Last Updated on January 3, 2020 by Danielle
It has been another challenging quarter for embattled toy company Mattel.
Recently, it was reported in the press that the U.S. and global toy industry had slim growth of one percent for 2017. However, Mattel reported a fourth quarter loss for the critical Christmas holiday season.
Mattel is well-known for its iconic brands like Barbie, Hot Wheels, American Girl, and Fisher-Price. But somehow these brands are failing to spark the interests of consumers.
The toy company has been faced with plummeting sales and profit over the last few years and the situation could worsen with Toys R Us’ bankruptcy restructuring, which entails closing 182 retail locations in the United States and 26 stores in the United Kingdom.
The problem is that Toys R Us’ business makes up about 15 to 20 percent of Mattel’s U.S. sales and roughly 11 percent of its worldwide sales. These store closures could potentially hinder Mattel’s growth if “shipments that would have gone to (Toys R Us) are not picked up by other retailers,” according to Linda Bolton, an analyst for D.A. Davidson & Co. This news does not bode well for the struggling toy giant.
As a result, Mattel is scaling back in an attempt to improve its profitability position. More specifically, it will place less of an emphasis on enhancing Barbie, American Girl, and its core brands, streamline operations, and cut costs to compensate for lower sales.
Furthermore, Mattel has plans to improve the time it gets its toys to market. Play patterns are changing so Mattel wants to expand the appeal of its brands by introducing a digital component, which is increasingly becoming popular among kids.
Mattel had alluded to weaker fourth quarter and 2017 sales due to the fact that retailers were limiting how much product they were purchasing from Mattel.
Interestingly, Barbie sales soared 6 percent compared to 2016 while most of its other brands experienced sales declines. Overall, this resulted in sales declining 14 percent, plummeting to $1.6 billion. Sales have been steadily declining from $6.4 billion in 2012 to $5.46 billion in 2016. Profits have been plummeting as well. In 2012, profits were $776.5 million, while there was a steep drop down to $318 in 2016. Similarly, Barbie sales have been trending downwards with $1,275 million sales in 2012 and $971.8 million in 2016.
For the fourth quarter of 2017, Mattel reported a loss of $281 million, whereas in 2016 it delivered a profit of $173.8 million.
Margo Georgiadis, Mattel’s CEO, said in a statement: “Our fourth quarter performance reflects a tough quarter as part of what was a difficult and extraordinary year for Mattel.” Georgiadis added Mattel “faced multiple significant dislocations” – including “mixed brand performance and the Toys R Us bankruptcy.”
With regard to Mattel’s restructuring plan, she said, “we are optimistic the business is on course to stabilize revenue in 2018 and, with the benefit of our significant cost-reduction program, we expect to improve profit trends in 2018.”
If Mattel is to turnaround its fortunes for 2018, it will have to more nimbly respond to evolving play patterns than it has in the past and overcome the challenge of girls outgrowing traditional toys at a younger age, with growing interest in consumer electronics, beauty, sports, and social media. It will have to also overcome the fact that movie tie-in fatigue may also be setting in as well as deal with slim overall growth in the U.S. and global toy markets.
According to Keith Snyder from CFRA Research, “toy sales these days have shifted toward branded products such as those tied to movies, and away from the legacy brands like Barbie. Mattel sat on their brands too long and have been complacent with their market position with very little changes to Barbie and American Girl.”
Last June, Mattel announced plans to reinvent itself by enhancing Barbie and its core brands by merging physical and digital play. Mattel committed to an expedited innovation pipeline that can deliver new products in a matter of 6 to 9 months versus the typical turnaround of 18 months. Mattel also initiated efforts to eliminate $650 million in operating costs over two years.
Mattel stated that its plan would “dramatically transform Mattel, repositioning the company to draw on (its) world-class brand portfolio. We are making strong progress against this plan, which we believe will enable Mattel to deliver revenue growth and improved profitability. It’s also strengthening (its) position in key markets like China, where consumer spending on toys is growing at a rapid rate.”
With minimal growth in the toy market, Mattel needs to up its game of capitalizing on current trends to drive sales growth. Juli Lennett, SVP of NPD, stated: “it is more imperative than ever to be able to react quickly to changing tastes and fast-moving trends. Toy companies, whether big or small, who are nimble enough to react faster and get to market more quickly, are the ones who will win in the long term.”
The good news is Mattel is making some of the right moves with streamlining, cost cutting, and becoming more nimbler. But one major question still lingers: Can it win again? Readers – what do you think Mattel needs to do to win over its customers? Is a tech makeover the answer or do we need some other innovation? Sound off in the comments below.
Source: LA Times