amount of sales and revenue Mattel will have over the next year. Hasbro is the top licensor in the world and achieves success by maintaining a strong brand value (Prezi, 2012).They have put efforts towards expanding its media and licensing efforts. (Global Licensing Trends, 2013). Hasbro has been making consistent growth since 2013 and have been leading in the sales of licensed toys over the past decade (Hasbro, 2015). They remain at the top by scanning the market looking for new trends among kids. Hasbro has been focusing more on the entertainment aspect of toys to capture the younger generations. Over the years, Hasbro has been taking over the production of licensed toys. Hasbro has recently made licensing agreements with Disney to start selling princess dolls, this includes the production of the doll from the movie “frozen”, which has had the most sales in the US and Globally. Hasbro has experienced tremendous growth in the expansion of licensed toy sales annually. Factor 2: Company Comparison Mattel Hasbro Jakks Pacific Factor 2: Evaluation of Companies Jakks is expanding and building strong brand awareness by continuing to grow licensed deals with their key franchises. Jakks knows how to acquire licensees cheaply and getting fast distribution to retail stores and have productive supply chains that do not have recalls. Jakks has award winning licenses from internationally known trademarks like Star Wars, Hello Kitty and Nickelodeon. Their traditional toys include licensed characters from Batman, Star Wars, Nintendo, Disney Princess and Fairies and Cabbage Patch Kids(Jakks Company Profile, 2015). Jakks has recently reached a new license agreement around the release of Batman v Superman and is projected to deliver strong sales for Jakks in the next year. This new agreements includes domestic and international opportunities for the full DC Comics and will yield a number of great products for kids and collectors. Hasbro Raw Score:4 Weighted Score:1.4 Mattel Raw Score: 3 Weighted Score: 1.05 Jakk’s Pacific Raw Score:2 Weighted Score: .7 Introduction Companies Key Factors Conclusion 17
  23. 23. Introduction Companies Key Factors Conclusion When asked about Lego’s success over the past 20 years, CEO Jorgen Vig Knudstorp explains, “It’s about discovering what’s obviously Lego, but has never been seen before.” Just 20 years ago, in the late 1990’s, Lego Group was on the verge of bankruptcy as Legos were becoming old fashioned and overshadowed by the fast growing popularity of the internet and electronics. They began to panic and tried everything they could to save Lego, even though they knew little about many of their ventures, like the Legoland theme parks. When dramatically increasing their product depth and creating theme parks all over the world didn’t seem to work, they knew it was time to step back and think for a minute. They had to look at the history of Lego and figure out where to go in the future, or what a modern Lego should look like. They began by investing in trend and ethnographic research to figure out what kids played with and what they actually wanted. Twenty years later, claiming the spot of the number one toy company in the world, Lego has innovation down to a science. By focusing on what they’re good at and looking at the research done by the Future Lab, Legos secretive R&D team, they’ve been able to pay more attention to customer relationships and focus on incorporating technologically advanced play experiences resulting in global success. Innovation can come in many different forms. It doesn’t have to involve high-risk, high-reward projects- in fact, Lego’s low-risk, high-reward method of innovating original ideas has been more successful than the industry has ever seen. Lego’s innovation strategies led to global success The problem with innovation is the difficulty of finding a happy medium between “inside-the- box” and “outside-the-box”. Mattel, for example, has tried both extremes and has seen profits decrease due to the failure of their attempts. For years, Mattel was caught up on the traditional image of Barbie and American Girl, and perhaps still is to some extent. They never really tried to change the image or ideals of their historically successful products and began to become overshadowed by substitutes that were successfully innovating. They also tried the other extreme, innovating outside- the-box. They opened a standalone store in Shanghai that offered Barbie wedding dresses, designer jeans, furniture, and expensive handbags in hope of gaining popularity in China. However, the store was shut down in just two years due to lack of interest and sales. The problem with this store was the lack of historic presence of Barbie in the culture. No one saw value in $150 Barbie jeans when there was no brand context or value. Net Profit of the Lego Group from 2010-2014 (in millions) Lego's Innovation Strategy Factor 3: Ability to innovate around the box and engage consumers through customer feedback and cross-over toys Datasource; (Statista, 2014)Figure #17 18
  24. 24. In the past 5-10 years, there has been an obvious shift from traditional toys to handheld technology and wireless communication. In the US alone, 59% of children from the ages of 2-12 own a tablet and 71% own a smartphone (Tomorrow’s Toys, 2014). In the past, the toy industry has suffered because of this new innovative technology sparking the interest of millions of kids worldwide. However, there is now an entirely different market opportunity where toys and technology combine. In the past, toy companies tried to fight and compete with the electronic industry, but the growth and development of technology is hard to beat. Companies are realizing the impact these toys can have due to the fact that kids are growing up with technology and have already learned different technological skills at a very early age (Goldman, 2014). This is one of the fastest growing markets in the US, Asia, and Europe as companies are coming up with new ideas to succeed in this field (Study on the Competitiveness, 2013). Adapting to this new market early will allow huge successes in the industry. The recent success story, Lego, credits its comeback largely to a product called Lego Mindstorms. The concept behind this product is incorporating technology by equipping Lego bricks with sensors that allow movement and provide interaction. Not only did this work for kids, it sparked the interest of millions of adults wanting to design and interact with their own moveable robot or creation. Introduction Companies Key Factors Conclusion Growth of the Global Smart Toy Market Figure 18 above shows the rapid global incline of a new “smart toy” market. The estimated growth from 2013 to 2018 is around $7 billion showing no slowing or maturing in the near future. Datasource: (Smart Toys, 2014) New “Smart Toy” Market Emerging The Shift to Electronics The industry is calling this new category “cross- over” toys. It incorporates traditional toys like building blocks and board games, but now includes the element of interactive technology. These cross-over toys create an entirely new interaction between the toy and the consumer, encouraging the collaboration between these two mediums. They have, thankfully, seen a recent increase in value and support from consumers after releasing a viral video introducing three new body types for Barbie. After trying to defend her classic image for so many years, Mattel finally listened to consumers and created a line with seven different skin tones, 22 eye colors, and 24 unique hairstyles, representing many different ethnicities and cultures. Only then did they see an increase in stock and positive press for the first time in years- all because they decided it was time to listen to what people wanted and innovate a classic. Shift to Electronics New "Smart" Toy Emerging Factor 3: Ability to innovate around the box and engage consumers through customer feedback and cross-over toys Figure #18 19
  25. 25. Factor 3: Ability to innovate around the box and engage consumers through customer feedback and cross-over toys Datasource; (Gottlieb, 2014) Introduction Companies Key Factors Conclusion Even in a global context, as middle classes grow and disposable income rises, the demand for traditional toys will decrease as they look towards innovative electronic toys that provide collaboration and interaction with the consumer. Companies should look to Lego for inspiration in innovation and recognize that before they could become a global success again, they had to take it back to the basics and listen to the needs of consumers around the world. Lego also discovered that kids aren’t making distinctions between digital and physical play anymore. Their R&D department is calling it “One Reality”, and are focusing on creating physical play experiences that correlate with technological aspects on a phone or tablet. Lego already has over 20 apps on Apple’s app store and expects to add a few more in the coming years that allow physical blocks and technology to come together. Although Mattel’s stock has been disappointing throughout the last few years, they recently saw a 14% increase and hit a 14-month high. This is credited largely to the unexpected success of their fourth quarter earnings. A big part of Mattel’s Christmas sales this season came from “Hello Barbie”, a talking Siri-like doll that interacts with kids. Mattel can’t even be credited with coming up with the idea, however. It was their customers that had to beg for years to be able to talk to Barbie that finally inspired Mattel to make the doll. Although there was security speculation, Hello Barbie pulled through and saw amazing sales- showing that kids want their favorite, classic toys in a new way that incorporates interaction and technology. This theory also proves true while looking at the list of “Top 10 Toys for Christmas 2015”. Products like the LeapPad Platinum, a responsive Siri-like Elmo doll, and Vtech’s kids smartwatch topped the charts. Eight out of ten products incorporated technology and are considered cross-over toys (Top Toys for Christmas, 2015). By innovating “around-the-box” and recognizing the needs of consumers, toy companies can become successful again without the high risk, creating new adaptations of classic toys and and experimenting in the field of cross-over toys. Rating Factor Innovation received a 30 percent, being the third most important. A company that adapts to social changes can take the lead in the market and be number one company. Research shown that innovation is a need for a company in order to strive. Innovating is a need, so therefore this was the final key success factor, although innovating products is important to a firm because it helps them keep their popular brand names alive. Figure #19 20
  26. 26. Introduction Companies Key Factors Conclusion Mattel’s decrease of sales in the past few years is credited to many things, one being lack of innovation and success in the cross-over toy industry. Mattel has a hard time getting away from its classic brands like Barbie and Fisher-Price to adapt to a new market of kids that want apps and electronics. In 1999, they purchased The Learning Company for $3.6 billion in hopes to keep up with technology, but it failed horribly and they sold it for just $27 million the next year. In 2012, Mattel released “Apptivity”, a series of apps and physical toys that could interact with each other. Although it has seen some success, they had to get rid of many of the different games due to lack of sales. Mattel has a very connected distributor network but there seems to be a lack of inspiration and innovation within the company, there is hope to turn this around in coming years with the recent hiring of a new executive team. Mattel Hasbro Jakks Pacific Factor 3: Evaluation of Companies In the past few years Hasbro has produced many new toys that adapt to the new trends. One being cross-over toys. Hasbro was successful when they brought back their retro toy, Furby. In 2013, it was many countries most popular toy. Mattel has not fully mastered thinking around the box with innovation. They are doing significantly better than Mattel though. As they continue to innovate many of their well known products like monopoly, My Little Pony, and Nerf, they have not mastered it like Lego. They are thought around the box, but it has not got them as far as Lego. Jakks has always been focused on having technology driven products and many other companies are following suit. Jakks was the first company to provide plug-and-play TV games. Simply plug the game into the TV, turn on the sensor bar and begin playing. Such as games like Pac-Man or Class Arcade Pinball TV games (Jakks TV Games, 2004). By coming out with the ‘throwback games,’ Jakks target market for this segment of products was for middle aged gamers because they grew up playing those games. Jakks plans to introduce a product line that will combine the ID recognition technology to make TV games with exciting new content, leaving consumers with a memorable and entertaining experience and having a creative blend of the physical world and the virtual world. Hasbro Raw Score: 2.5 Weighted Score: 1 Mattel Raw Score: 1.5 Weighted Score: .3 Jakk’s Pacific Raw Score: 1 Weighted Score: .2 21
  27. 27. Introduction Companies Key Factors Conclusion Recommendations Mattel has held the spot of the number one toy company in the world for years, however that position is starting to slip away from them as they fall behind in major key categories. Although they have made some progress with emerging markets and cross-over toys, they must advance their innovation strategies as well as their licensing strategies to remain competitive in this industry. Therefore, three suggestions for Mattel at this point are as follows: In order to explore emerging markets, Mattel should focus on the three areas. The first one is actively building domestic sales channels because it’s not enough for Mattel to just outsource their manufacturing to China. They also need to continue to cooperation with traditional retailers and the e-commerce platform. According to Mattel’s 2014 annual report, the three largest customers for Mattel are Wal-Mart at $1 billion, Toy “R” Us at $0.6 billion, and Target at $0.5 billion. These retailers are gaining global traction and are expanding rapidly, with Wal-Mart now owning 433 physical stores in China (Wal-Mart China Factsheet, 2016). Toys “R” Us is experiencing similar growth, according to their press release on January 16, 2016. Last month, they opened their 100th successful store in China. Another major sales channel that Mattel needs to explore is the growing E-commerce platform. From 2010 to 2016, online trade revenue for toys in China increased over $2 billion. The leading B2C e- commerce platforms companies in China in 2014 are Tmall.com at 61.4%, JD.com at 18.6% and Sunning.com at 3.2%. The gross merchandise volume of China’s online shopping market is estimated to grow to $682 billion in 2018 which should enable Mattel to dramatically increase their sales if they form relationships and cooperate with those major Chinese B2C e- commerce companies. The second issue Mattel needs to address deals with currency. With the U.S Federal raising interest rates, the currency issue is going to get more serious (I. Talley, 2015). The issue is that the U.S dollar is facing appreciation but other countries are facing currency devaluation. To deal with it, Mattel could raise the retail price of their products they sell in emerging markets. By doing this, revenue might increase with the rise in sales price, which could potentially alleviate some currency issues. The last issue Mattel needs to think about is the localization of their products, or in other words, designing a toy that meets with the traditional Chinese culture. Two examples of companies that successfully localized are McDonald's and Kentucky Fried Chicken. KFC’s menu is much different in China, offering some traditional food in their restaurant like the Chinese gruel. Creating localized toys that flatter Chinese traditional culture should attract local consumption of toys and and help to increase their brand recognition and sales. 1. Emerging Markets Introduction 22
  28. 28. Introduction Companies Key Factors Conclusion Recommendations 3. Innovation2. Licensing 23 Over the past several years, Mattel has been losing the battle for licensing in the toy industry. Just recently Mattel lost the licensing of the Disney princess doll, that made them about $500 million annually. This was able to give Hasbro even more of a competitive advantage than they already had, in the licensed toy segment of the market. Even though Mattel still makes more revenue than Hasbro it is recommended that Mattel merge with Hasbro because in 2014, Mattel’s revenue decreased by 7%, and Hasbro’s went up by 4.8%. This shows that licensed toy sales have a huge impact on the toy market today. By merging, it would also eliminate the competition and make the toy industry have even higher barriers of entry. In order for Mattel to remain competitive, they must invest in more R&D to look at the needs and wants of consumers as well as take time to get back to what they’re good at. They have seen some recent success with the launch of their new Barbie line, consisting of seven different skin types, four different body types, and dozens of different hair types and eye colors. They also gained some positive feedback from kids with their Hello Barbie doll, an interactive Barbie that could talk back and forth to children. However, there were security speculations and controversy over the Siri-like doll and many parents were turned away. Mattel needs to invest in more R&D to look at the needs and wants of consumers and needs to step back and determine what brands to focus on, taking them back to the basics in in innovative way. Emerging Markets Licensing Innovation
  29. 29. Introduction References Allen, K. (2015, September 30). The hottest new start-up ... makes toy cars. Retrieved February 14, 2016, from http://www.cnbc.com/2015/09/30/the-future-of-kids-play-is3-d-printing.html Are Kids Getting Older, Younger? (2013, January 12). Retrieved February 08, 2016, from https://blog.cruxresearch.com/2013/01/12/are-kids-getting-older-younger/ Backman, M. (2014, September 25). Disney Princess Ditch Mattel, Runaway with Hasbro. Retrieved February 5, 2016, from http://money.cnn.com/2014/09/25/news/hasbro-frozen-disney/ Bourque, A. (2014, December 24). Is Your Business Ready for the World's Emerging Middle Class? Retrieved February 08, 2016, from http://www.huffingtonpost.com/andre-bourque/is-your-business- ready-fo_b_6376056.html Buck, E. (2014, June 24). Is JAKKS Pacific Staging a Comeback? -- The Motley Fool. Retrieved from http://www.fool.com/investing/general/2014/06/24/is-jakks-pacific-staging-a-comeback.aspx Cap linger, D. (2014, October). Hasbro Inc. Wins the Growth Battle; Game Over for Mattel? -- The Motley Fool. Retrieved from http://www.fool.com/investing/general/2014/10/20/hasbro-inc-wins- the-growth-battle-game-over-for-ma.aspx Charron, D. (2008, November). Toy Advertising Under Fire. Retrieved from http://www.foxnews.com/story/2008/11/29/in-lean-economic-times-toy-advertising-under-fire.html Children's products - number of units recalled in the U.S. 2014. (n.d.). Retrieved from Statista. Cioletti, A. (2012). GLOBAL TOY TRENDS. License! Global, 15(6), 32-33. Retrieved January 24, 2016 from Business Source Complete. Colette, A. (2015, February). Toy Time. Retrieved January 22, 2016 from Business Source Complete Content-Related Toy Sales Driven by Star Wars Among Top Reasons for Industry Growth (2016, January 20). https://www.npd.com/wps/portal/npd/us/news/press-releases/2016/stellar- performance-for-us-toy-industry-growing-nearly-7-percent-in-2015/ . Retrieved from the NPD Group. Corporate Overview. (2015). Retrieved from http://www.jakks.com/corporate-overview.html Davis, N. (2014, December). Tomorrow's Toys, Today. Retrieved from Business Source Complete. Emerging Markets Hold the Key for Further Success in Toys and Games. (2014, February 18). Retrieved from http://www.tradegood.com/en/insights/viewpoints/market-features/emerging-markets-hold- the-key-for-further-success-in-toys-and-games.html 24
  30. 30. References Ernst and Young. (2013, April 25). By 2030 two-thirds of global middle class will be in Asia-Pacific [Press release]. Retrieved February 6, 2016, from http://www.ey.com/GL/en/Newsroom/News- releases/News_By-2030-two-thirds-of-global-middle-class-will-be-in-Asia-PacificIntroduction Erlich, N. (2008, April 28). Toy Industry Plays It Safe With Green. Retrieved January 26, 2016, from http://www.cnbc.com/id/24112162 Fickenscher, L. (2015, October 4). Can Mattel Save Barbie. Retrieved February 5, 2016, from http://nypost.com/2015/10/04/mattels- http://www.economist.com/news/special-report/21663328- booming-middle-class-creating-worlds-most-dynamic-consumer-market-wild-wildhigh-tech-attempt- to-save-barbie-this-christmas/ Fisher, M. (2012, December 11). The coming realignment of world powers, foretold in charts. Retrieved February 09, 2016, from https://www.washingtonpost.com/news/worldviews/wp/2012/12/11/the- coming-rise-and-decline-of-world-powers-foretold-in-charts/ Fowler, P. M. (n.d.). Advantages & Disadvantages of Licensing the Rights to the Company's Production Process. Retrieved February 14, 2016, from http://smallbusiness.chron.com/advantages-disadvantages- licensing-rights-companys-production-process-15460.html Global PEST Analysis for Toys and Games Industry over 2011-2015. (2011, November 15). Retrieved January 17, 2016, from http://www.portal.euromonitor.com.proxy.library.ohiou.edu/portal/analysis/tab Global Toys & Games. (2015). Toys & Games Industry Profile: Global, 1-31. Retrieved on January 25, 2016 from Business Source Complete Goldman, K. M. (2014). Spot Hot Toy Trends. Retail Merchandiser, 54(1), 18-19. Retrieved January 24, 2016 from Business Source Complete. Gordon, L. (2012, July 12). Asia Pacific Set to Become the Biggest Traditional Toys and Games Market. Retrieved February 08, 2016, from http://blog.euromonitor.com/2012/07/asia-pacific-set-to-become- the-biggest-traditional-toys-and-games-market.html Gross merchandise volume (GMV) of China's online shopping market from 2007 to 2018 (in billion yuan) (n.d.) Retrieved from Statista. Guzzi, L. (2015). Innovation: How Do We Revitalize the Toy Industry? Retrieved from https://www.linkedin.com/pulse/innovation-how-do-we-revitalize-toy-industry-laura- guzzi?forceNoSplash=true Haider, Z.(2015, May). Toy, Doll & Game Manufacturing in the US. Retrieved from Ibis World Hasbro 2014 Annual Report. (2015). Retrieved from SEC database. 25
  31. 31. References Hasbro Is Set For A Strong Return. (2015, October 27). Retrieved February 14, 2016, from http://seekingalpha.com/article/3607416-hasbro-set-strong-return Hasbro . (n.d.). Hasbro net revenue from 2006 to 2014 (in million U.S. dollars)*. In Statista - The Statistics Portal. Retrieved February 15, 2016, from http://www.statista.com/statistics/198710/net- revenues-of-hasbro-since-2006/. Hitting the Sweet Spot. (2013). Retrieved February 08, 2016, from http://www.ey.com/GL/en/Issues/Driving-growth/Middle-class-growth-in-emerging-markets In Celebration Of The Release Of The Little Mermaid Diamond Edition On Blu-ray™,. (2013, October 14). Issue Brief Environment Sustainability. (2015, November). Retrieved January 26, 2016, from http://www.toyassociation.org/app_themes/tia/pdfs/priorities/issuebriefs/environment.pdf Johnson, E. (2001, April). Learning From Toys. Retrieved January 26, 2015, from Business Source Complete JAKKS PACIFIC 2014 Annual Report. (2015). Retrieved from SEC database. JAKKS Pacific Inc Company Profile. (2015). Retrieved from http://www.reuters.com/finance/stocks/companyProfile?symbol=JAKK.O JAKKS Pacific Partners with Best-in-Class Brands to Launch miWorld™ Toy Line Enhanced with Revolutionary New iD™ Recognition Technology. (2013, November 13). Retrieved from http://www.reuters.com/article/ca-jakks-pacific-idUSnBw135488a 100 BSW20131113 JAKKS Pacific revenue 2006-2014. (2016). Retrieved from http://www.statista.com/statistics/200869/net-sales-of-toys-manufacturer-jakks-pacific/ Jakks TV Games - IGN. (2004, June). Retrieved from http://www.ign.com/articles/2004/06/29/jakks-tv- games Jennings, D. (2014, October 10). Jakks Pacific: Is It A Bargain In The Toy Box? Retrieved from http://seekingalpha.com/article/2552625-jakks-pacific-is-it-a-bargain-in-the-toy-box www.parents.com/fun/entertainment/the-future-of-play/ Kalogeropoulos, D. (2015, July). Why JAKKS Pacific Inc. Stock Soared 33% in June. Retrieved from http://www.fool.com/investing/general/2015/07/07/why-jakks-pacific-incs-stock-soared-35-in- june.aspx 26
  32. 32. References Komando, K. (2015, December 22). Why You Should Say Goodbye to Hello Barbie. Retrieved February 29, 2016, from http://www.usatoday.com/story/tech/columnist/komando/2015/12/22/hello-barbie- hack-kim-komando/77636502/# LEGO. (n.d.). Net profit of the LEGO Group from 2009 to 2014 (in million euros)*. In Statista - The Statistics Portal. Retrieved February 15, 2016, from http://www.statista.com/statistics/292305/lego- group-net-profit/. Lipson, A. (2015, October). Character Merchandising. Retrieved January 13, 2016, from Mintel Marcus, R. (2006, December 24). Blame it on KGOY (Kids Getting Older Younger), but toys are passe. Retrieved February 08, 2016, from http://www.post-gazette.com/opinion/Op-Ed/2006/12/24/Blame- it-on-KGOY-Kids-Getting-Older-Younger-but-toys-are-passe/stories/200612240253 Market share of B2C online shopping websites in China in 2014 (n.d) Retrieved from Statista. McCann, I. H. (2013). Toy Licensing. Licensing Journal, 33(1), 32-35. Retrieved January 24,2016 from Business Source Complete. Miller, L. (2009, July). The House That JAKKS Built. Retrieved from http://www.toydirectory.com/monthly/print-article.asp?id=3825 www.theatlantic.com/business/archive/2014/12/toys-are-more-divided-by-gender-now-than-they- were-50-years-ago/383556/ Muller, L. (2014, June 13). Toy Licenses: How Important Are They? Retrieved February 14, 2016, from http://www.nasdaq.com/article/toy-licenses-how-important-are-they-cm361694 Mustafi, S. (2013, May 13). India’s Middle Class: Growth Engine or Loose Wheel? Retrieved February 7, 2016, from http://india.blogs.nytimes.com/2013/05/13/indias-middle-class-growth-engine-or-loose- wheel/?_r=0 News Intangible Business. (2013, April). Retrieved February 14, 2016, from http://www.intangiblebusiness.com/news/marketing/2013/04/the-power-of-brands-understanding- royalty-rates Newswire . (2015, July 6). Retrieved February 14, 2016, from http://www.nielsen.com/us/en/insights/news/2015/understanding-the-power-of-a-brand-name.html Online trade revenue in China in 2010 and 2016, by product group (in billion yuan). Retrieved January 25, 2016 from Statista. 27
  33. 33. Pathk, S. (2013, December). Competition From Everywhere Has Hasbro , Mattel in Toyland Showdown. Retrieved from http://adage.com/article/news/tech-competition-mattel-hasbro-tug-o- war-top/245477/ Raugust, K. (2005). Technology Is Top Trend at Toy Fair. Publishers Weekly, 252(9), 16. Rehtmeyer, C. (2001, February). Retrieved on January 26, 2016, from Business Source Complete Richardson, L. (2014, March). The Future of Play: How Technology Is Changing the Way Kids Play. Retrieved January 26, 2016, from http://www.parents.com/fun/entertainment/the-future-of-play/ Riley, D. (2015, November). Global Toy Sales Rise. Retrieved from https://www.npd.com/wps/portal/npd/us/news/press-releases/2015/global-toy-sales-rise-7- percent-heading-into-the-holiday-season-npd-group-reports/ Riley, D. (2015, January). Retail Sales. Retrieved from https://www.npd.com/wps/portal/npd/us/news/press-releases/2015/us-toy-industry-retail-sales- for-2014/ Ro, S. (2015, May 11). LEGO is more profitable than Mattel Hasbro combined. Retrieved from http://www.businessinsider.com/lego-more-profitable-than-mattel-hasbro-combined-2015-5 Sax, B2015, October Evolving MGA. 22 Business Source Complete Shaftoe, R. (n.d.). Industry Analysis of Toys. Retrieved February 14, 2016, from http://smallbusiness.chron.com/industry-analysis-toys-77091.html Sharma, S. (2015, February 09). Toymaker Hasbro to further close gap with Mattel in 2015. Retrieved February 14, 2016, from http://www.reuters.com/article/us-hasbro-results- idUSKBN0LD16N20150210 Singh, A. (2015, October 13). India to become world's 5th largest consumer market by 2030. Retreived from Businessinsider.com Study on the Competitiveness of the Toy Industry (Rep.). (2013, August 30). Retrieved January 24, 2016, from ECSIP Consortium website. Sweet, E. (2014, December ). Toys Are More Divided by Gender Now Than They Were 50 Years Ago. Retrieved from http://www.theatlantic.com/business/archive/2014/12/toys-are-more-divided-by- gender-now-than-they-were-50-years-ago/383556/ Talley, I. (2015, December 16 ). Emerging Markets Face Rate-Increase Pressures. Retrieved February 2, 2016, from http://www.wsj.com/articles/emerging-markets-gird-for-fed-rate-increase- 1450261800 References 28
  34. 34. Tansel, U. (2015, November 15). Asia Pacific: World's Most Heavily Licensed Toys Market. Retrieved January 26, 2016, from http://blog.euromonitor.com/2015/11/asia-pacific-worlds-most-heavily- licensed-toys-market.html Tansel, U. ( 2016, January 28). Asia's Key Position in Toys Licensing. Retrieved February 14, 2016, from http://blog.euromonitor.com/2016/01/hong-kong-toys-gameslicensing-fair-reaffirms-asias-key- position-in-toys-licensing.html Tansel, U. (2016, January 25). Global Toy News. Retrieved February 14, 2016, from http://www.globaltoynews.com/licensing/ Taylor, C. (2015, December). Toy Story. Retrieved January 22, 2016 from Business Source Complete The wild, wild east. (2015, September 12). Retrieved from http://www.economist.com/news/special- report/21663328-booming-middle-class-creating-worlds-most-dynamic-consumer-market-wild-wild Timms, M. (2014, June 5). China’s toy market blazes ahead while others scramble to keep up. Retrieved from http://www.businessdestinations.com/move/chinas-toy-market-blazes-ahead-while- others-scramble-to-keep-up/ TOMORROW'S TOYS , TODAY. (2014). License! Global, 17(6), 50-54. Retrieved on January 13, 2016 from Business Source Complete. Top Toy Trends of 2015. (2015, February, 15 ). Retrieved from Toy Industry Association. Toy Industry Association. (n.d.). Total revenue of the global toy market from 2007 to 2012 (in billion U.S. dollars). In Statista - The Statistics Portal. Retrieved February 06, 2016, from Statista. Toy Industry - Statistics and Facts. (2012). Retrieved January 25, 2016, from Statista. Toys “R” Us Opens its 100th Store in China. (2016, January 18). Retrieved February 5, 2016, from http://www.toysrusinc.com/press-room/releases/general/2016/toysrus-opens-its-100th-store-in- china/ TV Games. (2014). Retrieved from http://www.jakks.com/tv-games.html Wal-Mart China Fact Sheet. (2015). Retrieved February 14, 2016, from http://www.wal- martchina.com/english/walmart/ Why License? (n.d.). Retrieved February 14, 2016, from http://www.licensing.org/education/intro-to- licensing/why-license/ World of Toys: Asian toy market, China, Japan, Hong Kong. (2015). Retrieved February 08, 2016, from http://www.world-of-toys.org/asia-pacific/toy-market-asia-pacific/ References 29
  35. 35. Appendix A: Industry Analysis Industry Overview The toy industry is defined as a series of categories that include building sets, arts and crafts, action figures, dolls, puzzles, outdoor and sports toys, vehicles, preschool toys, plush toys, and action role play toys. Youth electronics is also a rapidly growing category (Toys Market Research, n.d.). The toy industry has a substantial amount of impact on the global economy, amounting to over $84 billion in revenue in 2014 (Toy Industry, n.d.). The industry is largely concentrated in the United States, China, Japan, and Europe with the United States currently holding around 24% of the world’s toy market and together with Japan, is home to over 50% of the top 100 toy companies in the world (Study of the Competitiveness, 2013). Global Toy Market Share This is due mainly to the rising middle class in China and the increase of the growth rate per capita in annual disposable income (Tansel, 2016). According to studies done by Ernst and Young, Europe’s share of the middle class is projected to decrease by almost 15% and two- thirds of the global middle class will be from the Asia-Pacific region by 2030. This will have a huge impact on the toy industry and companies will have to restructure their global market plans to accommodate to Asia’s growing consumer base. When discussing International growth and revenue, the toy industry has an average growth rate from 5-8%, well above the global rate of inflation. (Positive Mid-Year, n.d.). It’s interesting because as a global market, research proves the toy industry to be virtually “recession-proof”, or “crises-proof”. Even through the stock crash and the peak of the recession in 2009-2010, global toy sales rose 2.4% from 2008-2009 and rose even more, 3.7%, during 2009-2010 proving the industry’s ability to remain steady in times of turmoil and economic depression (Toy Industry, n.d.). Datasource; (Study of the Competitiveness, 2013) In Europe and the US, the traditional toys and games market has a slow to moderate growth rate. However, in China and other countries around the world, growth rates are strong and show a large potential increase. The Asia-Pacific region is the only location that provided Mattel with steady growth from 2009-2014 (Mattel, 2015). Total revenue of the global toy market from 2007 to 2012 Datasource; (Statista, 2016) Industry Overview Industry Breakdown Figure #20 Figure #21 30 Global Market Share
  36. 36. Appendix A: Industry Analysis Retail Channel Segments Top Retail Channels- U.S.Top Retail Channels- Europe The channels in which toys are sold throughout the world differ greatly from country to country. For example, in the United States, the largest retail channel category is “Mass Merchants”. This includes stores like Walmart, Toys-R-Us, and Target. However, in Europe, that category is minimal. Their biggest retail channel is “Toy Specialists”, which includes small specialty stores usually owned by families or small companies. Asia is much like Europe in the fact that big box stores are not nearly as popular as they are in the U.S. Large companies like Mattel and Hasbro rely on mass merchants for an average of 35-45% of worldwide sales, something they must take into consideration when looking at expanding to new emerging markets (Mattel, 2015). The two graphs below show percentages of retail channels in both the US and Europe. Because consumers in the toy industry are relatively cost sensitive and there are low barriers to entry, competition is high and cost reduction plays a big part in the financial success of a company. The biggest reason why so many companies outsource production and manufacturing is to save on cost. Figure ??? above shows the process of the toy value chain from raw materials to retail stores. Most larger companies like Mattel, Hasbro, and Jakks use different third-party manufacturing facilities in Canada, China, Indonesia, Malaysia, Mexico, and Thailand, with the majority of their facilities still located in China (Mattel, 2015). By spreading out their facilities to different countries, they reduce the risk of problems arising from political, civil, and economic changes in certain areas that would affect their manufacturing capabilities (Refer to PESTLE Analysis). Oil Refining Chemicals Plastics Paints and coatings Plastic Toys Chemicals Textiles and fabrics Plush Toys Transport Wholesale Toy Retail Paints and coatings Wood and wood products Wooden Toys Toy Industry Value Chain Datasource; (Study on the Competitiveness, 2013) Retail Channel Segments Figure #22 Figure #23 Figure #24 31
  37. 37. Appendix A: Industry Analysis The toy industry is largely dominated by a few key players: Mattel, Hasbro, Lego, JAKKS, and Bandai Namco all have a strong global presence and are known for international success. Lego is a private Danish-based company that focuses on building blocks. Their recent block buster movie, “The Lego Movie” helped them become the market leader for the very first time. Mattel and Hasbro are worth over $9 billion in the stock market, yet they don’t begin to compare to Lego’s profitability. Although they struggled in the past and were on the verge of bankruptcy in 2004, Lego now generates more EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) than Mattel and Hasbro combined (Ro, 2015). Mattel is a U.S. based company that prides itself on focusing in a variety of different areas including dolls, vehicles and track sets, building blocks, and infant toys (Mattel, 2015). Due to the recent loss of the Disney Princess line and the declining sales of Barbie, Mattel is struggling to keep up with competitors. Hasbro is also a U.S based company that focuses on toys through storytelling, including television and movies, digital gaming, and licensing (Hasbro, 2014). Their recent licensing deal with Star Wars and the taking over of the Disney Princess line from Mattel has led to large profit increases and success. Bandai Namco is a Japanese company that focuses on entertainment products including toys, network content, home video games software, and arcade games (Bandai Namco, 2015). They have a strong International presence with most of their successes coming from the Asia-Pacific region. Lastly, Jakks focuses mainly on traditional toys, electronics, role play toys, and seasonal toys (Jakks’s Pacific, 2015). Although much smaller than the others, they have successful license deals with WWE and sell many action figure- based toys. The toy industry is highly competitive due to its low barriers to entry and ability to easily outsource manufacturing (Refer to PESTLE Analysis). With a small amount of start-up and a good idea, anyone can break into the industry and become a large competitor. Industry Competition Industry Competition Figure #25 32 Figure #26 Figure #27 Source; (Study on the Competitiveness, 2013)
  38. 38. Appendix A: Industry Analysis The toy industry has seen a strong performance recently, generating $19.4 billion in the US alone. According to recent reports by the NPD Group, toy sales grew an astounding 6.7% in 2015 (Content-Related Toy Sales, 2016). Companies are now taking into consideration the growth of the middle class in emerging markets and are drawing up plans to penetrate these regions. Europe and the US will no longer be the biggest economic target for revenue, but rather China, India, and other Asia-Pacific regions. By 2030, they will become the biggest middle class in the world (Bourque, 2014). As for needs and trends in the industry, two big consumer needs right now are satisfying tech savvy kids and a more mature generation, and incorporating educational toys that inspire creativity in kids. In 2014, both construction toys and arts and crafts categories grew by 13% and 3% respectively, showing that kids are now interested in designing, building, and inventing toys of their own (Top Toy Trends of 2015, 2015). To summarize, the global toy industry has recently been on the rise and is expected to have big international growth rates in the coming years, mainly due to emerging markets. There are a few trends within the industry that a firm must recognize including the shift of traditional toys to a traditional-technological mix, named cross over toys, and the importance of licensing to increase sales globally. In order for a company to be successful they must optimize these trends. According to Wohlers Associates, the 3-D printing market is expected to quadruple in size over the next five years on a global scale and will have a big impact on the toy industry (Allen, 2015). This connects with advancements in technology and will force companies to start thinking out of the box. Traditional toys may become a thing of the past and a new target market of tech-savvy kids is on the rise. The last big trend to discuss is licensing relationships with large entertainment companies like Disney. Licensing is worth Global Power Index Source; (Fisher, 2012) Current and Future Market Overview of Analysis Figure #28 33
  39. 39. Appendix B: PESTLE Analysis Political Social Technology Legal Environment Currently, around 75% of the toys in the world are made in China. However, many countries have started putting regulations and safety guidelines on toys. If countries were to put import barriers on Chinese toys, it would have a big political impact on the toy industry. Another political/economic factor is the currency rate. The USD is continuing to strengthen against multiple countries including Europe, Canada, Russia, etc. which creates a loss of revenue when converting profits across global borders. One of the biggest variables of the social segment in the toy industry is licensing. Companies license over one third of toys sold on the market. The toys that are being licensed are based on new popular movies, TV shows and apps amongst kids. Licensing has been popular since the early 2000’s and is still growing. The Asia pacific region of the world is the leader in licensing of toys. 5 out of the top 10 leading countries in licensing are from the Asia pacific region of the map showing that they have the most power in the toy industry. The toy industry had approximately $84 billion total annual economic impact on the economy in 2015. Oil prices have one of the biggest economic impacts on the toy industry and are constantly changing, making the price of producing a toy change very often. There are many factors that can have an influence on the price of oil, like natural disasters or the stability of the Asia Pacific countries. If countries in the Asia Pacific are unstable, the price of oil will be increased because they have the power in the market. Technology is a key variable when talking about the toy industry. Since the release of computers and the Internet, technology has nearly doubled in growth about every other year. With this, toy manufacturers must be able to adapt to change quickly. In today’s day and age, children move on from traditional toys and start using electronics at about the age of 10. Many toy companies are trying to recreate old games and develop them with new technology to grasp the attention of children. Political Economic Social Technological 34
  40. 40. Introduction Appendix B: (Continued) Social Technology Legal Environment There are many laws and regulations that must be followed before a new toy can be introduced to the market. Specifically, the United States currently has the strictest laws and safety guidelines on toys in the world. Weather it’s a toy is being imported or exported, it must follow all safety regulations and standards. In order for a toy to be allowed on the market and sold in the US, the product must go through over 100 safety tests. The ASTM F963 is the safety requirement other countries must abide to before exporting a toy into the US market. The toy industry association is a group that acts on environmental issues in the toy industry. TIA has recently been stressing that toys become more ”green” or eco-friendly for the safety of children. Even though eco- friendly toys only makes up a small portion of the market, young children are being taught to think more eco-friendly at a young age, thus making them consume more eco- friendly toys. People are also willing to spend a more money on toys if they are ecofriendly in order to keep their child safe and healthy. Toy Industry Political Economic Social Technology Legal Environmental EnvironmentalLegal 35
  41. 41. Appendix C: Porters Five Forces Political Threat of New Entry Threat of Substitution Buyer Power Competitive Rivalry The toy industry is a consolidated industry with very high brand recognition. It also has multiple barriers to entry like economies of scale, slow market growth, and the price of fixed costs. However there are many opportunities for people to break in to cater to some unmet needs in the industry. Anyone can start a toy company and outsource manufacturing, it would just be more costly due to the small amount of product being made. Threat of Entry Threat of Substitution Kid’s don’t usually have a brand preference, they want specific toys popular at the current time. Since switching brands does not have many repercussions, the threat is fairly high. Technology can also be considered a substitution threat right now. Research shows in the future, the lines will be blurred between toys and technology but many people in the industry still consider it a threat. Since the toy industry is mostly dominated by a few key players, competition can be intense. In Mattel’s most recent 10-K, management states, “Competition among the above companies is intensifying due to recent trends towards shorter life cycles for individual toy products and an increasing use of high technology in toys. In addition, as a result of the phenomenon of “children getting older younger” resulting from children outgrowing toys at younger ages”. There is a growing rivalry due to many outside economic factors. Supplier Power During the past few years, there has been an increase in the use of plastic resin in the toy manufacturing process. A key chemical component of plastic resin is petroleum, therefore oil prices have a direct impact on profits. The current oil prices low, so firms could either lower their prices or make bigger profit. They should buy as much raw material as possible right now if they can afford and handle it. Buyer Power Depending on the individual store, buyer power can range. For example, Walmart, Target, and Toys R Us accounted for over 40% of Mattel’s sales, so losing one of these stores would have a significant impact on the sale of the product. However, when demand for a certain product is high, toy companies can charge higher prices and can turn down certain stores if they refuse to pay a certain price. Competition 36
  42. 42. Appendix D: SWOT Analysis Political Threat of New Entry Threat of Substitution Buyer Power Competitive Rivalry • Strong brand recognition: Brands are globally known. • Strong work force: Around 30,000 employees employed. • Variety: Provide a variety of number of brands and have a lot to offer and meet a wide range of age for customers Strengths Weaknesses • Toy Recalls: Mattel has had 19 million recalls from China • Losing Partnerships: Specifically licensing, due to other companies expanding quicker • Gender age products: Target consumers based on one gender. Opportunities • Expand internationally into developing countries: As middle class is growing this is an opportunity to emerge into developing countries like Asia Pacific • Innovation: Due to a higher percentage of kids using technology this is an opportunity to innovate products. This is necessity for companies • Form relationships: Help Mattel compete against Hasbro. Could lead to globally expanding even more Threats • Technology: Customers drift to other products that involved electronics. Shifting kids to mature at a quicker rate and drift away from traditional toys • Competition: As technology progresses and other companies continue to think around of the box creates a greater amount of competition • Counterfeit products: Fake products similar to the strong brand can decrease sales due to this black market S.W.O.T Analysis: Mattel 37
  43. 43. Appendix E: Business Model Canvas Political Threat of New Entry Threat of Substitution Buyer Power Competitive Rivalry Walmart, Target, and Toy’s “R” Us, licenses companies like Disney. Acquire shelf space in big box stores by connecting with these retail stores Manufacturing, marketing, targeting specific target group through age. Brand recognition is highly concerning for Mattel. They also value brand recognition, as well they value entertainment. Workforce, Manufactures, Customers, and Retail stores, kids specifically, and logo Performance, quality, employee expenses, Material expenses, License partners, and realities Popular brands like Mattel Brands, American Girl, and Fisher Price. Along with. Customers are willing to pay based on current needs of tech savvy kids Customers of all ranges; Kids to adults. Developing countries, and retail stores Loyalty and Communication with key partners, and quality customer Advertising, mass marketing, and online, and in store. 38 Mattel
  44. 44. Appendix F: Common Size Balance Sheet Common size 2014 Balance sheet Mattel Hasbro JAKKS Cash and equivalents 14.45% 19.71% 12.73% Marketable securities - - 0.04% Account receivable 16.26% 24.15% 41.75% Inventory, net - - 14.03% Income tax receivable - - 4.27% Deferred income tax - - 0.60% Investments 8.36% 7.49% - Prepaid expenses 8.32% 8.64% 4.47% Total current assets 47.40% 60.00% 77.89% Office furniture and equipment - - 2.57% Molds and tooling - - 15.55% Lease hold improvement - - 0.94% Total - - 19.06% Less accumulated depreciation and amortization - - 17.09% Property, plant and equipment 10.98% 5.24% 1.98% Intangiables - - 8.71% Other long-term assest - - 1.85% Investment in DreamPlay LLC - - 1.25% Investment in joint venture - - - Goodwill 20.74% 13.09% 7.92% Trademarks, net - - 0.41% Other noncurrent assets 20.89% 7.16% - Other - 14.51% - Total other asset - 34.76% - Short-term borrowings - 5.57% - Current potion of long-term debt - - - Account payable 6.40% 4.69% 9.99% Account liabilities 9.52% 13.46% 15.48% Reserve for sales returns and allowances - - 4.35% Income tax payable 0.28% - 4.23% Total current libilities 16.20% 23.72% 34.06% Convertible senior notes, net - - 34.06% Long-term debt 31.24% 34.42% - Other noncurrent liabilities 8.69% 8.58% 38.27% Income taxpable 0.44% Deferred income tax 1.06% Total noncurrent libilities 39.93% 66.72% 74.17% Redeemable noncontrolling interests - 0.94% - Preference stock - - - Common stock 6.57% 2.31% 0.0041% Additional paid-in capital 26.29% 17.79% 35.97% Treasury stock -37.69% -65.75% -4.27% Retained earnings 57.96% 80.10% Accumulated deficit - - -4.74% Accumulated other comprehensive loss -9.25% -2.13% -1.22% Total JAKKS Pacific, Inc's stockholders' equity - - 25.74% Non-controllling interests - - 0.09% Total stockholders' equity 43.87% 32.34% 25.83% 39
  45. 45. Appendix F (Continued) 40 Common size 2013 Balance sheet Mattel Hasbro JAKKS Cash and equivalents 16.14% 15.50% 26.02% Marketable securities - - 0.05% Account receivable 19.57% 24.84% 22.50% Inventory, net - - 10.40% Income tax receivable - - 5.34% Deferred income tax - - 0.88% Investments 8.83% 7.92% - Prepaid expenses 7.92% 8.08% 6.15% Total current assets 52.46% 56.34% 71.34% Office furniture and equipment - - 3.18% Molds and tooling - - 17.36% Lease hold improvement - - 1.09% Total - - 21.64% Less accumulated depreciation and amortization - - 19.17% Property,plant and equipment 10.24% 5.37% 2.47% Intangiables - - 12.77% Other long-term assest - - 1.37% Investment in DreamPlay LLC - - 1.56% Investment in joint venture - - 0.004% Goodwill 16.82% 13.50% 9.98% Trademarks, net - - 0.51% Other noncurrent assests 20.48% 8.54% - Other - 16.25% - Total other asset - 38.29% - Short-term borrowings 0.07% 0.19% - Current potion of long-term debt - 9.73% - Account payable 5.83% 4.52% 5.62% Account liabilities 9.94% 16.53% 15.36% Reserve for sales returns and allowances - - 6.97% Income tax payable 0.43% - 4.62% Total current libilities 16.27% 30.97% 41.04% Conbertible senior notes, net - - 22.23% Long-term debt 24.85% 21.80% - Other noncurrent libilities 8.40% 7.98% 1.56% Income taxpable - - 0.58% Deferred income tax - - 1.54% Total noncurrent libilities 33.24% 60.75% 66.95% Redeemable noncontrolling interests - 1.03% - Preference stock - - - Common stock 6.85% 2.38% 0.0051% Additional paid-in capital 27.71% 16.68% 44.61% Treasury stock -38.03% -58.03% -4.27% Retained earnings 60.84% 77.96% 10.70% Accumulated deficit - - -4.74% Accumulated other comprehensive loss -6.89% -0.78% -0.86% Total JAKKS Pacific, Inc's stockholders' equity - - - Non-controllling interests - - - Total stockholders' equity 50.49% 38.22% 33.05%
  46. 46. Appendix F (Continued) 41 Common size 2012 Balance sheet Mattel Hasbro JAKKS Cash and equivalents 20.47% 19.64% 34.12% Marketable securities - - 0.04% Account receivable 18.80% 23.81% 19.01% Inventory, net - - 10.76% Income tax receivable - - 4.33% Deferred income tax - - 1.27% Investments 7.13% 7.31% - Prepaid expenses 8.11% 7.22% 3.66% Total current assets 54.50% 57.99% 73.19% Office furniture and equipment - - 2.57% Molds and tooling - - 13.25% Lease hold improvement - - 1.27% Total - - 17.09% Less accumulated depreciation and amortization - - 14.23% Property,plant and equipment 9.09% 5.33% 2.85% Intangiables - - 12.09% Other long-term assest - - 0.83% Investment in DreamPlay LLC - - 1.26% Investment in joint venture - - 0.570% Goodwill 16.56% 10.98% 8.80% Trademarks, net - - 0.42% Other noncurrent assests 19.86% 9.63% - Other - 16.07% - Total other asset - 36.69% - Short-term borrowings 0.15% 5.19% - Current potion of long-term debt 6.13% - - Account payable 5.90% 3.23% 6.81% Account liabilities 13.60% 13.78% 11.48% Reserve for sales returns and allowances - - 6.20% Income tax payable 0.51% - 2.33% Total current libilities 26.29% 19.89% 39.56% Conbertible senior notes, net - - 17.11% Long-term debt 16.85% 32.28% - Other noncurrent libilities 9.86% 10.66% 3.31% Income taxpable - - 0.84% Deferred income tax - - 1.83% Total noncurrent libilities 26.72% 65.15% 62.65% Redeemable noncontrolling interests - - - Preference stock - - - Common stock 6.76% 2.42% 0.0040% Additional paid-in capital 26.47% 15.16% 36.51% Treasury stock -32.98% -58.62% - Retained earnings 53.86% 77.55% 1.59% Accumulated deficit - - - Accumulated other comprehensive loss -7.12% -1.67% 0.76% Total JAKKS Pacific, Inc's stockholders' equity - - - Non-controllling interests - - - Total stockholders' equity 46.99% 34.85% 37.35%
  47. 47. Appendix G: Common Size Income Statement Common size 2014 Income statement Mattel Hasbro JAKKS Cost of sales 50.18% 40.18% 70.89% Royalties - 7.22% - Product development - 5.26% - Advertising - 9.94% - Amortization of intangibles - 1.25% - Program production cost amortization - 1.11% - Selling, distribution and administration - 20.62% - Total expenses - 86.15% - Gross profit 49.82% - 29.11% Advertising and promotion expenses 12.17% - 25.24% Other selling and administrative expense 26.79% - - Operating income 10.85% 15.03% 3.87% Change in fair value of business combination liability 0.73% Equity in net income (loss) of joint venture 0.04% Interest expense 1.32% 2.20% -1.54% Interest (income) -0.12% -0.09% 0.01% Other non-operating (income), net -0.08% 0.14% - Total non-opearating (income), net - 2.26% - Income before tax 9.74% 12.77% 3.11% Income tax - 3.00% - Provision for income taxes 1.46% - 0.46% Net income 8.28% 9.78% 2.66% Net loss attributable to noncontrolling interests - -0.06% - Net earnings attributable to Hasbro, Inc - 9.84% - Net income per common share-basic 0.000024% - - Basic - 0.000077% 0.00013% Diluted - 0.000076% 0.00009% Weighted average number of common shares 5.63% - 2.59% Net income per common share-diluted 0.000024% - - Weighted average number of common shares and potential common shares 5.66% - 5.13% Dividends decalared per common share 0.000025% 0.000040% - 42
  48. 48. Appendix G (Continued) 43 Common size 2013 Income statement Cost of sales 46.35% 40.98% 75.39% Royalties - 8.30% - Product development - 5.09% - Advertising - 9.75% - Amortization of intangibles - 1.92% - Program production cost amortization - 1.17% - Selling, distributionand administration - 21.35% - Total expenses - 88.56% - Gross profit 53.65% - 24.61% Advertising and promotion exoenses 11.57% - 31.65% Other selling and administrative expense 24.06% - - Operating income 18.01% 11.44% -7.04% Change in fair balue of business combination liability - - - Equity in net income (loss) of joint venture - - -0.50% Interest expense 1.21% 2.59% -1.57% Interest (income) -0.09% -0.12% 0.05% Other non-operating (income), net -0.06% 0.36% - Total non-opearating (income), net - 2.82% - Income before tax 16.95% 8.62% 0.41% Income tax - 1.66% - Provision for income taxes 3.01% - -8.52% Net income 13.94% 6.96% 2.66% Net loss attributable to noncontrolling interests - -0.06% - Net earnings attributable to Hasbro, Inc - 7.01% - Net income per common share-basic 0.000040% - - Basic - 0.000054% -0.00038% Diluted - 0.000053% -0.00038% Weighted average number of common shares 5.30% - 3.51% Net income per common share-diluted 0.000040% - - Weighted average number of common shares and potential common shares 5.36% - 3.51% Dividends decalared per common share 0.000022% 0.000039% -

×