The toy business dodged a bullet during the so-called Great Recession. In 2009, sales were flat, with many categories down 15 to 20 percent. But the industry had suffered worse: Ten years ago, video games were said to be eclipsing toys entirely. While retailers expect a better holiday season for 2010, they are wary because consumers now delay purchases until the last minute.
“People are trained to wait for sales now,” says Mattel CEO Bob Eckert. “They know the supply chain works fast enough. When we were kids, if you didn’t buy the goods in October or November, there was nothing on the shelf in December. Now there’s a lot on the shelf in December. In fact, a lot of retailers say their biggest week of the year in retail is the week after Christmas.”
The company has been working from its El Segundo, California headquarters to streamline its global shipping supply chain in anticipation of the Christmas and post-holiday seasons. Since October 2008, it has trimmed its workforce by 8 percent, mostly in the managerial ranks, to improve operations and margins. Mattel now employs 27,000 in 43 countries and sells in more than 150 countries. Its top brand is Barbie, the bestselling toy in the world and, according to Wells Fargo Securities, the source of 14 to 17 percent of its $6 billion in revenue. (The company does not officially disclose Barbie sales.) Other popular brands include Fisher-Price, Hot Wheels Matchbox and American Girl dolls.
“The coolest Barbie this Christmas,” says Eckert, is Barbie Video Girl, a doll with a camera-lens pendant. A small LCD screen on the doll’s back allows the doll’s owner to “see the world through Barbie’s perspective.” The doll sells for $50—not bad, considering the average toy sells for $10. A cable connects it to a PC so girls can create and edit movies of up to 30 minutes from what the doll “sees.” Of course, as any parent knows, that’s just the starter kit. An array of clothes and accessories can set one back hundreds of dollars.
The son of a dentist, Eckert has been CEO since 2000, when non-U.S. revenue was a mere 29 percent of the company’s total. Today it is 46 percent and headed toward 60 percent over the next five years. Before coming to the toymaker, he was CEO of Kraft Foods, the largest packaged-food company in North America, after serving as president of its Oscar Meyer division. Currently, he serves on the board of McDonalds. A big believer in investing in the development of people, Eckert established a leadership development center on the Mattel campus during his 10-year tenure. Recently CE caught up with Eckert in New York.
More of your revenues are coming from outside the U.S. What markets are key to Mattel’s future?
The U.S. remains the most profitable market for us, because it has the most scale. It has very sophisticated large retailers—Toys ‘R’ Us, Wal-Mart, Target, Kmart, Kohl’s, Amazon. com. It has a sophisticated retail structure and supply chain, and continues to be the largest, most-profitable market for a toy business.
While Mexico has been tough for the last few years, over the last 20 years it has emerged from being one among many emerging markets around the world to our second- best toy market in the world. Next is Brazil, which is where Mexico was 10 or 20 years ago. Ten years ago, we had virtually no business in Brazil. Today we have a sizeable business owing to more families joining the middle class seeking affordable, branded goods. I suspect whoever’s sitting here in my seat talking to you in the next five years will be talking even more about places like Brazil. Similarly we have strong hopes for Chile, a market we’ve been in for 45 years. Its middle class is growing and onsumers are moving from inexpensive, generic toys into branded goods.
How does Mattel vary its toys for markets around the world?
Everything starts with play patterns, which are remarkably similar and evolve slowly over decades. Boys still play out conflict. Girls still aspire to careers or princess or fashion play. Toys that create these experiences are largely similar around the world. Barbie is not just the No. 1 doll in the U.S.; it’s the No. 1 doll in the world.
Is that because Barbies sold in Indonesia look Indonesian?
But she doesn’t. Surprisingly, the No. 1 selling Barbie doll in China is a Caucasian Malibu Barbie. Mothers around the world like to see their daughters playing with a Barbie that looks more like the culture they’re living in. But it’s interesting how that plays out. While we offer variations that are a little bit more Asian-looking, what is considered aspirational is what sells, and America is still seen as the great beacon of the world. When little girls around the world are asked, “What does Barbie look like?” the answer is blonde hair, blue eyes and the look associated with Malibu Barbie. Girls usually own anywhere between four and 10 Barbies. Some have red hair, some have dark hair. But at the end of the day, the one they always hold out as Barbie is the blonde.
Apart from Barbie what’s hot now?
Brands of dolls that don’t fit with the Barbie experience include Polly Pockets, which are very small, collectible items. One of the coolest lines we have is Monster High, which was developed by a package designer at Mattel. The concept is that these are offspring of famous monsters going to high school together—Frankenstein’s daughter, Dracula’s daughter, all experiencing the trials and tribulations of high school, which kids find fascinating. But the storylines behind the characters are weird. For example, Dracula’s daughter is a vegetarian because she’s not like Dracula.
Lady Gaga is red hot; will there be a Lady Gaga Barbie?
You never know. There may be. We try to keep Barbie relevant with today’s culture. We’re having great success with the Barbie version of the Twilight Saga characters. This fall you can buy Mad Men figures—not exactly Barbies, but 11-inch fashion dolls in the Barbie line. These are not really young girl dolls. If you’re into Mad Men—I happen to watch Mad Men and my kids, who have the dolls, do too—it’s just something to have.
Be frank. Has there been a Barbie or another toy Mattel regrets having made? What’s your Edsel?
When I first joined the toy business we in the industry were pretty defensive. Investors asked if the toy business was shrinking. “Aren’t kids getting older at early stages of their lives? Don’t they have other things to do? Toys are buggy whips.” Today, none of us in the industry thinks or talks that way. We talk about play experience, like Video Girl Barbie, where she gets her first video experiences with a toy. Or one of our competitors, Hasbro, has done a fabulous job creating intellectual property with Transformers. We’re doing it with Monster High. It’s not only a line of dolls; it’s among the top 10 costumes sold by Party City. We sell Monster High clothes in The Limited. It’s a consumer franchise.
We made a Lindsay Lohan Barbie back when Lindsay Lohan had a positive image. It was a big seller. We talked about the possibility of making a live action movie with her starring in it but it never happened, and not because we were prescient. We were fortunate in not being caught in the downside of that storm.
The closest example I can think of was when we overthought the price value of Barbie. “Oh, my goodness, we’ve got to have $5 or a $4 Barbie doll.” To achieve this we took too much out of the box. Barbie had no shoes. That proved a big mistake. You can’t have a barefoot Barbie. You can’t have a Barbie with virtually nothing. Girls must embrace it, aspire and role-play with it.
How are toys themselves changing?
They are more sophisticated, more electronic. They do more. At the same time, we’ve also learned the lesson that the toy can’t do everything. Seven years ago my favorite toy was a little red truck with a little stylus on its hood. The kid drew how he wanted the truck to move and the truck did it. I thought it was the coolest thing I’d ever seen. But it fell to the bottom of the distribution curve, because it did too much of the play. Boys like to push the truck around the floor. When the truck pushes itself around the floor, it takes the magic out.
In addition, toys are increasingly being seen as brands, not just toys. We have a big business in Barbie outside the toy business. Barbie bicycles are the No. 1-selling girl’s bike. One of our largest retail customers last week tells us that the Hot Wheels bike is their No. 1 boy’s bike. And we don’t make bikes. We license the brand to a bike maker who pays us a royalty.
Over the next decade toy brands will be run much more like brands than toys. Increasingly, we talk about toy brands in terms of features. What does the toy do? How does this play out in multiple categories? For example, when we launched Monster High, we didn’t just introduce the toy line on day one. We also introduced the clothing line and the hard-cover book for little girls, which made The New York Times bestseller lists for kids’ books. It’s creating the brand experience, not just the toy experience.