August 17, 2009
HAPPIER HOLIDAYS AHEAD FOR MATTEL THROUGH NEW DOORS, TOYS
AND HOME ENTERTAINMENT
By David Franklin, david.franklin@blueshiftresearch.net 415.364.3780
OUR STARTING THESIS AND APPROACH FOR THE MATTEL PROJECT
This week, Blueshift Research initiated research on Mattel Inc. (MAT). The original thesis questions whether Mattel
can strengthen its brand while maintaining toy sellers’ support and under the guidance of the new general Barbie
franchise manager, who is leading the doll line through a makeover.
This study employed Blueshift’s pattern mining approach to establish contacts within five independent silos to
assess the likelihood for sales growth. The silos: 1) store clerks and managers, 2) toy industry experts, 3)
secondary sources, 4) competitors and 5) consumers. We interviewed 15 primary sources and reviewed more than
seven secondary sources.
SUMMARY OF FINDINGS
 Five of six retailers interviewed expect overall holiday toy sales to exceed last year’s levels. Two retailers
said Mattel will benefit from new and creative Barbie end-cap displays, a Hot Wheels: Battle Force 5 TV
series tie-in agreement and Avatar action figures scheduled to be released in October.
 Toy experts were split on their expectations for overall toy sales for the 2H09. One forecast flat sales, while
the other expects a year-to-year increase. An industrywide price hike of 5% to 6% will help propel sales
ahead of last year. Mattel implemented a modest price increase on its spring line of toys and a mid- to high
single-digit hike on June 1.
 Wal-Mart Stores Inc. (WMT) is cutting shelf space for toys and crafts. Experts expect this to benefit Mattel
as smaller competitors’ product lines will be reduced.
 Sears Holding Co. (SHLD), Borders Group Inc. (BGP), Barnes & Noble Inc. (BKS) and Spencer Gifts LLC are
adding or expanding their toy offerings this holiday season, which potentially could add 2,560 new or
expanded toy departments and lead to sales growth for the industry.
Toy Store Managers and Clerks: Five of the six retailers interviewed expect 2009 toy sales to surpass 2008
sales. Barbie, Hot Wheels, Fisher-Price and board games are expected to be strong performers. Pre-release
(October) marketing of Mattel’s new Avatar action figures and Hot Wheels: Battle Force 5 vehicles is
generating some interest. Marketing of Barbie through a creative isle end-cap also has drawn attention.
•
A manager in a West Coast Toys “R” Us Inc. store said overall sales have been trending up for the past two
months and expects toy sales to be ahead of last year. He described Mattel as an excellent company with
cutting-edge design, whose toy lines generate excitement for his customers and his staff. He commented on
a Barbie end-cap display that is really drawing a lot of attention.
o “Barbie is a remarkable selling product. Mattel keeps it current and always offers something
interesting and timely. The African-American Barbie with actual African-American features is an
excellent product, and we are selling a lot of them.”
o “Fisher-Price is an excellent brand. Customers ask for the products, and the company always has
interesting products that are well made and well packaged for display and sale.”
o “Mattel has a very creative Barbie end-cap display that is generating a lot of interest from
consumers and staff.”
•
A toy department manager at an East Coast Wal-Mart expects 2H09 sales to be better than 2H08. She said
Mattel board games and Hot Wheels were selling very well right now. The manager thinks more people are
staying home because of the economy and are looking for ways to entertain themselves. She has had
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•
customers asking about the Avatar products that Mattel expects to introduce in October. She said advance
release interest is a very good sign.
o “Mattel should make a killing this Christmas. People are starting to buy for the holidays now. Lots of
board games are being sold.”
o “Mattel has excellent quality, and for as long as I’ve been selling toys they have had excellent
quality.”
A manager of a store that is part of a five-store specialty chain said her sales have been steady year to year
and are expected to be better during 2H09 compared with 2H08. They carry some of the Barbie products
and Mattel board games, which have been consistently solid performers. Mattel quality is good, and
customers seem to be pleased with the Mattel products they stock.
o “This store is in an affluent ZIP code, so our customers have continued to spend money. We
anticipate having a solid holiday sales season, and we should see sales numbers that top last year’s
but not by much because of the economy.”
o “You can’t really be a toy store without Mattel products and especially Barbie.”
o “I had heard that some of the Mattel products had problems, but Barbie has always been a steady
seller for this store.”
•
A clerk in an independent toy store said Mattel was an excellent brand of toys. She said parents know the
brand but usually only because of Barbie and Hot Wheels. The store had a large inventory of toys on the
floor in preparation of a good holiday season and in anticipation of improved sales year to year.
o “We expect the holiday season to be better than last year as far as sales go. There is no way that
parents will not spend on their kids two years in a row.”
o “Barbie, Hot Wheels and board games are the best sellers of the Mattel product line for us.”
•
A Wal-Mart toy department manager on the East Coast said the economy has hindered sales, prompting the
store to proceed cautiously with holiday inventory. She said Mattel is a good company, but she did not
really see much difference between the major players. She said if one comes out with something new, the
others come out with the same thing.
o “I don’t know what to expect from the holiday sales this year. The economy has negatively impacted
our sales, and last Christmas we had to discount to get things moving. I am seeing some
improvement, but I’m concerned about sales moving forward.”
o “Barbie is always popular and sells very well, and the Disney Princess dolls have been popular as
well.”
o “Mattel is a good toy company for us; all their products sell well.”
o “After we see what is popular, we will prepare our orders for the holiday season. We will start to
closely monitor sales for the next few weeks and then decide what and how much to stock.”
•
A specialty toy store manager in San Francisco said sales are starting to increase compared with the first
half of the year and expects an improved holiday season year to year. She said Mattel products are excellent
sellers for toy stores. Her store does not carry any products from the Mattel line because they did not fit
with the store’s philosophy of educational and natural products.
o “Sales have been steady for us compared to last year, and I expect the holiday to be a little better
than last year.”
o “Barbie is still a good seller, especially when they incorporate a movie tie-in.”
Toy Experts: The two experts interviewed differed on their prediction for 2H09 sales. One expects toy sales
to improve year to year. The other source expects sales to be flat, which he views as a success given the
current economy. Industrywide price increases are considered a positive for 2009 sales, and pent-up
consumer demand is expected to influence 4Q09 sales. Wal-Mart’s plan to cut its toy offerings should
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benefit Mattel as major toy company product lines will be maintained while smaller toy companies will be
eliminated. With toy inventories currently low, one source expects seasonal ordering to begin soon.
•
•
The treasurer for the American Specialty Toy Retailing Association’s board of directors and owner of a fivestore chain said sales are improving because of industrywide price increases of 5% to 6%. She also expects
sales to exceed last year’s levels because of pent-up consumer demand. Toys and board games from Mattel
are good sellers for this source. She said the toy industry was thought to be recession-proof but it suffered
in 2008 and early 2009.
o “What you’re losing in transactions, you’re gaining in dollars per transaction. If the average
transaction is up 5% to 6%, it helps offset declines.”
o “I think there’s going to be a lot of pent-up desire to spend by the time we hit fourth quarter.
Barring a catastrophe, people will want to indulge themselves; they’ll want to live again. They’re
going to find the cash or credit to make that happen. People are fed up with the deprivation
mentality.”
o “I think the recovery indicators began about April 1. There were signs of a recovery in consumer
attitude and consumer spending. People came out and spent.”
An editor for a toy trade publication and Web site said toy industry sales for 2009 will be flat year to year.
He said Wal-Mart’s plan to reduce toy space is not likely to hurt Mattel and actually could help sales as the
chain is expected to maintain the top 10 toy companies. Toy department expansion in Sears, Borders,
Spencer Gifts and Barnes & Noble also bodes well for Mattel and other toy companies. He expects Barbie to
get a lot of competition from smaller toy companies because MGM Entertainment Inc.’s Bratz is or soon will
be out of the picture. Because retailers have been maintaining very sparse inventories, holiday orders
should begin soon.
o “I expect toy sales to be flat compared to last year, and I think that’s quite an accomplishment.”
o “Mattel has taken the necessary steps in difficult times to remain successful.”
o “The entire toy industry is poised for growth when the consumer starts to spend again.”
o “Mattel licensing programs are excellent, and they produce a lot of revenue. The Barbie licensing is
very successful, and the Fisher-Price branding is excellent as well.”
o “The movie tie-ins with Disney are usually a winner for Mattel. They did not have any real
blockbuster this summer, but I expect a Cars sequel and another Toy Story movie.”
Secondary Sources: Secondary sources revealed that Wal-Mart’s decision to reduce shelf space for toys
should benefit Mattel and the other major toy brands as smaller competing product lines will be reduced
or eliminated. Sears, Borders, Barnes & Noble and Spencer Gifts are adding or expanding their toy
offerings, which should make up for lost space on Wal-Mart shelves and provide an avenue for growth for
the industry. Excitement has been generated by Mattel’s new interactive action figures tied in with the
upcoming Avatar: The Last Airbender movie and Hot Wheels vehicles based on the new Hot Wheels: Battle
Force 5 TV series. Both new products are due out in October of this year. Mattel’s Blokus board game is
helping the toy industry experience an increase in game sales.
•
A May TD Monthly posting indicates that Wal-Mart is cutting back on retail space for toys and crafts. WalMart is challenging the article; however, Blueshift sources confirmed that cuts in inventory and retail space
are expected.
http://www.toydirectory.com/monthly/article.asp?id=3745
o “This new layout has major implications for the toy and craft space: 1. They are reducing the toy
space by more than half.”
•
On August 9 and 12 Richard Gottlieb wrote on his blog about industry growth because of new toy
departments being added in several stores. He further elaborated on how the toy industry has been
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underrepresented because of the closing of KB Toys Inc. and Zany Brainy Inc. and Toys “R” Us’ reduction in
store counts.
http://www.playthings.com/blog/390000439/post/1350047535.html
http://www.playthings.com/blog/390000439/post/1950047595.html
o “That is a total of 2,560 new or amplified doors to sell and most of them offering a diversity of
product. In the past few years, the demise of chains like KB and Zany Brainy coupled with the
reduction in store counts for Toys ‘R’ Us and Kmart has meant hard times for many manufacturers
and sales representatives.”
o “The toy industry has become under stored. After years of chains closing and downsizing there are
no longer enough stores selling toys. It’s a good time to get in.”
•
On July 29, industry online publication Playthings reported that Sears is upping its efforts in the toy
retailing business by opening toy shops in 20 stores around the country.
http://www.playthings.com/article/CA6673831.html?industryid=47323
o “Toy shops will open on August 15 in seven locations in the Chicago area, six stores in Los Angeles,
four stores in San Francisco and three in the New York City region, according to The Chicago
Tribune.”
o “Sears sells enough toys and games through its catalog and online efforts to consistently rank among
the nation’s top 25 toy retailers.
•
On August 4, Playthings stated that Borders will boost its toy selections.
http://www.playthings.com/article/CA6674703.html?q=Borders
o “Borders today announced a greatly expanded toy and game selection in the children’s department
of its more than 500 superstores nationwide.”
o “The move follows a similar program by bookselling rival Barnes & Noble.
•
A July 23 article from a Fast Company.com blog states that Mattel’s Avatar action figures will offer
augmented reality in video.
http://www.fastcompany.com/blog/stephanie-schomer/write/wait-Avatar-gets-little-easier-these-toyscome-life-1
o “Anticipation for James Cameron’s 3-D sci-fi adventure Avatar has been at a fevered pitch for
seemingly forever, and cinephiles and geeks everywhere now have less than five months to see if it
lives up to the hype(it’s scheduled to open December18, 2009).”
o For the Comic-Con audience, where the toys are almost as important to the movie they’re tied to,
Mattel sets hearts aflutter with its announcement of its line of action figures that are expected to hit
the store shelves in October.”
o “The toys offer augmented reality. (The good news just keeps coming).”
•
Playthings’ June 1 article revealed that Mattel announced a Hot Wheels TV series featuring Hot Wheels
Battle Force 5 toys at a licensing show.
http://www.playthings.com/article/CA6662037.html?q=Mattel
o “Mattel announced today a full complement of new licensing, promotional and distribution partners
for a variety of its brands, led by its initial list of supporters for the launch of the original animated
TV series Hot Wheels: Battle Force 5.”
o “Mattel’s Battle Force toys will reach retail shelves in October.”
o “In outbound licensing for the toymaker’s other properties, Mattel Brands has inked deals with
partners across numerous licensed categories, including entertainment, home décor, beauty, party
décor/giftables, games, food and outdoor play products for Barbie, Hot Wheels and Fisher-Price.”
•
A July 10 article on CNNMoney.com reports that the board game is back and Mattel is betting on Blokus.
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http://money.cnn.com/2009/07/10/news/economy/board_games_resurgence.fortune/index.htm
o
o
o
o
“When the company acquired Blokus earlier this year, it was to capitalize on the growing cachet
hobby games have with twentysomethings—a demographic that Mattel’s aggressively pursuing,
says Geoff Walker, Mattel’s senior vice president of Wheels, Games and Radica.”
“It may seem like an odd move, but not only have hobby games like Blokus taken hold with the next
generation, board games on the whole have seen a bounce in the past year. In 2008, board games
sales climbed 23.5% to about $808 million, and they’re expected to grow more this year.”
“By appealing to young adrenalin-driven consumers, hobby games like Blokus have scrambled
ahead of [Hasbro Inc.’s/HAS] Scrabble and other traditional games.”
“‘I don’t think board games are going away,’ according to Chris Byrne, industry specialist, also
known as the Toy Guy. ‘In a screen-driven world, we really need human interaction. That’s
something that board games have that hasn’t been replicated.’”
Competitors: Two competitors to parts of the Mattel product line had nothing negative to say about the
company or their products. They differed on the industry’s current state. One source said it was recessionproof while the other said sales suffered in 2008 and early 2009. This latter source reported improvement
but expects her retailers to be cautious when buying for the holiday season.
•
An East Coast sales representative for soft toy products said 80% of Mattel’s business success depends on
sales from Wal-Mart, Sears, Kmart, Target Corp. (TGT) and Toys “R” Us. She reported early signs that
spending for the holidays may be better than last year, but said her retailers are being cautious about
inventory levels because of high unemployment. She expects sales to be equal to or slightly higher than last
year.
o “Mattel’s success is tied directly to how well they do in Toys “R” Us, Wal-Mart and Kmart. Over 80%
of their business comes from the mass-market retailers, so that is where they have to do well.”
o “Mattel is a heavyweight in the toy business; they are well thought of for their design consistency
and leadership.”
o “If people open their wallets this Christmas—and I think they will, at least more than they did last
year—Mattel will do well as they have a strong product line.”
•
The vice president of a small toy and game manufacturer said Mattel has a solid marketing plan with the
large chain retailers. He believes the toy industry is recession-proof, but said its current challenges are
meeting the new toy safety act’s requirements and remaining innovative to meet demand for technology in
toys.
o “Mattel is selling 80% of their product through mass market where the toy section has row after
row of product. That’s a good model because you’re going to sell product.
o “I think with moms there’s the sense that if it has the technology it’s a smarter product.”
Consumers: A group of six 9-year-old girls at summer camp were asked about the best dolls, and two
Mattel products, American Girl and Polly Pockets, were named. Four consumers also interviewed all were
positive on the Mattel brand. Two sources cited high quality while two others commented on Mattel’s
innovation and timeliness of design. Board games are popular. Two sources expect to spend less this
holiday season.
•
In an interview at a summer camp, a group of 9-year-old girls were asked about the best dolls. The girls
clearly favored Mattel’s American Girls. They loved the accessories and the different outfits and dressing
them up. They started playing with them at age seven. None of the girls liked MGM’s Bratz dolls or Barbie,
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which toy experts said is targeted to girls 3 to 6 years old. They reported playing with Polly Pocket when
they were younger.
o “American girls are really cool. You can dress them up, and you can buy them clothes.”
o “I like dressing them [American Girl] up and doing their hair.”
On why they don’t like Barbie:
o “They’re weird.”
o “Their heads pop off.”
On Bratz dolls:
o “My mom says they’re too fancy and wear too much makeup.”
o “They’re weird. Their lips are really big.”
o “They have really fat faces and tiny bodies; they look funny.”
•
The grandparents of two boys said Mattel toys were of excellent quality and last a long time. They felt
Mattel offered toys both current and traditional. They expect to buy more board games as their
grandchildren get older. They anticipate buying Mattel toys for Christmas but probably will not spend as
much money this year because of the economy.
o “Mattel’s designs seem to stay current, and kids just seem to enjoy playing with their toys.”
o “I’m a Barbie fan. I buy Barbies for my family’s and friends’ children. She is still a great doll.”
•
A mother of two boys ages 6 and 4 said Fisher-Price and Hot Wheels are favorites. She does not usually
shop by brand, but Mattel products have been in their toy box for a long time.
o “Mattel seems to have products that are appropriate for kids of all ages.”
o “My girlfriend and I just went shopping for her new baby, and she brought home several FisherPrice products.”
o “We’re going to be very cautious with spending this Christmas. We just don’t know where things are
going.”
•
A mother of two girls ages 3 and 6 reported having Mattel toys, but she does not specifically shop for the
brand. She said her children like Polly Pockets and play board games, particularly Uno.
o “For birthday parties, I buy Polly Pocket dolls and Barbie sticker books.”
•
A Barbie collector in her late 30s with more than 100 dolls in her collection praised the quality and value of
Barbie. She considers the designer gown series to be an excellent investment.
o “Things seem to be changing for the better now. Mattel has faced some problems over the past few
years. Management took too much for granted and tried to live on the Mattel name alone.”
o “I will continue to buy the collector Barbie dolls. I just can’t help myself, and it’s fun and profitable.
Well, at least it pays for my obsession.”
o “I buy two of every doll. One to display and one to sell when the price is right.”
NEXT STEPS
Blueshift will attempt to get additional consumer input on the Barbie product line (girls ages 3 to 6 and their
parents) to determine if the makeover is starting to improve sales. We will focus on the Hot Wheels product line
and Fisher-Price products as well. Contact will be made with retailers adding or expanding toy departments to
gauge additional shelf space Mattel can expects. Addition retailers will be interviewed to gauge the inventory and
sales ramp-up to the holiday season.
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