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5 Ways Mattel Can Return To Growth

5 Ways Mattel Can Return To Growth

Much has been written about Mattel’s recent performance. With key brand Barbie apparently struggling and sales down, alongside changes in management these are comparatively turbulent times for Mattel.

The challenge in the toy industry is that it takes time to bring through new initiatives and developments, but I’m certain there are several thousand people beavering away on reversing the trend in Mattel’s case.

Here’s some thoughts on how Mattel can return to growth:

1. Reinvigorate And Reinvest In Icon Brands, Especially Barbie – clearly Barbie needs a boost when we look at recent sales trends, but we couldn’t accuse Mattel of inaction in this area. Between various entertainment content releases and new product initiatives there is plenty going on. When we consider that Frozen was so strong last year it would be unrealistic to expect Barbie to sail through such strong competitive winds with no impact. As Frozen frenzy calms down throughout this year and beyond, I’d expect Frozen to establish itself as an evergreen brands at lower levels of demand, opening up a clear bounce back opportunity for Barbie. As long as the product stream and entertainment content keeps on coming this would seem to be more or less a given based on the longevity of the Barbie brand and Mattel’s distribution strength.

2. Grow Recent Acquisitions – Mattel’s comparatively recent purchase of both the HIT Entertainment brand portfolio (including the Thomas and Friends powerhouse) and MEGA Brands is yet to pay full dividends. I see considerable growth potential ahead as Mattel does what they do so well in building and growing brands globally. I read a recent article in the UK’s excellent toy trade mag Toy News in which members of Mattel’s management highlighted the comparative lack of infrastructure MEGA Brands had in Europe versus Mattel. Click here to read that story: http://www.toynews-online.biz/interviews/read/building-bloks-mattel-on-making-mega-brands-a-serious-global-force/044895 Aside from the benefit to Mattel of selling MEGA Bloks via their hugely strong sales teams in North America and the UK, there is clear incremental opportunity to significantly grow distribution and therefore sales in Europe and further beyond. When we look at the fact that Europe as a whole has a roughly comparable market size to North America, it’s clear to see the upside. I see 3-5 years of growth ahead on the recently acquired brands.

3. New Product & Category Launches – this growth path may seem like the most obvious i.e. need more sales, why not just launch new products into categories not currently exploited. The challenge is that established competitors make this difficult. Global giants like Mattel (and Hasbro and others) don’t tend to do so well as the under dogs in a category/with a product because there structure works well for areas of strength (i.e. less trade margin, high TV/ad spend, full distribution with POS marketing investment). Where they have to negotiate support from a comparative position of weakness things get a little trickier, and as we work in a hit or miss business, our analysis suggests that you need to be willing to launch 3 or 4 new brands which fail to establish one which sticks. While Mattel have done that fantastically well in recent years with Monster High (arguably the best new brand launch of the decade in my view), many more fail than work, and based on where Mattel are right now, I’m not sure it’s a good bet to keep taking that punt versus the other growth options listed here!

4. New Acqusitions – while rebuilding Mattel’s core brands, especially Barbie is the single most critical priority to protect the foundations of Mattel’s business, the biggest upside potential appears to come from further acquisitions. Historically, this is THE way Mattel and Hasbro have grown. And there are some clearly attractive targets out there. Moreover, Mattel’s positive cash position and ongoing net cash generation provides the means to fund growth driving acquisitions. I’m not going to speculate on potential targets here, but there are clearly some companies of sufficient size owning either potentially incremental brands or significant market position in categories Mattel are not so strong in.

5. New Entertainment Driven Opportunities – Monster High was driven by entertainment content. In fact, as I understand it, TV networks are so over loaded with kids TV content that it would have been difficult/expensive/imprudent to get the show on TV. As such Mattel launched via YouTube, and the rest is history – Monster High is a massive global brand launched in a category in which Mattel already have the No. 1 brand. There are clearly other opportunities for Mattel here – between their own IP and 3rd party IP, Mattel could well benefit from looking towards a closer relationship with Hollywood and building a greater strength in terms of TV distribution as have their rivals Hasbro. Finally on this point, the Batman V Superman movie launches early next year, and with super hero movie franchises proven to drive substantial toy sales Mattel should feel the benefit in terms of a boost to 2016 revenues.

 

Disclaimer/admission: I own a small amount of Mattel shares bought recently as my amateur eye sees a turnaround play based on the above thoughts. Anyone who takes the views of one person too seriously with regards to investments, especially someone as unskilled & unqualified in the investment world as myself is setting themselves up for trouble!

P.S. In case you haven’t heard yet, we recently launched our own Toy Review service – The Toy Verdict. We are also happy to announce that entry to The Toy Verdict Awards 2015 is now open, for more details or to enter, just click here.

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy, game and kids entertainment companies around the world, which helps companies find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world. 

5 Reasons Why Mattel Will Bounce Back

5 Reasons Why Mattel Will Bounce Back

 

Mattel’s 2014 full year results were disappointing, with operating income down from $1.17 billion to $653.7m. Furthermore, the share price has taken a beating as would be expected based on such earnings.

The perhaps not unsurprising departure of the CEO, followed by the fairly surprising rehiring of the same CEO on a lucrative Consultancy contract, combined with a comparatively huge decline in key core brand Barbie year on year has lead to all kinds of crazy talk, negativity and doom mongering regarding one of the three global powerhouse toy companies that sit comfortably at the top of the toy industry.

The reality as I see it is far less worrying. Here’s 5 reasons why Mattel will bounce back stronger than ever.

1. Barbie was bound to be down in 2014, and is very likely to bounce back – due to the massive Frozen phenomenon at toy retail, all other girl targeted brands/products were bound to be impacted by $hundreds of millions heading in the direction of the Frozen franchise. When you look at any long term perennial brand in the toy business ove time, they all suffer from peaks and troughs dependent on how impactful the latest round of product development is and by the broader kids entertainment universe. Barbie is very likely to bounce back, at least to some degree as Frozen furore cools. And regardless of any bounce back, Barbie is still a huge global powerhouse of a toy brand, which is a huge asset and stability factor for Mattel.

2. The Mega Bloks Acquisition is yet to make full impact – while it’s over a year ago (at the time of writing) that Mattel’s purchase of Mega Brands/Mega Bloks was announced, that is no time at all in terms of toy product development and selling cycles. Mattel has a fantastic track record of brand management/brand extension, as well as a close to un-rivalled global distribution capability, which appears likely to grow the Mega Bloks business over time.

3. Toy company strategies are driven by a cyclical process – strategies only tend to have so much growth in them before they need to be rethought and refreshed, especially when the company in questions is already huge, with leading brands in most product categories of any size. New strategy often needs new management at the helm, we don’t have to look much further than the success of Mattel’s rivals Hasbro to see the impact a new CEO can make in terms of shifting strategy – Brian Goldner, Hasbro’s CEO shifted Hasbro closer to Hollywood and the kids entertainment world, leading to a greatly improved share price. For those who have been around the block a few times in the toy business it seems clear that any question mark over Mattel’s strategy can only be a short term question mark before the mighty ship sets sail in the right direction again.

4. Monster High proves Mattel can launch successful new brands – it’s my opinion that Mattel have received nowhere near the plaudits deserved for this massive new global brand launch, a paradigm smashing new brand introduction which for once does not rely on blockbuster movies or traditional TV distribution. For sure more new brand launches fail than hit, but when you establish a new perennial hit brand in a category where you already have the clear leader you will reap the benefits for many selling cycles to come.

5. Mattel generates huge amounts of cash & new acquisitions are likely – with c. $1billion cash in hand Mattel is well placed to make further acquisitions. In recent years Mattel have made numerous major acquisitions including HIT Entertainment and Mega Bloks. A historical view of the toy industry shows that the bigger companies have grown exponentially via acquisition, if I were Mattel’s CEO (we can all dream!) I would certainly be ready to open the check book and splash out again, perhaps after letting Mega Bloks bed down for 2015. I would not be surprised if another major (i.e. $hundreds of millions) acquisition materialises in 2016.

 

Disclosure – when Mattel’s shares dropped recently I bought a small amount of shares based on my feeling that the company is very likely to bounce back to bigger and better things, so readers of this article should be aware I may have a vested interest in Mattel.

 

by Steve Reece, CEO of Kids Brand Insight www.kidsbrandinsight.com,  a leading Consultancy to toy, game and kids entertainment companies around the world, which helps companies find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.