Mattel unveils its strategy for the next phase of growth

Mattel Barbie dolls are arranged for a photo in Tiskilva, Illinois, USA on Monday, April 16, 2018.

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Mattel said Friday that its toy business is in a better position and plans to expand into other segments such as consumer products, digital games and film production.

The toy maker hopes this strategy will allow it to tap into consumer enthusiasm for toys like Barbie, Hot Wheels and Uno and provide new ways for kids and adults to experience its brands.

“The first part of the transformation was to rebuild and then boost profitability,” CEO Inon Kreitz told CNBC. “Make sure the toy company is on a solid foundation and strengthen our balance sheet. That was the focus and we always said that the opportunity to get full value was in the medium to long term.”

On Friday, Mattel will lay out this new strategy in a pre-made presentation to analysts. It’s a pattern that many others in and out of the toy industry have used – take your favorite franchises and make them available to consumers in different segments.

This strategy has proven to be effective. Providing new entertainment content such as movies, TV shows or video games keeps the brand in the zeitgeist and boosts sales of products ranging from clothing to homewares.

Take Barbie. Dolls have been on toy shelves for over 60 years, and yet in 2021 the brand posted its best sales results of the entire year.

“With Barbie, who is the best and the brightest example, it’s about the limitless potential of every girl,” Richard Dixon, president and chief operating officer of Mattel, told CNBC. “We’ve embraced that brand purpose and really defined and managed the brand to really reflect that in everything we do.”

Five years ago, Mattel re-evaluated its Barbie brand, releasing more than two dozen figurines of different nationalities and with a wider range of body types. At the same time, he introduced new lines of Barbie dolls that celebrated real women such as actress Zendaya, animal activist Bindi Irwin and dancer Misty Copeland, as well as offering more career opportunities in areas such as science, politics and business. .

“Evolution makes a brand relevant, but purpose makes a brand immortal,” Dixon said.

More than just toys

Mattel is committed to further innovating the Barbie brand with a live-action film starring Margot Robbie directed by Greta Gerwig. It will also continue to release animated Barbie specials and bring new, non-toy merchandise to stores and the digital realm.

It’s a strategic rival Hasbro knows this well and has recently come under fire for its use.

On Wednesday, activist investor Alta Fox Capital Management, which owns a 2.5% stake in Hasbro, wrote a letter to shareholders saying it plans to appoint five directors to Hasbro’s board. Alta is calling on Hasbro to highlight Wizards of the Coast and digital games, its fastest growing segment, and is asking the company to rethink its strategy for using entertainment to boost toy sales.

Hasbro takes exception to the fact that its current strategy is not working, and so do analysts. Plus, having a Wizards division that includes brands like Dungeons and Dragons and Magic: The Gathering could really help Hasbro weather the storm of losing the Disney princess license to Mattel, the lucrative toy industry license.

Mattel lost that license in 2016, leaving a huge hole in the company’s business portfolio that it was only recently able to shed.

Investors seem to agree that they have already learned about Mattel’s strategy. The company’s shares are up more than 15% since the beginning of the year. The stock hit a 52-week high of $25.71 a share on Thursday, and the stock was up less than 1% in Friday trading.

Mattel’s average target price is $30.96, which is about 24%. profit from where it is currently trading, according to FactSet. Linda Bolton Weiser, an analyst at DA Davidson, is even more optimistic. It raised its price target to $45 from $38 on Monday, citing upside potential in the coming years.

Much of her optimism stems from Mattel’s updated sales guidance, which sees 8% to 10% growth in 2022 and strong single-digit growth next year.

This robust forecast comes after a four-year turnaround that began when Kreitz took over the company in 2018. At the time, he was the fourth CEO in four years to take over the company. Fisher-Price, Barbie, and American Girl struggled to adjust to changing consumer tastes, and Mattel, more than most toy makers, experienced the bankruptcy of Toys R Us.

Looking ahead to 2022, Mattel will strengthen its financial position. The company has reduced its debt from $2.85 billion in 2018 to $2.57 billion in 2021. With an improved debt-to-adjusted EBITDA ratio, Kreitz expects Mattel to achieve an investment grade rating this year, giving it access to more loans at a lower cost. expenses.

Mattel’s outlook is based on expected sales growth in its toy business, but its post-reorganization strategy will also contribute.

The toy company has already been successful partnership with French fashion house Balmain to create a collection of ready-to-wear clothing and accessories, and auctioned three one-of-a-kind, non-interchangeable Barbie tokens.

In the past, Mattel has partnered with General Mills, L’Oreal and Nike to produce limited edition products based on its intellectual property. Kreitz said the company plans to penetrate this market deeper in the future. He is also looking for opportunities for immersive brand engagement at the point of sale.

In addition to increasing revenue, this strategy complements toy offerings as it provides consumers with a new way to interact with brands.

Digital entertainment including video games, mobile games and NFTs is another possibility.

The Mattel team notes that digital gaming alone represents a $170 billion industry, a space the company has just begun to explore. Mattel already has mobile games focused on Uno and Phase 10, as well as the racing video game Hot Wheels Unleashed, but is looking to expand this area of ​​its business.

Rival company Hasbro saw significant advantages in launching digital games such as Magic: The Gathering Arena. In 2021, Wizards of the Coast and the company’s digital gaming division generated $1.28 billion in revenue, or 20% of the company’s total revenue.

Mattel is also trying its hand at the NFT space.

“This really presents a great opportunity to achieve what I would call a high level of engagement with our iconic brands,” Dixon said. “I think what makes us unique in the NFT space is that we are globally recognized, iconic brands that, when interpreted and executed in the right way, can become incredibly interesting and incredibly valuable.”

Hot Wheels was the first major toy brand to enter the world of NFTs with three one-of-a-kind NFTs inspired by the highly sought after original Hot Wheels garage series. Another collection of more than 90,000 NFTs sold out in minutes, Dixon said, with tens of thousands of customers still waiting in virtual queues to buy them.

By exploring these other segments, Mattel can not only generate interest among its core customers, children, but also reach out to the older generation. By targeting consumers who grew up with Barbie but aren’t interested in buying traditional non-collectible dolls, Mattel can continue to keep the brand mainstream and add agents to exclusive and limited edition purchases.

Content is the key

Matchbox machines branded by Mattel Inc. Hot Wheels set up for a photo shoot in Tiskilva, Illinois, USA on Monday, April 16, 2018.

Bloomberg | Bloomberg | Getty Images

In addition, Mattel will have more than a dozen series and specials on networks or streaming services this year. According to Kreitz, he has over 20 television projects in production and about 25 in development.

“This opportunity is not being given to sell more toys,” he said. “When we launch a movie or TV show, the challenge is to make great content that people will want to watch and build successful growing verticals so we can attract the best talent, the best creatives and partners who want to create special experiences. .”

“We know that if this project is successful, good things will happen,” he continued. “We will also sell more toys, but this is not the original goal. We want to create great experiences and content that people want to watch.”

Kreitz pointed to Lego and Disney’s Marvel as examples of companies that have gone down the same path to create quality content that reimagines the original brand and rekindles consumer passion for products. In addition to producing critically acclaimed and box office success films, Disney and Lego have achieved strong merchandise sales as a result of these projects.

At the moment Mattel projects are touting some pretty big talent like Tom Hanks for Major Matt Mason and Vin Diesel for Rock ‘Em Sock ‘Em Robots.

“These are partners who used to be fans [of Mattel’s brands],” he said.

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