Mattel Isn’t Toying Around : Firm Manages Dramatic Comeback From Near-Disaster
Toy soldiers are made to be shot at, and that’s just what Mattel Inc. did to its Men of Medal army.
As the Hawthorne-based toy company readied to ship thousands of soldiers to eager customers last winter, a last-minute market survey predicted that the toy wouldn’t sell. Fearing disaster, Mattel sold only those on hand and stopped making the toy.
“We caught it in time,” says Mattel President Robert Sansone, who shot down the toy army.
If Mattel’s action seems unduly cautious, it has good reason. Three years ago, a sharp drop in demand for two once-popular toys went under-noticed, and Mattel flooded the market with Rainbow Brite dolls and Masters of the Universe action figures. A glut of unwanted toys led to big losses for Mattel, and prompted a massive corporate overhaul.
Following a series of layoffs and plant closings, Mattel reduced costs and earned $35.9 million on $1 billion in sales last year. Whether it continues to make money depends on John W. Amerman, who engineered the toy maker’s comeback after becoming chairman and chief executive 2 1/2 years ago.
An energetic man who plays golf and tennis to keep in shape, Amerman is changing the way Mattel sells toys. At his urging, Mattel became the first toy company to offer cents-off coupons, or to produce Spanish-language commercials.
Amerman is also looking for ways to increase sales of Mattel’s best-selling toys by creating new products around one toy theme. Not only could little girls play with Barbie dolls, for example, but they could wear Barbie fashions, write on Barbie note pads and primp with Barbie cosmetics.
“We’re working actively to broaden Barbie as a product category,” said Amerman, adding that in the past Mattel didn’t see other merchandising possibilities for the popular doll. “We were guilty of tunnel vision.”
At the same time, Mattel is testing new toy ideas carefully to avoid losses. Using years of sales information, Mattel developed a secret computer program to select new toys. After being told how much a toy costs and what it does, a Mattel computer considers experience to predict whether children will want the new toy.
The computer is controversial in the toy industry, whose executives traditionally rely on a combination of passion and instinct. But Sansone contends that computer research gives Mattel a big advantage over its competitors and “takes the emotion” out of toy decisions.
Mattel’s new methods aren’t foolproof. The computer endorsed Men of Medal and also He-Man, a character from the old Masters of the Universe collection that seems to be doing poorly. Said Jeff Kasch, president of Milwaukee-based toy distributor A. M. Kasch, “I’d be surprised if He-Man returns next year.”
In another case, Mattel missed an important trend. It took two years for Mattel to respond to the threat from Micro Machines, miniature die-cast cars by Lewis Galoob Toys. Enormously popular with boys, Micro Machines were a direct assault on Mattel’s older and larger Hot Wheels cars.
This year, Mattel is fighting back with miniature cars called Micro Color Racers, but the tiny Galoob cars are leaving them in the dust. Galoob claims it sells four times as many cars as Mattel. “We don’t see their product as a threat to ours,” said Steven Klein, Galoob vice president.
Klein doesn’t think intense research has much value. “This is a business where a bunch of 40-year-olds are trying to figure out what 5- to 9-year-old kids want,” he said. “You can do surveys and focus groups, but there is no way to scientifically predict which toy will sell.”
Despite Mattel’s missteps, toy industry analysts say the company is right more often than it is wrong. It successfully launched Disney infant toys last year, giving the company a position in the growing preschool market. Industry analysts expect sales of Disney toys to reach $110 million this year, double from a year ago.
On another front, Mattel bought a majority stake in Corolle, a French doll maker, to expand its offerings in large dolls. And taking advantage of its vast overseas marketing network, Mattel distributes the popular Nintendo video games system in Canada, Australia and Italy for a fee.
Rather than grope for new “hit” toys, Mattel is exploiting reliable money-makers--See ‘N Say, Hot Wheels and Barbie. Hot Wheels die-cast cars, for instance, now come in several sizes and shapes. There are cars that change color when dunked in cold water, and cars that crash on a special “spin out” track. Other cars, equipped with light-sensors, speed around a track powered by a special flashlight.
Besides new kinds of cars, Mattel envisions new kinds of products marketed under the Hot Wheels name. T-shirts, trading cards, board games--”anything that has to do with boys and cars,” says Sansone--are possibilities. Within a short time, he predicts, Hot Wheels sales could triple to $300 million.
Little Risk Involved
It is Barbie, Mattel’s best-selling toy, that offers the greatest opportunity. By slapping the Barbie name on such children’s items as perfume, clothes, watches and stationery, Mattel thinks it can take in another $500 million a year. “Barbie could be a $1-billion category,” says Sansone.
If the strategy works, Mattel would depend on Barbie more than ever, but toy industry analysts see little risk. “Mattel has earned most of its money on Barbie,” said Gregory H. Kieselmann, an analyst with L. H. Friend & Co. brokerage in Los Angeles. “It’s clearly their most profitable toy. I’m not worried about Barbie somehow falling out of bed.”
Mattel, on the lookout for acquisitions, is rumored to be a possible buyer for rival Hasbro Inc., considered a likely takeover target since the death last month of the company’s chairman and creative force, Stephen D. Hassenfeld. Though a Hasbro acquisition isn’t under active study at Mattel, at least one director favors the idea.
“I’d be interested in seeing it happen,” said Mattel director Richard J. Riordan. “They certainly have a lot of products we’d like to have.”
Hasbro would give Mattel a strong presence in board games with its Milton Bradley division, and would add depth to Mattel’s infant toy lines with its Playskool unit. Though Mattel would probably have to borrow heavily to buy Hasbro, Riordan said, “the debt would be no problem.”
A Hasbro acquisition might not be so easy. The Hassenfeld family owns 13.4% of the company’s shares, and has voting control over an 18% stake owned by Warner Communications. However, some analysts speculate that the Warner stake might be sold if Time Inc.’s bid for Warner is successful.
Healthy Comeback
Some high-level Mattel executives think the government might raise antitrust objections to a combination of the nation’s two largest toy companies. Taken together, Hasbro and Mattel would control about 16% of the $13-billion toy market.
Five years ago, a buyout of Hasbro was unimaginable. The sudden collapse of the video game market left Mattel nearly broke. Strapped for cash, Mattel sold its electronics business along with Western Publishing and its Circus World theme park in Florida.
Trimmed back to just a toy company, Mattel received a financial lifeline from an investment group led by the Wall Street firm E. M. Warburg, Pincus & Co. The investors got 35% of Mattel in exchange for $231 million in cash and a $225-million revolving credit line.
Struggling to recover, Mattel was dealt a second blow when the market for Masters of the Universe toys disappeared. Searching for new leadership, the investment group set up a contest for Mattel’s top post by creating a three-member office of the chairman. After four months, Amerman got the job, based on his success as head of Mattel’s foreign operations for seven years.
John L. Vogelstein, vice chairman of E. M. Warburg and a Mattel director, has nothing but praise for Amerman. “The job he’s done is outstanding. He has restructured the company, and its lines are perfectly positioned.” Vogelstein said his firm has no intention of selling its shares.
The company has “returned to comfortable profitability and shows excellent sales growth,” said Kieselmann, the L. H. Friend analyst, who has followed Mattel for more than a decade. “Mattel is definitely back.”
