Southern Methodist University Mattel Business Strategy Analysis 1?what generic competitive business strategy is Mattel employing? what are the key element

Southern Methodist University Mattel Business Strategy Analysis 1?what generic competitive business strategy is Mattel employing? what are the key element and/ or activities that support this strategy?

2, there are many forces driving change in the Toy industry, identify and discuss at least 3 key industry pressures(KIPs) that apply to mattel in 2018.

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3,what is your assessment of Mattel’s operating performance?

don’t need reference, just according to case to analysis question Final PDF to printer
CASE 19
Mattel Incorporated in 2018:
Can Ynon Kreiz Save the Toys?
Randall D. Harris
Texas A&M University—Corpus Christi
“Y
non is a good guy, but he doesn’t know
toys and will fail like Margo did,” read
Ynon Kreiz, Chairman and Chief
Executive Officer (CEO) of Mattel, Incorporated.1
It was April 26, 2018, and it was Ynon Kreiz’s first
day on the job as Mattel CEO. Mattel, maker of
Barbie dolls and Hot Wheels cars, had just received
a letter offering to merge Mattel with privately held
MGA Entertainment, run by CEO Isaac Larian.
In his offer letter, Mr. Larian did not put a specific
value or terms on his offer, but had proposed that
the two companies merge based upon the value of
MGA Entertainment and its brands, which included
the Little Tykes line of preschool toys. Larian also
argued that he, not Kreiz, should be the executive to
lead the turnaround of Mattel.2
Kreiz had been named Chairman and CEO
of Mattel on April 19, 2018, and was succeeding
Margo Georgiadis in the job. Ms. Georgiadis, hired
away from Alphabet Inc.’s Google division, had
been appointed as Mattel CEO in February 2017.
Unfortunately, Georgiadis had been unable to reverse
a sharp drop in Mattel’s revenues, earnings, and stock
price.3 The slide in Mattel’s fortunes had been sharpened by the bankruptcy of the retailer Toys “R” Us in
2017, a key customer for Mattel’s products. Kreiz was
now the fourth CEO for Mattel in four years.
Sitting in his new office at Mattel headquarters
in El Segundo, California, Ynon Kreiz knew that
he had numerous problems with which to contend
as the incoming CEO of Mattel. Where to begin? In
his hands on his first day was an unsolicited offer
to merge with MGA Entertainment. Mattel had also
been in involved in off and on merger negotiations
with Hasbro, another close toy industry competitor.
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Central to all of these discussions was a painful
­reality—children around the world were growing up
faster and were increasingly drawn to online content,
movies, smartphones, and video games. Competition
for store space, sales, and market share in the toy
industry was intense. Making matters worse, Mattel’s
traditional sales channel, physical retail stores, were
increasingly under strain and consolidating. The
bankruptcy of Toys “R” Us was symptomatic of this
retail consolidation. Online retail competition, notably Amazon.com, was increasingly making inroads
into the sales of traditional bricks-and-mortar retailers. Mattel had also stumbled in their competition
with Hasbro, their closest competitor in the toy
industry.
Kreiz had taken the reins of the company with
a mandate from investors to streamline Mattel
operations, improve the company’s focus on technology and entertainment, and to deliver a recovery
in Mattel’s struggling stock price. From a peak of
$47.82 per share in 2013, Mattel was now trading between
$12 and $18 per share. The company had reported a
$1 billion loss in 2017. Sales, deeply affected by the
bankruptcy of Toys “R” Us, were down 10 percent
from 2016 to 2017. With all of these challenges for the
struggling company, the pressing question was this:
Could Ynon Kreiz stop the slide at Mattel? Further,
what should Kreiz and Mattel do next?
COMPANY HISTORY
Mattel was founded by Ruth and Elliott Handler out
of a garage in Southern California in 1945.4 Their first
Copyright ©2018 by Randall D. Harris. All rights reserved.
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Case 19
Mattel Incorporated in 2018: Can Ynon Kreiz Save the Toys?
two products were picture frames and dollhouse furniture crafted from scraps of picture frame. Their first
hit toy was the “Uke-A-Doodle,” a toy ukulele, released
in 1947. Mattel was formally incorporated in 1948 with
their headquarters based in Los Angeles, California.5
In 1955, Mattel began advertising their toys on
a popular television show, the Mickey Mouse Club,
which revolutionized the way in which toys were marketed to children. Mattel released a number of new
toys on the television show. In 1959, Ruth Handler
created an innovative design for a new type of doll,
and named it after her own daughter, Barbara. The
introduction of the Barbie doll became a smash hit
and propelled Mattel to the top of the toy industry.
Mattel would go on to sell over one billion Barbie
dolls, making Barbie the largest selling and most
profitable toy in Mattel’s toy lineup. The Barbie doll
was followed in 1960 with the Chatty Cathy, a talking
doll that would change the toy industry and lead to
many imitators.
Hot Wheels die-cast vehicles were rolled out in
1968. Hot Wheels toys influenced the lives of several generations of children, leading the company to
estimate that at least 41 million children had grown
up alongside the Hot Wheels brand. After a long
and successful career with Mattel, Ruth and Elliott
Handler left Mattel in 1975.
Mattel was an early entrant into the electronic
games market, introducing an electronic handheld
game in 1977. Initial success with the handheld game
led to the IntelliVision home video entertainment system and a spin-off corporation, Mattel Electronics.
This early venture into electronics did not last, however, as declining sales and mounting losses forced
Mattel into abandoning the electronics initiative.
Mattel took a $394 million loss in 1983 and debated
a bankruptcy filing. Mattel reevaluated their diversification strategy as a result and closed or divested all
non-toy related subsidiaries in the wake of the losses.
The He-Man and the Masters of the Universe line
of action figures was the next best seller for the company beginning in 1982. The company estimated sales
of the He-Man line at $400 million in 1985.6 However,
the success was short lived and sales dropped, contributing to a loss of $115 million in 1987. Mattel
began a revived working relationship with the Disney
Company in 1988. This combination revived Mattel,
leading to hit products based on Disney characters like
Mickey Mouse and characters from the ­top-grossing
Disney animated movie Toy Story.
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Mattel purchased Fisher-Price in 1993, merged
with Tyco Toys in 1997, and acquired the parent
company for the American Girl Brand in 1998. The
company also acquired the Learning Company, a
U.S. based educational software company, in the fall
of 1998. The Learning Company, a merger financed
with Mattel stock, was acquired for $3.5 billion.7 One
of the Learning Company’s more popular software
offerings was the “Where in the World is Carmen
Sandiego?” series.
Losses from the Learning Company acquisition were almost immediate. In addition to inflated
sales forecasts for the unit, Mattel had bought the
Learning Company just as children were switching
from games and learning toys on CD-ROM to downloading them from the Internet. Unfortunately, the
Learning Company was delivering their products
primarily on CD-ROM at that time.8 In addition to
the ouster of then CEO Jill Barad, Mattel booked a
$430 million loss in 2000.
New CEO Robert Eckert moved swiftly in 2000
to restructure Mattel. He dumped the Learning
Company along with other software-related assets
and began a restructuring plan for the company, with
the goal of achieving $200 million in immediate cost
savings. Eckert also reduced the company’s dividend
and cut about 10 percent of the workforce.9 Although
painful, the company had better luck that year with
licensing agreements. In 2000, Mattel retained the
master licensing rights to market and sell Harry
Potter toys, collectibles and games, and also agreed
with Disney to market Disney Princess dolls.
As part of CEO Eckert’s restructuring efforts,
the company announced in April 2001 that Mattel
would close its last U.S. manufacturing site and move
the operations to Mexico.10 This plant closure was
part of the continuing cost-cutting efforts at the company, and closed Mattel’s final U.S. plant in Murray,
Kentucky. The plant had been operational since 1973
and employed 980 manufacturing and distribution
workers. Mattel had been an early adopter of overseas manufacturing, and had been making toys in
Mexico for 25 years and in Asia for 30 years at the
time of this final U.S. plant closure.11
By 2007, approximately 65 percent of Mattel’s
toys were made in China. This included five wholly
owned Mattel factories as well as numerous contractor and subcontractor facilities. Mattel had also developed, over time, a reputation for quality and safety in
their manufacturing practices.12 Nevertheless, in May
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PART 2
Cases in Crafting and Executing Strategy
to June 2007, Mattel discovered toys manufactured
with lead-tainted paint during routine safety checks at
a number of contractor facilities in China. The subsequent investigation into the tainted toys led to a crisis
for Mattel, with a large public outcry, regulatory scrutiny and the recall of over 19 million Mattel-branded
toys.13 While a major setback for the company, Mattel
was noted for handling the recalls swiftly and effectively.14 Mattel also moved swiftly to diversify their
manufacturing facilities to other countries in order to
avoid supply disruptions and other risks.
Mattel gradually recovered from the lead paint
crisis, and revenue growth for the company resumed
in 2010. Then, in 2012, sales of Barbie dolls began to
drop.15 Gross sales for the Barbie doll line exceeded
$1.2 billion in 2012, and the drop in Barbie sales was
balanced by strong sales in other Mattel toy lines,
particularly the Disney Princess doll line. The release
of the Disney movie “Frozen” provided a sharp boost
to Mattel’s Disney line of dolls and related products
in 2013, and this somewhat countered the slump in
the core Barbie brand. Net sales for Mattel Inc. overall peaked in 2013 at $6.48 billion, despite the Barbie
sales slump.
By the third quarter of 2014, however, sales of the
Barbie brand had dropped 21 percent from the previous year.16 What was wrong with Barbie? Analysts
acknowledged that Barbie was still one of the top
doll brands in the world, but noted that girls were
increasingly drawn to other, more innovative dolls
and games that ran on tablets, computers, and smartphones.17 Further, while Barbie’s core demographic
used to be between the ages of 3 and 9, the market
for Barbie now appeared to be between the ages of
3 and 6. Children were maturing faster than ever in
the 21st century. There had also been longstanding
complaints about a lack of diversity in the Barbie doll
line, particularly given the changing demographics of
the U.S. child population.18
Other Mattel lines then began to join the Barbie
sales slump, including the popular American Girl
brand, Hot Wheels, and Fisher Price infant toys.
Overall net sales for Mattel dropped by $400 million
in 2014. In January 2015, Mattel CEO Bryan Stockton
was replaced by Christopher Sinclair, a longstanding director on Mattel’s board of directors. In 2016,
Disney moved their license to the Princess line of
dolls, including their blockbuster “Frozen” toys, to
Mattel rival Hasbro. The loss of the Disney license
had a negative impact on Mattel. Making matters
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worse, sales during the fourth quarter of 2016 failed
to meet expectations, and Mattel had to cut prices to
salvage the all-important holiday season.19
In the wake of the holiday 2016 debacle, Margo
Georgiadis was named CEO of Mattel in February
of 2017. From February 2017 to April 2018,
Mattel’s stock price dropped by 50 percent, and
Ms. Georgiadis was unable to reverse the continued
slide in Mattel’s sales and earnings.20 In November
of 2017, Hasbro made a takeover offer for Mattel, an
offer that Mattel’s board rejected.21 Ms. Georgiadis
then left Mattel abruptly in April 2018. Former studio executive Ynon Kreiz, a member of Mattel’s
board of directors since June of 2017, was named the
incoming CEO. Kreiz began his tenure as CEO of
Mattel on April 26, 2018.
VISION, MISSION, AND
STRATEGIC GOALS
Mattel Inc. had no formal mission or vision
statement. The company stated that the Mattel
Incorporated family of companies was “a worldwide
leader in the design, manufacture, and marketing
of toys and family products.”22 The company also
emphasized the power of play, stating that play was
essential for creating future generations of thinkers,
makers, and doers. Mattel had been named one of
the world’s most ethical companies by Ethnisphere
Magazine in 2013, and was also ranked Number 2
on Corporate Responsibility Magazine’s “100 Best
Corporate Citizens” list.23
In her report to Mattel shareholders in early
2018, CEO Margo Georgiadis had outlined five strategic pillars to transform the company and return it
to growth:
1. Building Mattel’s core brands into connected
360-degree play systems and experiences,
2. Accelerating emerging markets growth with digital first solutions,
3. Focusing and strengthening the company’s innovation pipeline,
4. Reshaping the company’s operations, and
5. Reigniting Mattel’s culture and team.24
Ms. Georgiadis noted a number of changes in
Mattel’s executive ranks in her report, including the
appointment of Ynon Kreiz to Mattel’s Board of
Directors in June 2017. Georgiadis also noted that
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Case 19
Mattel Incorporated in 2018: Can Ynon Kreiz Save the Toys?
the organizational structure of Mattel had been flattened and simplified to accelerate decision making
within the company.
Ms. Georgiadis introduced incoming CEO Kreiz
on Mattel’s April 26, 2018 call with analysts. On the
call, CEO Kreiz said:
We have a lot to do to reach our objectives. But I’m very
confident that we have the right plan and the right team
in place . . . . We are already making strong progress
against our strategic pillars. My immediate focus (for
Mattel) includes the following priorities: implementing
our Structural Simplification to restore profitability,
stabilizing revenue, reinvigorating our concept to drive
creativity, which I believe is essential to our success; and
strengthening our collaboration with our partners.25
Incoming CEO Kreiz also articulated his longerrange vision for Mattel during the call with analysts:
The big picture opportunity is to transform Mattel to an
IT (information technology) driven high-performing toy
company, that is more efficient, more profitable, and has
a higher growth trajectory. We have very strong assets,
including some of the world’s best and greatest toy brands.
We have a very good team and a very good strategy that I
feel very good about. So our focus now is to deliver on our
transformation plan and maximize value for the company
and for our shareholders. This is not going to be easy.
There’s no denying that we faced significant challenges
over the last few years and there are still headwinds in certain key areas of the business. But I feel confident about
where we sit and what we have to do to take it on.26
COMPANY OPERATIONS
Mattel Inc. had their worldwide headquarters in El
Segundo, California, just south of the Los Angeles
International Airport (LAX). As of December 2017,
the company employed 28,000 people on a worldwide basis. The corporate headquarters consisted of
two main buildings in El Segundo, with additional
leased buildings in the immediate area for company
operations. Mattel also had another major facility
in East Aurora, New York, that was used for North
American operations and support.
Mattel’s American Girl operations were based in
Middleton, Wisconsin, with a headquarters facility, a
warehouse, and distribution facilities in the immediate
Middleton, Wisconsin area. Mattel also had retail and
related office space in 20 additional cities around the
United States, and 40 countries around the world.27
Mattel sold their products in 150 nations.
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Manufacturing for the company was conducted
through both company-owned facilities and by contract through third-party manufacturers. Mattel had
company-owned manufacturing facilities in Canada,
China, Indonesia, Malaysia, Mexico, and Thailand.
Manufacture of core products for the company was
generally conducted by company-owned facilities in
order to improve flexibility and to lower manufacturing costs.28 Non-core toy products were produced
by third-party contract manufacturers. Mattel also
purchased some toys from unrelated companies for
resale through Mattel sales channels.
Creativity and innovation was a critical issue
for companies like Mattel in the toy industry. Mattel
invested heavily in refreshing, redesigning, and
extending their existing toy lines, as well as developing brand new toy product lines for their company.
Product design and development was conducted in
house by a group of professional toy designers and
engineers. In 2017, the company spent approximately
$225 million on product design and development.
Mattel’s toy business was highly seasonal. Sales
built into the fourth quarter of the year and end of
year holidays. A significant portion of purchasing
by Mattel’s customers occurred during the third and
fourth quarters of the year.29 It was critical that Mattel
manufacture enough of the right toys in advance
of the fourth quarter to meet this surge in demand.
Conversely, not manufacturing unpopular toys was
also important to avoid stocking unpopular items. It
was difficult for the company to match supply and
demand with significant lead times for production
early in the year. This seasonality in demand also
meant increased need by Mattel for working capital
earlier in the year in order to meet the anticipated
surge in production to meet year-end demand for toys.
MATTEL PRODUCTS
Mattel’s brands and products were organized into four
main categories: (1) Mattel Girls and Boys Brands,
(2) Fisher-Price Brands, (3) American Girl Brands,
and (4) Construction and Arts & Crafts Brands. Each
category had a multitude of products as part of their
portfolio:
1. Mattel Girls & Boys Brands. This category included
the Barbie doll and related accessories, Monster
High, DC Super Hero Girls, Enchantimals,
and Polly Pocket brand lines. Wheeled toy lines
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PART 2
Cases in Crafting and Executing Strategy
included Hot Wheels, Matchbox, and CARS.
Additional brand lines were DC Comics, WWE
Wrestling, Minecraft, Toy Story, and additional
games and puzzles.
2. Fisher-Price Brands. The core Fisher-Price brands
included Fisher-Price, Little People, BabyGear,
Laugh & Learn, and Imaginext. Additional brand
lines included Thomas & Friends, Shimmer & Shine,
Mickey Mouse Clubhouse, and Power Wheels.
3. American Girl Brands. American Girl brands
and products included American Girl, Truly
Me, Girl of the Year, BeForever, Bitty Baby, and
WellieWishers.
4. Construction and Arts & Crafts Brands. These brand
lines included MEGA BLOKS and RoseArt.30
MATTEL MARKETING
Marketing toys to children and their parents was an
advertising intensive activity. Mattel spent heavily
on marketing and promotional activities. Marketing
activity was seasonal, with a peak during the fourth
quarter of the year. Mattel advertised through TV
and radio commercials, magazines, and newspapers. Promotional activity for the company included
in-store displays, major events focusing on Mattel
branded products, and marketing tie-ins with various
consumer products companies. During 2017, Mattel
spent $642.3 million, or 13.2 percent of company net
sales, on advertising and promotion.
Of particular importance to Mattel was the rise
of social media and the Internet as a marketing and
promotional channel. Children and their parents
were increasingly accessing information about toys
on social media websites. Mattel had carefully developed their Facebook presence, and had cultivated
14 million foll…
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