The Toy Industry Is Declining? How Can Mattel, Inc. Survive? Debora J. Gilliard Metropolitan State University – Denver David Lynn Hoffman Metropolitan State University – Denver Sally Baalbaki Metropolitan State University – Denver Will the iconic Barbie doll survive? Mattel, Inc.’s sales are declining, the company has lost its Disney Princess line to Hasbro, and the industry is changing. Today’s kids outgrow toys at a younger age and are drawn to video games and electronics. The competitive market is changing as more companies are entering international markets. Mattel’s CEO has a challenge to turnaround the downward spiral of revenues. INTRODUCTION “We just didn’t sell enough Barbie dolls” stated Mattel CEO Bryan Stockton in February 2014, when he reported a 13% drop in fourth quarter 2013 sales (O’Connor, 2014). Forbes noted that Barbie sales were still in a slump with a 3% decline in sales for fourth quarter 2015 that included a 14% decline in overseas sales. The dismal decline continued with first quarter 2017 worldwide net sales and gross sales down 15% (Mattel press release 4/20/17). New CEO Margo Georgiadis, who was hired as Mattel’s new CEO in January 2017, has her work cut out for her. Although the company had strong holiday sales at the end of 2016, the momentum did not carry over to the first quarter of 2017. The company saw major declines in sales of its core toys such as Barbie, American Girl, and the Construction and Arts & Crafts unit. In addition, major competitor, Hasbro, who recently took over the Disney Princess line from Mattel, is on a roll with stock prices up and revenues rising (La Monica, 2017). Is Mattel selling the toys that kids want today? Are tablets, video games, and technology-related toys overtaking traditional toys? Is the issue at Mattel or the result of a changing industry? What does Mattel and Georgiadis need to do to turn the company around? THE MATTEL STORY The founders of Mattel, Inc. grew up in Denver, Colorado. Ruth Mosko grew up in the prosperous east side of town and attended East High School. Isador Elliot Handler, “Izzy”, belonged to a friendly Journal of Marketing Development and Competitiveness Vol. 13(3) 2019 53 gang called the Gigolos (a mix of Jewish and Italian kids from the west side of town) and attended North High School. They saw each other about town, but first met in 1932 at a ‘Nickel a Dance’ party held at the B’nai B’rith building. After graduating from high school, Ruth went on vacation to Los Angeles and got a job at Paramount Studios in the stenographic pool. A month later, Izzy followed Ruth to Los Angeles and enrolled in the Art Center School of Design – he had a dream of becoming a cartoonist. To pay for school and living expenses, he took a job making lighting fixtures. After they married in 1938, Elliot became fascinated with creating new designs out of new materials, especially a new plastic called lucite. They found a place to use as a workshop and Elliot made lamps, picture frames, hand mirrors, and candelabra and Ruth set about making sales calls to sell the items. Elliot continued experimenting with new designs and began making jewelry pieces. The jewelry was a hit and was worn by many Hollywood starlets. After issues with business partners, the Handler’s left the company, began focusing on making wood frames with flocking and in 1945 Ruth and Elliot Handler along with friend and business partner Harold “Matt” Matson launched a new company called Mattel. The first products Mattel sold were picture frames, and then they expanded to doll furniture and eventually added toys to the product line. When Mattel incorporated in 1948 the main product was toys. Company highlights through the years include the following (Mattel website, 2017; Wikipedia, 2017): x 1955: Advertised toys through the Mickey Mouse Club TV show x 1959: Barbie was introduced – named after the Handler’s daughter, Barbara x 1960: Mattel IPO x 1961: Mattel introduces the Ken doll, named after the Handler’s son x 1968: Hot Wheels cars introduced x 1968: Acquired Monogram Models, the first of many acquisitions x 1975: Elliot and Ruth Handler leave the company x 1977: Intellivision home video electronic games were introduced. All non-toy subsidiaries were sold x 1988: A new alliance with Disney allowed Mattel to produce toys, games, and puzzles based on classic Disney characters such as Mickey Mouse, Winnie the Pooh, and the Disney Princesses x 1993: Mattel merged with Fisher-Price x 1997: Mattel merged with Tyco Toys x 1997: Adopted Global Manufacturing Principles and commits to responsible manufacturing practices. x 1998: Acquired Pleasant Company and the American Girl brand x 2000: Mattel became the Harry Potter Toy licensee x 2001: Barbie’s first movie debuted x 2003: American Girl Place opened on Fifth Avenue. x 2007: Recalled 18 million products with issues with lead surface coverings and magnets that could detach from toys x 2012: Merger with HIT Entertainment who owned Thomas and Friends toys x 2013: Fortune named Mattel one of the top 100 companies to work for x 2014: Acquired Mega Brands x 2016: Lost the license to Disney Princess lines to Hasbro Toys x 2016: Acquired Fuhu – maker of Nabi tablets x 2016: NBC Universal announced Mattel received the license to make toys based on Jurassic Park franchise 54 Journal of Marketing Development and Competitiveness Vol. 13(3) 2019 COMPANY OPERATIONS “Mattel is more than a toy company. We seek to make a meaningful difference in the lives of children around the world through play. One of the ways we do this is by creating toys that inspire and empower young minds to imagine beyond boundaries and shape a better world” (Mattel Citizenship, 2017). Mattel, Inc. designs, manufactures and markets a broad range of toy products. It sells 8,000 unique products in 150 countries and has operations in 40 countries. The company has about 32,000 employees. The company’s mission “is to be the recognized leader in play, learning and development worldwide” (10-K 2016 FYE). CEO Margaret Georgiadis identified five strategic priorities for the coming years: x Build powerful brand franchises x Establish Toy Box as the partner of choice x Develop unmatched commercial excellence x Drive continuous cost improvements x Build emerging market leadership Business Brand Categories and Business Segments (10-K FYE 2016) Mattel has identified four categories for their major brands: 1) Mattel Girls and Boys Brands which include Barbie, Polly Pocket, DC Super Hero Girls, Hot Wheels, Matchbox, CARS, DC Comics, WWE Wrestling and Toy Story. 2) Fisher-Price Brands including Fisher-Price toys, Little People, Thomas & Friends, Dora the Explorer, Mickey Mouse Club House, and Power Wheels. 3) American Girl Brands which include the American Girl dolls and related products. 4) Construction and Arts & Crafts Brands that include MEGA BLOKS and RoseArt. The company has also identified two geographic segments and the American Girl segment for operating purposes and each are separately managed business units. The North American segment sells products from all brand segments. During the 2017 year the Barbie brand will continue with its “You Can Be Anything” campaign by highlighting various role models. Technology and connectivity will continue to be added to new Barbie products. Hot wheels will be adding new track sets, cars, and a new digital gaming experience. Toy Box will continue to partner with entertainment companies such as Disney, Warner Bros., Entertainment, Inc., Nickelodeon, NBCUniversal Media, and WWE to develop new products. Fisher Price will introduce the next phase of the Best Possible Start Campaign in 2017 (the core message is parental love and play is the best start for child development) and products will have a new contemporary design to attract millennial parents. The International segment will sell generally the same products that are sold in the North American segment with a few adaptations for the international market as needed. The International segment accounts for 40% of gross sales. The American Girl segment introduced Gabriela McBride in January 2017 as the new Girl of the Year. New characters will be introduced throughout 2017 and the first American Girl boy doll was launched in February 2017 (10-K, FYE 2016). Manufacturing Mattel toys are manufactured in company-owned facilities, third-party manufacturers and some are purchased directly from vendors who design, develop and manufacture their own products. Most core products are made in company-owned facilities in order to maintain flexibility in making products and to reduce costs. Manufacturing plants are located in Canada, China, Indonesia, Malaysia, Mexico, and Thailand. Using facilities in multiple countries allows the company to minimize manufacturing disruptions that may occur due to political or economic instability and changes in government policies. The company uses historical data, market research results, and market information when setting production schedules. Orders and cancellations are affected by changing buying patterns of customers, consumer acceptance of products, competition, and retail marketing strategies. In the toy industry, orders may be changed or cancelled any time prior to shipment (10-K, FYE 2016). Journal of Marketing Development and Competitiveness Vol. 13(3) 2019 55 Product Design and Development Mattel uses a group of professional designers and engineers to refresh, redesign, and develop new toys. Independent designers who bring products to Mattel are typically paid a royalty of the net selling price for the products licensed to Mattel. Mattel spent $215.3 million on product development in 2016 (10-K, FYE 2016). Marketing and Sales Mattel employs multiple advertising venues to promote its products, especially during the holiday season.