Mattel, Wal-Mart Tweak China Approach

Includes: MAT, WMT
by: Doug Young

Leading global toymaker Mattel (NASDAQ:MAT) and top retailer Wal-Mart (NYSE:WMT) are quietly tinkering with their China approaches, as each tries to find success in a market that is so big they can’t afford to ignore it. Despite that allure, both global leaders have had difficulty making money in China to date, after relying too much on their global business practices that didn’t appeal to Chinese consumers. Now Wal-Mart is making a second, quieter play at the market through its growing ties with e-commerce company Yihaodian. Mattel is also taking a longer-term approach by trying to popularize its globally famous Barbie dolls and other toy brands among Chinese children and their parents.

There’s no guarantee that these new approaches will work, but I do think the chances are much bigger following disappointments for both companies in their previous China efforts. Let’s start with a look at Mattel, whose China sales this year will be more than 2011 and 2012 combined, the company’s Asia head said in a new interview. Peter Broegger doesn’t give any specific numbers in the interview with the China Daily, and I suspect Mattel’s China sales are coming off a relatively low base in perhaps the tens of millions of dollars.

Company watchers will recall that Mattel was at the center of a major embarrassment more than 2 years ago, when it abruptly shuttered its highly hyped flagship House of Barbie in Shanghai just 2 years after opening the store. (previous post) Mattel mistakenly assumed that Chinese consumers would automatically flock to Barbie and the Barbie lifestyle, perhaps because the brand is so well known in its home US market. But experience showed that Chinese parents didn’t want to pay a premium for such an unfamiliar product.

In his latest interview, Broegger said Mattel is taking a longer-term view this time by trying to build up consumer awareness of its brands through activities like Barbie live shows, online interactive events and child development seminars. It’s also trying to customize its toys to better suit Chinese tastes. This kind of longer-term investment is costly and time consuming, and most global brands wouldn’t bother with the effort for smaller markets. But clearly China is a big enough market to justify this kind of effort, and Mattel’s longer-term approach this time should have a much better chance of success.

Meantime, I’m also increasingly encouraged by Wal-Mart’s growing closeness with Yihaodian, which has recently begun rebranding itself as Wal-Mart bought a controlling stake in the online retailer last year, recognizing that e-commerce could play a far more important role in China than it does in the more mature western markets.

Last month Yhd announced a major new campaign to boost its imported food business, in a bid to tap growing demand from Chinese consumers worried about the safety of locally-produced food. (previous post) That campaign drew heavily on Wal-Mart’s marketing savvy and global retailing connections. Now Yhd has announced another similar drive to strengthen its ties with some of the world’s leading consumer products makers.

This newest campaign will see Yhd team up with the likes of Procter & Gamble (NYSE:PG), Unilever (NYSE:UL) and L’Oreal (OTCPK:LRLCF) to not only sell their products but also use their expertise for data mining to better understand consumer behavior. (English article) This kind of tie-up will give Yhd an edge over rivals like Alibaba and Jingdong, and clearly draws on Wal-Mart’s global connections. I applaud both Wal-Mart and Mattel for their recent shifts that include a longer-term approach to developing the China market, and do expect that both should find more success this time than with their earlier efforts.

Bottom line: Recent shifts in China strategy by Mattel and Wal-Mart reflect a longer-term, more localized approach to the market, which will have a better chance of success than previous efforts.

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