Founded in 1945, Mattel became a publicly traded company in 1960 known for iconic brands like Barbie and Hot Wheels. In the late 1990s and 2000s, Mattel struggled financially and competitively but was able to turn things around in the late 2000s by improving operations and focusing on core brands. Today, Mattel aims to create the future of play through innovation while maintaining its position as a leader in the toy industry.

2. Where to Begin…The Rise To FameFounded in 1945 by Harold “Matt” Matson & Elliot Handler. Their names smushed together make Mattel. They manufactured picture frames and doll housesHandler’s wife, Ruth, later became president and is credited with establishing the Barbie line in 19591960: Mattel went public and was quickly listed in Fortune’s list of the 500 largest U.S. Industrial companies By 1968: Hot Wheels was introduced Mid 1970s: Mattel tried to get into electronic games but failed because others entered the market at a cheaper price

3. The Bumpy Road (Past 10 Years)In May 1999, Mattel acquired “The Learning Company” for $3.5B in stock (4.5 times annual sales)In 2000, Mattel sold The Learning Company for a percentage of their future profitsMattel closed its last American factory in 2002On August 2, 2007 Mattel recalled almost one million Chinese made toys because of potential hazard of lead paintOn August 14, 2007 Mattel recalled over 18 million products because of the possibility of danger to children due to detachable magnets

4. Sometimes Less Is MoreCash flows increased from $436M in 2008 to $945M in 2009Improved execution across supply chain, realigned infrastructure, controlled costs and expenses (especially inventory)Resulted in increased profitability, stronger balance sheet, improved cash flowUsed to lower debt, increase cash balance, and continue to reward stockholders with strong dividends

5. To Infinity & Beyond! Goals for 2010 and Moving Forward:Gross Profit Margin: 50%Operating Margin: 15 to 20%

6. Vision Today & Vision TomorrowIn 2000 Mattel’s senior management team created a vision for the company: “The World’s Premier Toy Brands – Today and Tomorrow”In 2010 they launched a new vision for the company: “Creating the Future of Play”What do you think of the different visions?Where do they take the company?

7. I Will Let You In On A Secret…“…we don’t just make toys. We create emotional connections that last a lifetime by encouraging children to stretch their imaginations, creating joy and allowing children to become lost in play. That’s the real value of our toys. That’s the value of play.” (Bob Eckert, Chairman of the Board & CEO, Annual Report 2009)Mattel is in the business of making kids’ leisure time fun and bringing magic back to their lives

8. Management’s Six Key StrategiesImprove Execution of the existing toy businessGlobalize the brandExtend brands into new areasCatch new trends, create new brands, and enter new categoriesDevelop peopleImprove productivity, simplify processes, and maintain customer service levels

9. Who Are Mattel’s Traditional Competitors?

10. Key Notes on Industry PerformanceIndustry’s size is anticipated to contract over next five yearsForecast is predicting a 1.2% annual decline over the next 5 years to a total of about 680 producers in the USManufacturers were slow to respond to shifts in demand which lead to a decline in salesCheaper imports have created intense competition within the local marketIncreased merger & acquisition activity within the industry has lead to the demise of numerous smaller operators Message is simple: toys currently on the market are no longer meeting the demand for childrenToys need the “WOW” factorGirls are now outgrowing Barbie by the age of eight, rather than the target age of 10

11. However, You’re Not Just In The Railroad Business…SportsCompetitive Toy ManufacturersTelevisionInternetVideo GamesMattel has to compete against any other activity that will take up children’s time

12. Children Leisure Time Perception Map*Healthy from standpoint of either educational or active

13. What Makes Up the Industry

14. Stuck Between A Rock, A Hard Place, and a Volcano About to EruptManufacturers have an uphill battle. Have to satisfy three customers:The Rock: Retailers buy, stock, and advertise the productThe Hard Place: Children ultimately have to find the product enjoyable and it has to have repeatable “play value”The Volcano About to Erupt: Parents have to see the product as innovative, educational, or deem it as a “value.” In addition, parents will only buy products that reflect their family values. Will look at the profile of each of Mattel’s “customers”

15. Market Segmentation

16. The 100 Million Pound GorillasRetailers control:Purchases from manufacturersShelf space and where products are viewedAdvertisements to children and parents that enter stores (coupons, in-store ads, etc.)Retailers promote their own private brandsMattel’s three largest retail customers account for approximately 40% of worldwide sales

17. It’s All About The Psycho….GraphicsLets take a look at the typical children that Mattel is trying to reach to and then we will profile a couple of “child customers”Children (0-14) make up 21% of American population and this is predicted to remain stable over the next five yearsProfile three of Mattels child segmentsCyber Possum Grease MonkeyFashion Queen Bee

18. Cyber-PossumMale or FemaleLikes to be alone Likes being inside Quiet, Shy, BashfulUse internet for social interaction and purchasesNot very confident10-14 age groupSlightly overweightCraves intellectual stimulation Enjoys blokus products & video gamesFocus on advertising interactive/electronic toys to this group along with internet games

19. Grease MonkeyMale8-12 Age GroupLikes simple toysLikes being outdoorsThinks the world wide web is something a big spider makesAggressive and extroverted Wants toys to reflect real objects In good physical shapeCraves adrenaline rushEnjoys hot wheels productsFocus on advertising cars/trucks, military action figures, and sporting figurines to this group

20. Fashion Queen BeeFemale6-10 age groupLoves fashion world and dressing upEnjoys outdoors and insideChatty and social Views the internet as a chance to increase social networkCraves living life of glamourEnjoys Barbie and American Girl Products Focus on advertising barbie products with various accessories, horses/ponies figurines, and polly pocket games to this group

21. If the Parents Dig It, They Will Buy ItMattel always has to keep the parents in mind as well. If the parents don’t see the product as educational, promoting an active lifestyle, or having a wow factor they won’t purchase itIn addition, if the parents don’t see the company producing the product as a quality brand they may question the purchase So, at the end of the day the parents control the buying decision And again Mattel does have a social obligation to this customer segment (even if only for profit reasons). Parents tend to buy toys that reflect their familial values.

22. Key External Drivers Per capita disposable incomeHouseholds with higher levels of disposable income generally spend more on toys and gamesDownstream demand from hobby and toy storesRegarded as specialist retailers for these goodsNumber of children (0 to 14 years)Age distribution of a region affects it demand for toy, doll and game productsDownstream demand from department storesDue to sheer size and range of products they offer, many regard these stores as main customer for toy manufacturersImport CompetitionDespite often inferior quality, such toys have become popular among consumers due to lower prices and extensive varieties See graph on next page

23. Put Simply, The World Is Flat When It Comes to Producing Toys

24. Industry Key Success FactorsEstablishment of Brand NamesBrand name, reputation and image are importantAgreements to supply major companies with these attributes are equally importantHaving a diverse range of clientsAbility to control stock on handEffective cost controlsAbility to quickly adopt new technologyMust comply with required product standards

25. STRENGTHS

26. Brand Recognition

27. Created by Mattel in 1959

28. #1 seller, often accounting for up to 50% of revenue

29. >1 billion Barbies have been sold in >150 countries

30. 3 Barbies sold every second

31. Barbie has taken on almost every possible profession

32. Extreme brand recognition, other doll brands are referred to as “barbies”Introduced by Mattel in 1968

33. Over 15 million boys 5-15 are avid collectors (avg 41 cars each)

34. Two Hot Wheels cars are sold every second of every day

35. Together, Hot Wheels and Barbie generate about 65% of Mattel’s profitsIn 1998, Mattel acquired Pleasant Company

36. Well-known line of historical dolls, accessories, books, magazines, movies, clothes

37. Originally sold in catalogs only

38. Mattel extended base by selling accessories in Walmart & Target

39. Recent opening of shops in NYC, Chicago, LA, Atlanta, Dallas, Boston, Minneapolis

40. Popular with girls 7-12

41. Wholesome, educational image

42. Dolls live during specific times in American history and face hardships while maturing into young adults

43. Controversies exist over some charactersCreated almost 5,000 different toys since the 1930s

44. Almost 30 brands

45. Acquired in 1993 as a wholly owned subsidiary

46. Brand trusted by parents around the world

47. Products are educational, safe, and useful

48. Innovative learning toys

49. Character-based tools through licensing agreements w/ Sesame Street, Disney, and NickelodeonStrong Values

50. US Market Share

51. Barriers to EntryMost significant: time & capital required to establish a new brand name

52. Need to invest a lot of time & money in order to persuade consumers to shift away from strong brand names.

53. The level of market share already controlled by existing players is a key deterrent.

54. Economies of scale: large production runs typically required for toys, favors large established companies

55. Development of new products often requires substantial changes to existing machinery and production processesLicensing Agreements

56. Corporate ResponsibilityTaken steps to strengthen commitment to business ethics

57. As core products are designed for children, Mattel is sensitive to social concerns about children’s rights

58. Responsibility of marketing to children & privacy on websites

59. International environment: different legal systems & cultural expectations

60. 1997 – Global Manufacturing Principles