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Mattel, Hasbro Transform Themselves

T.L. Stanley
June, 2010

There are a couple of reasons the toy industry has been playing on a different level during the recession. The first is that a long-held notion—parents will buy for their kids even when they're nipping the family spending—turned out to be true, backed up by holiday sales that surged and, at times, left store shelves depleted.

The second is that a more recent concept—kids are getting older younger and leaving their playthings behind—proved to be a little flimsy. Or, maybe more to the point, marketers figured out how to give kids more tech-savvy products, immersive online worlds and big-screen entertainment to keep them engaged past their elementary school days.

“Kids are exposed to so much more, and maybe they don't play like they did even five years ago,” says Mattel Brands president , who came over from the company’s Fisher-Price unit in 2005. “But they still play, and we've expanded our horizons to make sure our brands are relevant in all the different ways kids play now.”

With a recovery that started in late '09, market leaders Mattel and Hasbro surprised investors with first quarter numbers well above forecasts .

Mattel's sales were up 12 percent on the backs of classic brands like Barbie (up 5 percent, her second straight quarterly increase) and Hot Wheels, which jumped 9 percent. The high-end American Girl dolls and accessories edged up 6 percent, and preschool-targeted Fisher Price increased 5 percent.

The entertainment category, fueled by new licenses with Thomas and Friends and World Wrestling Entertainment, leaped 35 percent. New concepts like Mindflex, an $80 headset game with sensors to read a kid's brain waves (seriously), and the $120 interactive dinosaur called D-Rex have been strong sellers despite their price tags.

Hasbro, based in Pawtucket,R.I., reported first-quarter sales growth in every major category, led by a 16 percent increase in its girls division, thanks in part to Littlest Pet Shop and its rich online experience. The preschool category grew by 18 percent, games and puzzles were up 7 percent and boys increased 3 percent. This followed a 25 percent uptick in the Nerf line in 2009 and must-have toys based on Transformers 2.

Carter Keithley, president of the Toy Industry Association, says the robust start to 2010 is a good omen for the industry (exhibitor sales for next year's American International Toy Fair are already running 10 percent ahead of 2009, he says).

“The success of Mattel and Hasbro helps get people into the toy aisle,” Keithley says. “What drives the economic engine is creative new product, and we think there's some great stuff in the pipeline from these two.”

BMO Capital Markets analyst Gerrick Johnson believes that both companies' emphasis on their iconic brands (Hasbro's gone from 17 percent of its business from its eight core brands early this decade to more than 50 percent) has served them well in a tough economic climate. “It's really helped he says When retail cuts back on shelf space, as they've done,” he said, “they keep the classics.”

Marketing budgets have remained relatively consistent, but the major players did some shifting last year from traditional TV and print to online, social media, in-store promotions and other retail-based programs. BMO's Johnson said he expects that trend to continue this year.

Both companies will dive deeper into Hollywood, though they have differing strategies, with Mattel treading a little more carefully and Hasbro jumping in with both feet. (It's partly Hasbro's aggressive approach in this area that's making it the Wall Street darling over its chief rival, in Johnson's view. “We're taking our brands, reinventing them and delivering them to consumers in multiple formats, whether that's an iPhone app, online community, toy or film,” said John Frascotti, Hasbro's global CMO. “We're a brand play company.”

After the box office and merchandising bonanza of Transformers and its sequel, now a billion-dollar film franchise, Hasbro's looking for big-screen hits with movies based on its classic Ouija board, Monopoly and Battleship games.

And on 10/10/10, the marketer launches an ambitious kids cable channel called The Hub, with Discovery Communications, into 60 million homes. Kid programming vet Margaret Loesch is chief executive of the channel, which will target 6-to-12-year-olds, a demo that the partners say is underserved by existing kid networks like Nickelodeon, Disney Channel and Cartoon Network.

Mattel's Magic 8 Ball is in development for a live-action feature, as is Max Steel, starring Twilight's shapeshifting hunk Taylor Lautner. Other Mattel properties in the plastic-to-celluloid pipeline include He Man and Masters of the Universe, vintage action figure Major Matt Mason and View-Master. Johnson said there's a risk to leveraging toys in film and TV, namely, the possibility of a flop. “I'm a little skeptical about toy companies creating original content around their products because what if they get it wrong?” he said.

“There's the potential to do brand damage.” Mattel execs say they're mindful of just that.

“We're not calling ourselves an entertainment company,” Friedman said. “We see ourselves as helping to develop the future of play. First, we make sure we're developing innovative product. Entertainment is an add-on.”





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