Mattel Is Hitting Back

| About: Hasbro, Inc. (HAS)
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Mattel (NASDAQ:MAT) had the Disney Princess license since 1996 and assumed that they would have it forever. A couple of things happened to change this equation. One was that Mattel had over the years supported Barbie with shelf space at the majors which rightly should have belonged to the Princesses. The second was that Mattel launched the Monsters even though these dolls could reasonably be expected to make inroads into the Princess business – which they of course did. Neither escaped Disney’s (NYSE:DIS) notice and they slowly and reluctantly came to the conclusion that Disney’s and Mattel’s objectives for the Princess dolls were in irreconcilable conflict. As a consequence, Disney management sat down with Hasbro (NASDAQ:HAS) in 2013 to see whether this arch competitor to Mattel could in fact represent a good alternative. The rest is history – Mattel was told late 2013 or early 2014 that they were going to lose the Disney Princess/Frozen license effective January 1, 2016.

This piece of news came as an incredible shock to Mattel and led to a fundamental re-evaluation of their business practices. Obviously, heads had to roll and one head was that of their CEO – Brian Stockton – who was fired a year later. At the same time, the remainder of the Mattel management and Board decided that major changes both in company culture as well as in product strategy were needed to make sure that the company survived.

As for the first, Mattel had over the years evolved into an entity somewhat feudal in nature, slow moving and very bureaucratic. For example, the various power centres appeared to be very much more concerned about what their competitors within the company were doing than what their competitors out there in the market place were up to. It appears that the new top management of Mattel very forcefully moved to change this and they seem to have succeeded. Friends of mine in the product licensing business tell me that the Mattel people are now much more accessible and the decision makers much more involved compared to what was the case only a few years ago.

As for the second - product strategy - two national buyers at top toy retailers tell me that Mattel finally adopted three core directions. One concerned Barbie. The company decided that it was time to stop treating their iconic brand as a cash cow and to start again doing the sort of things that had made the brand great in the first place – innovation, promotion and advertising support. Barbie Princess Power, RockNRoyals, Hello Barbie and the Fashionistas were the result. All indications are that the thing worked and that Barbie began to turn around already in Spring last year.

The second core strategy was to broaden Fisher-Price’s profile. Until recently the brand had been totally identified with preschool toys. When top management took another look at who really bought the brand for what purpose they established that the majority of purchases were made for infants of twelve months and younger. They hence decided to leverage this further by broadening the product portfolio into areas other than just toys. To this end, they acquired Sproutling, a maker of smart monitors for babies. They also tried to purchase Mayborn U.K., the maker of Tommee Tippee, one the most popular baby feeding bottle brands in the world. However, this came to naught since one of China’s largest insurers, Ping An, beat them to the punch. However, the strategy is still in place and there will undoubtedly be other efforts from the side of Mattel to strengthen the Fisher-Price portfolio in the new-born and infant category.

The third and most important strategy focused on Hasbro’s core business – Action Figures. Mattel management decided that what was sauce for the goose was also sauce for the gander and proceeded on a very targeted campaign to do Hasbro one in the eye and to establish Mattel as a major force in the Action Figure category, They recognized that the main engine driving Action figure sales were movies targeting preschool children and tweens but they also knew that the major competitive forces they were facing in this quest were not only Hasbro as the seller of the toys but also Disney as the provider of these movies – the same Disney who was then in the process of yanking the Princess range.

As a result, they focused on movie properties provided by studios other than Disney - Warner, Paramount, and Universal. In the case of Warner they were helped by the fact that they already had a very good and longstanding relationship with the studio –basically Batman, Superman and Green Lantern. This effort paid off in terms of three new IPs backed by movies – Fantastic Beasts, Tarzan and Wonder Woman.

Their efforts with Paramount and Universal were even more satisfying in that they managed to wrest two movie properties away from Hasbro – Star Trek and Jurassic World. In addition, they garnered the Fast and Furious license as well. There is little doubt that these efforts are continuing and that we shall probably see more changes in the Action Figure licensing setup in the near future.

One way to gauge the importance of a movie license is to see what box office the movie generated in the past. The two charts below show this:

This comparison tells us two things: one is that Mattel improved its Action Figure license potential this year by 52% and Hasbro by 4%. The other is that Hasbro’s potential is now ahead of Mattel’s by a mere 17% whereas the difference last year was 72%.

Obviously, box office potency is only one factor influencing the success or failure of an Action Figure brand. Product quality and the management of the supply chain are equally important and so far Hasbro has the edge in both if Mattel’s most recent efforts – Tarzan and Ghostbusters - are anything to go by. Also, presence on the shelf has a major influence of sell-through and again here, Hasbro beats Mattel handily as the chart below demonstrates:

Source: Klosters Retailer Panel

Incidentally, the 2012 peak in Mattel’s Action Figure Shelfs Space was a result of the Dark Knight Rises (Batman) movie which was released on 7/20/2012.

However, whilst Mattel’s marketing of their Action Figures this year may still be a little rough around the edges, there is little doubt that the company will get it together and that it will begin to represent a major challenge to Hasbro in the near future.

This article was first published by the Toy World Magazine U.K. on September 1, 2016.