Already a Bloomberg.com user?
Sign in with the same account.
By Christopher Palmeri A gang of doe-eyed dolls is crashing Barbie's party. Called the Bratz Pack, they're a line of hip, fashion-conscious characters that's expected to generate sales of $150 million this year for privately held MGA Entertainment -- up from just $20 million in 2001, when the dolls were released. While that's still small compared to Barbie's yearly sales of $1.5 billion, Bratz do pose a problem for Mattel (MAT
), which saw Barbie sales decline by 1% in the U.S. for the quarter ended Sept. 30. "It's head-to-head competition," says James Silver, publisher of trade publication Toy Book. "Bratz are taking share from Barbie."
In the past, a potent new rival like Bratz would have spelled big trouble for Mattel, which has historically generated one-third of its sales -- and an even larger share of its profit -- from the world's most famous doll. But under the direction of Robert A. Eckert, chairman and chief executive since May, 2000, Mattel has emerged a stronger and more diversified company, one better equipped to weather the fickle toy business. In addition to Bratz and the skittish retail environment, this season's challenges have included a work stoppage at West Coast ports that impeded toy shipments.
BACK TO BASICS. Mattel investors remain serene in the face of those concerns. Selling at around $20 a share, Mattel's stock is trading near a three-year high. The reasons: The prospect of strong Christmas sales and clear evidence of a turnaround under Eckert's leadership. "It's basic blocking and tackling," says Sean McGowan, director of equity research at Gerald Klauer Mattison and a longtime toy-industry analyst. "Bob has done a great job at that."
The former president of the Kraft Foods division of Philip Morris (MO
), Eckert has sought to bring more stability to the notoriously volatile toy industry. He ditched The Learning Company, Mattel's profitless educational-software division, shunned some high-priced licensing deals, and emphasized core brands like Barbie, Hot Wheels, and Fisher-Price.
At the same time, he focused on the nitty-gritty of manufacturing -- lower costs, more efficient product design, and improved order-fulfillment. "Bob has set much more realistic goals for the company," notes Margaret Whitfield, a toy-industry analyst at Brean Murray Research.
SLICED DEBT. The results are showing up in Mattel's bottom line. This year, earnings of $485 million are expected on sales of $4.8 billion. That makes for a stark contrast with the toy titan's loss of $82 million after charges on sales of $4.5 billion in 1999, the year before Eckert took over. Whitfield projects that profit will increase to $1.20 a share in 2003, vs. $1.04 a share this year.
Eckert also has been able to cut Mattel's debt by one-half, to $1 billion. Notes Mark Greenberg, Invesco Leisure Fund manager and a large Mattel shareholder: "Look at debt, inventory, accounts receivable. They've had improvement on every metric on the balance sheet."
While Eckert has lifted Mattel's finances, he hasn't forgotten that December sales will ultimately make or break the outfit. With that in mind, Eckert has sought to offer a broad line of new products so that Mattel isn't dependent on any one blockbuster toy. "Our strategy isn't about swinging for the fences," says 48-year-old Eckert. "We're very cautious."
HOLIDAY CHEER. Cautious, but successful. Mattel will have 4 of the 10 top-selling toys this Christmas season, according to PlayDate, a producer of toy-industry trade shows that bases its rankings on interviews with retailers. Mattel's winners: Rescue Heroes action figures, Dora the Explorer dolls, and a Harry Potter play set featuring a slithering dragon called The Basilisk. Then there's PlayDate's No. 1 pick, Barbie as Rapunzel, a flaxen-haired facsimile of the fairy-tale character, which also comes with an animated video featuring the voice of actress Anjelica Huston.
And those won't be Mattel's only hits. Through a long-term licensing relationship with Nickelodeon, a unit of Viacom (VIA
), Mattel makes the big yellow SpongeBob SquarePants dolls that have proven oddly popular with both adults and kids. Mattel also signed on early with licenser 4 Kids Entertainment (KDE
) to make action figures based on Yu-Gi-Oh, a Pokemon-like card game that's turning into one of the year's biggest hits with boys.
"The older kids are buying Yu-Gi-Oh, the younger ones Pokemen," notes Reyne Rice, who tracks toy-industry sales at market research firm NPD Funworld. "It's doing phenomenally well."
READY TO RUMBLE. Although the Bratz are breathing down her neck, Barbie still has plenty of life in her, with overall sales expected to increase this year, thanks to Eckert's focus on international markets. In November, Mattel launched My Scene, an extension of the Barbie line whose characters are dressed suspiciously like those street-savvy Bratz.
Bob Eckert may have come from the cheese business, but it hasn't taken him long to become a toy whiz. Investors looking for some fun in the toy sector might want to play along. Christopher Palmeri writes for BusinessWeek in the Los Angeles bureau