Hoswot analysis of mattel inc

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. tho75109_case19_C216-C231.indd C-216 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. 12/18/18 10:49 AM Final PDF to printer 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. tho75109_case19_C216-C231.indd C-217 C-217 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.