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How do you see the toy market in general at the moment? Did 2011 progress how you thought it would? For Mattel, where did you see growth last year?
Retailers and the industry have viewed the holiday season
consistently for the past three years – cautiously. We all believe Christmas will come and there will be presents under the tree but we are also aware of the economic uncertainties that face consumers and as a result, no one is placing big bets.
Our outlook since 2008 hasn’t changed – we are in tough economic times and we are managing our business in a very disciplined manner. Our strategy is to be financially prepared to deliver Christmas every year – for the kids and for the shareholders. Our challenges are no different than any other well run consumer products company – we are facing an inflationary cost cycle and we have to continually improve our performance to deliver strong price value propositions to our customers and consumers and to deliver financial results to our investors.
Mattel always has its fair share of representation on ‘the must-have holiday toy lists’ and we do again this year [2011]. These included Hot Wheels Wall Tracks; Fijit Friends; Barbie Designable Hair Extensions; Hot Wheels Video Racer; Fisher- Price Laugh & Learn Apptivity Case (which sold out), which lets toddlers enjoy their very own apps while protecting mom or dad’s iPhone or iPod; the Fisher-Price Kid-Tough See Yourself Camera; and Rock Star Mickey. In fact, Fijit is listed on all the top retailer lists, including Wal- Mart, Target, Toys R Us and Tesco, where it hit number one. Overall our brands continue to perform and we are especially pleased to see the Barbie turnaround continue and our new brand Monster High grow rapidly.
How does the US market compare with the UK currently? Are they both facing similar challenges with their retail environments and general conditions? Actually the markets are more similar than different. Our retail partners face many of the same challenges with economic headwinds, as do our
THE BIG INTERVIEW BRYAN STOCKTON, CEO, MATTEL 47
consumers. Our UK business is in good shape and we are continuing to work closely with all our retailer partners, to make sure we are delivering great marketing programmes that continue to excite and drive the consumers to store. It’s a challenging economic time for everyone around the world and toys provide that affordable treat for families and children.
How important is the acquisition of Hit in terms of growing your market share in the pre-school sector?
As you know, Thomas & Friends is a global brand that has been around for more than 60 years. We are very familiar with the infant pre-school space and already licence a large piece of Thomas, so this will be a great strategic add in 2012. We are also going through a relaunch of our
Are there any other gaps in your portfolio that you are looking to plug going forward, by acquisition or otherwise? We are always looking to improve business with creative ideas and strong brands.
As has been the case over the past decade, we look at opportunities that pose the right price at the right time with the right brand.
Can you give us an update on the case with MGA?
The core issue of that litigation has been around the protection of intellectual property. Mattel is a company that creates, manages and markets world class intellectual property, and so protecting our assets is and will always be important. As you may know, the latest verdict is under appeal, and is likely to be heard sometime later in 2012.
Our international expansion strategy has already proven itself out in Latin
America and we will roll it out in Asia Pacific
and in Eastern Europe and Russia. Bryan Stockton, CEO, Mattel
core Fisher-Price brand and are very confident in our overall strategy in the category, which Hit plays a great part in.
Thomas & Friends is a globally recognised brand, but other Hit licences such as Bob The Builder, Pingu and Angelina Ballerina are very specific to Europe currently. How do you plan to increase awareness of these brands outside of Europe? And how important is it for you to do this in terms of your overall strategy for the Hit business? While Thomas is the centrepiece of the acquisition, we are acquiring a host of well-recognised brands like Barney, Bob the Builder, Fireman Sam and Angelina Ballerina.
Each of these brands is unique in its own right and has its own strengths. Our strategy continues to be development of franchises and we will evaluate each brand on a case by case basis to either develop them internally, or manage them through the right partnerships, with the objective of maximising value.
We’ll see how that plays out and go from there.
Are toys really able to survive the current financial crisis or is even the recession-proof toy industry likely to feel the pinch? Is the business due another bout of consolidation in your view? We continue to believe the toy industry is a great place to invest – it is growing, it has proven itself resilient in challenging times, there are favourable demographics and it is a strong emerging market play. Combine that with Mattel’s brands, proven brand management strategies, size and scale, our solid financials including strong cash flows, strong gross margins, low capex spending and our financial discipline, and you have a very compelling investment case for Mattel and the industry overall.
Would Mattel consider a move into ownership of other areas of distribution – such as TV and film, for example?
We are very confident in our current model as it relates to entertainment distribution – we don’t need to be a distributor. In fact we passed on the Sprout TV as part of the Hit acquisition. Our analysis continues to indicate that we should focus on creating brands supported by statements and stories and, of course, great toys. I do believe we need to continue to think of new ways of doing business. We are in a highly creative and highly executional business and how we continue to foster and drive those disciplines will be the key to our success.
What are your main aims for the business for 2012?
Mattel has a number of opportunities to continue to deliver consistent growth. We will continue to focus on growing our core brands, which account for about 75 per cent of our business – category leaders like Barbie, Hot Wheels, Fisher-Price and American Girl. We will continue to partner with the premier entertainment companies out there that deliver strong evergreen properties – Disney, Warner Brothers, WWE and Nickelodeon. And we will continue to roll out new franchises like the very successful Monster High. We will continue to look for acquisition opportunities to drive growth.
And we will continue to focus on growing internationally given that is where the kids are and that is where a robust middle class is developing. Our international expansion strategy has already proven itself out in Latin America and we will roll it out in emerging economies in Asia Pacific and in Eastern Europe and Russia. In addition, Mattel has a very strong balance sheet and an unbelievable workforce dedicated to innovation – not just product innovation, but brand management innovation. Our commitment to our investors remains – to deliver consistent growth, build on operating margin progress and generate significant cash flow.
Our focus going forward remains – developing strategies to grow the business, optimising our structure going forward, developing our people and creating an innovative culture.
FEBRUARY 2012
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