Mattel to Shed Its Weaker Noncore Lines
Mattel Inc. plans to reposition its toy business by shedding weaker-selling noncore product lines, its first strategic move under new Chief Executive Jill Barad.
Mattel, based in El Segundo, on Thursday would not elaborate on the plan, disclosed in the company’s quarterly earnings report.
Industry analysts said Mattel decided to consolidate its toy lines partly because some retailers are eliminating slow-selling toys to make room for more popular products. The Toys R Us Inc. chain, for example, is clearing shelf space for popular toys.
“That decision is significant because Toys R Us generates about 25% of all toy sales,” said Richard Nelson, an industry analyst at Nesbitt Burns in Chicago. “The trend throughout retailing is to focus on hot-selling items. The current retail philosophy is, ‘Stick with the best, instead of the rest.’ Increasingly, this is a hit-driven business.”
Analysts say retailers can reduce inventory and labor costs as well as boost sales by stocking stores with more strong-selling toys.
Mattel’s consolidation is independent of the retailers’, said Mattel spokesman Glenn Bozarth.
“It’s a parallel development,” he said. “Retailers are focusing their business more on products that sell consistently and we’re focusing on our core lines because they’re more profitable.”
About 87% of Mattel’s 1996 revenue was generated by its four core businesses: Barbie dolls, Hot Wheels, the Fisher Price line and Disney-licensed products. Those lines produced 80% of the company’s revenue in 1995, Bozarth said.
Mattel had been trying to diversify by developing and acquiring products for two of its weaker product categories: board games and toys for young boys. The company recently acquired the rights to Scrabble, for example, and introduced the board game Compatibility last year.
Mattel will more quickly boost its overall sales if it completes its planned acquisition of Tyco Toys Inc. Mattel last year agreed to acquire the Mount Laurel, N.J.-based Tyco, which makes the Matchbox cars popular with young boys. Tyco also manufactures Tickle Me Elmo, the rage of last year’s Christmas season. The merger must be approved by federal regulators.
“With the prospect of a merger with Tyco . . . Mattel has decided to devote more resources to the products that provide the best financial return,” said David Leibowitz, an analyst at Burnham Securities in New York. “Mattel will make decisions about its product line only after that merger is approved.”
To help clear the way for a merger, Mattel plans to take a $15.1-million charge for its recently completed fourth quarter to resolve an accounting dispute with the Securities and Exchange Commission.
Mattel shares fell $1.625 to $25.75 on the New York Stock Exchange.
