EXERCISE 5 .1The Mattel Toy Story
This is an account of the changes that Ynon Kreiz, chief executive at Mattel since 2018, plans to implement to grow the company, which has been in decline for some time. As you read this case account, consider the following questions:
•Which of the changes at Mattel are emergent, and which are planned?
•Where do the changes that Kreiz is making sit on the continuum from shallow to deep change?
•What is your assessment of Ynon Kreiz’s changes, given the challenges facing the company?
•What image—or images—of change management does Ynon Kreiz illustrate?”
Founded in 1945, Mattel is an American multinational toy manufacturer based in California. With $1.4 billion annual revenue and 27,000 employees, it is one of the world’s largest toymakers. Mattel’s “power brands” are Barbie, Hot Wheels, American Girl, Fisher-Price, and Thomas & Friends. These were introduced between 1930 and 1986, and Mattel had not created another hit product for some time. Barbie dates from 1959. Smaller brands were incorporated in what Mattel called “toy box,” an “everything else” category that included Polly Pocket dolls, Uno (a card game), and toys linked to the video game Minecraft. Mattel’s traditional competitive advantage was based on making incremental product improvements and on manufacturing cost advantage.
Mattel’s most important brand is Barbie, who still generates 20 percent of the company’s sales despite being 60 years old. Half of Barbie sales are “nonoriginal body” or non-Caucasian, and Barbie dolls in the image of K-pop band BTS have been successful. The company also now sells gender-neutral dolls with the brand name Creatable World.
Revenues at Mattel have been falling, from over $6 billion in 2007 to $4.5 billion in 2018. Mattel’s stock price fell from $50 in 2014 to $10 at the end of 2018. Revenue growth was expected to be flat in 2019. Barbie and Hot Wheels continue to sell well, but American Girl dolls, once famous, are in decline. The company’s falling sales are accompanied by rising debt. Earlier in the decade, American Girl was selling well, linked to Disney’s Frozen franchise. But this success took sales away from Barbie. Sales of Monster High merchandise generated hundreds of millions of dollars, but suddenly collapsed when the brand became unfashionable. Sales of Hot Wheels have also stalled.
Manufacturing and supply chain management at Mattel had not changed. Along with other toymakers (apart from Lego), Hasbro closed factories and started outsourcing, but Mattel made its own products. Hasbro—Mattel’s main competitor—has similar sales and employs 6,000 people; Mattel has 40,000 employees at peak factory output. Hasbro’s gross margins are 51 percent; Mattel’s are 39 percent.
Ynon Kreiz, the company’s fourth chief executive since 2012, joined Mattel in 2018. Col-leagues describe him as “sure and steady, disciplined, and unflappable” (Lashinsky, 2019,” p. 101). His vision is to transform Mattel from toy maker to high-margin media company, basing movies on its familiar brands. Toy manufacturers earn only a small percentage of movie revenues, most of which go to studios and distributors. But movies can revive old brands and increase sales of merchandise.
One of Kreiz’s first actions as chief executive was to reduce the workforce by 22 percent. To reduce costs further, he also planned to sell 12 of Mattel’s 13 factories. He also reduced a three-inch-thick strategy document to one page, identifying three priorities: cut costs, fix broken brands, and capture the value of the company’s intel-lectual property. Following practice in the rest of the sector, Kreiz abandoned the “toy box” concept and grouped Mattel’s brands into two categories: toy-industry leaders (dolls, vehicles, infant/preschool) and challengers (games, construction, action figures).
The idea of making movies based on Mattel brands was not new. But movies that were to be based on Hot Wheels and on the Rock ‘Em Sock ‘Em Robot were never made. In 2016, Sony started to develop a live-action Barbie comedy, but the star, Amy Schumer, dropped out. Mattel was not the only toy company to adopt this strategy. Hasbro, for example, has based movies on Transformers and G.I. Joe and planned to buy the Canadian media production company Entertainment One.
Kreiz hired an experienced movie producer, Robbie Brenner, who identified Barbie, Hot Wheels, and American Girl as initial projects, along with Magic 8 Ball—an old “toy box” product that gives advice and had been almost forgotten. In 2019, Mattel announced eight film projects with four studios, including Warner Bros and MGM. Paramount will make a live-action movie starring Tom Hanks based on the astronaut Major Matt Mason, who was created by Mattel in 1966. In 2019, Mattel announced that Margot Robbie would star in its Barbie movie, with a script written by the prestige team of Greta Gerwig (Little Women, 2019) and Noah Baumbach (Marriage Story, 2019).
In October 2019, Mattel posted its first positive cash flow in three years. Revenues appeared to be increasing again. Performance would have been better, but Fisher-Price had to recall five million “Rock and Play Sleepers” at a cost of $34 million, when the product was alleged to have caused 30 infant deaths. Rising sales, cost cutting, and improved financial forecasts lifted the company’s share price. Will Kreiz be successful in rewriting Mattel’s toy story?
Gul, E. 2019. Can Barbie adopt frontier technologies? Mattel’s innovation challenge. The Startup, July 18. https://medium.com/swlh/can-barbie-adopt-frontier-technologies-mattels-innovation-challenge-e4b97bc1b15e.
Lashinsky, A. 2019. Rewriting a toy story. Fortune 180(6):98–103.
Mattel. Wikipedia, https://en.wikipedia.org/wiki/Mattel”