Slide yesterday probably at least partially in response to negative WSJ article.
June 7, 1999
Mattel Attempts to Adjust
After 'Holiday Barbie' Fails
By LISA BANNON
Staff Reporter of THE WALL STREET JOURNAL
With her finely chiseled cheekbones and striking green-satin ball gown, the
most popular girl in America in late 1995 was a voluptuous doll named
Happy Holidays Barbie.
"The phone would ring all day with people asking if we had them. Every
minute," recalls Marvin Hecht, the owner of Cut Rate Toys in Chicago. He
says he limited customers to one $35 doll each and still sold out: "It was
impossible to get ahold of them."
Now it's tough to get rid of them. For the second year in a row, demand
for the fancy, limited-edition dolls "dropped dead" shortly before
Christmas, Mr. Hecht says. Last month, he marked down the 1998 edition
to $8.99.
From Hit to Dud
In three years, Mattel Inc.'s Holiday Barbie line went from one of the toy
industry's biggest hits -- generating annual sales of more than $100 million
at its peak -- to one of its greatest duds. It has been discontinued after a
10-year run.
The collapse of the highflying line in many ways reflects what is going
wrong at Mattel under the leadership of Jill Barad, chief executive of the
El Segundo, Calif., company since 1997. Ms. Barad rode into the
executive suite largely on the strength of her successful strategy to boost
sales of Barbie in the late 1980s and early 1990s -- a time when Mattel's
sales skyrocketed to $4.8 billion in 1997 from just over $1 billion a decade
earlier.
But the same tactics that Ms. Barad used to turn the Barbie brand into a
powerhouse -- diversification of the line into hundreds of styles,
hard-driving deals with retailers and a can-do corporate culture that
wouldn't heed bad news -- are now backfiring. Instead of creating new
markets for the dolls, the company has flooded some of the existing ones,
potentially damaging the brand Ms. Barad nurtured for 10 years.
Mattel is ailing beyond just Barbie, however. The world's largest toy
company is now struggling to reverse a year of declining sales, a languishing
stock price and a rare loss in the first quarter. As kids grow out of toys
sooner and retailers change buying patterns, the overall toy market is
shrinking, and Mattel can no longer rely on double-digit growth from
many of its core brands. In addition to Barbie, its Sesame Street and
Power Wheels brands remain weak, and retail appetite for the company's
overall 1999 product line is still uncertain.
In response to the changing marketplace, Ms. Barad has announced plans
to reposition the company as a broader family-products concern. But
analysts question whether its recent $3.5 billion acquisition of Learning Co.
can pull Mattel out of the doldrums since the software concern's main
titles, such as Reader Rabbit and Carmen Sandiego, are aging. Plans for an
e-commerce unit, Mattel.com, have also drawn mixed reviews since it
remains to be seen whether such a move can increase overall sales without
alienating traditional retailers. Indeed, Wall Street hasn't bought the shift,
and Mattel's stock idles around $26, far off its peak of $44 in mid-1998.
Many investors are waiting to see whether its core brands, led by profit
engine Barbie, will recover first.
Ms. Barad declined to be interviewed for this article. But in comments at
the company's annual meeting last week, she acknowledged that 1998
"was very disappointing for Mattel" and that "we learned our lesson." She
said the company plans to take responsibility for the first time for managing
retail inventory. "If we feel any one retailer has too much inventory, we
won't ship," she said. The company also plans to ship in line with consumer
buying patterns, not just retailers' demand.
About Holiday Barbie, Ms. Barad said, "With $750 million in retail sales
for this one doll over the years, we consider Holiday Barbie to be an
incredible success." She said the decision to discontinue the line wasn't
related to its problems; Holiday Barbie, she said, was always planned as a
10-year series.
Holiday Barbie was born in July 1988. Sales of regular Barbie had
plateaued around $400 million a year, and the company was looking for
new avenues of growth. That's when Ms. Barad, at the time a marketing
executive, began championing the idea of a unique high-end doll to be
issued every year in limited production for the three-month holiday season.
"The idea had been kicking around for a while, but there were problems
with it," recalls Diana Troup-Pleva, an executive in the Barbie group at the
time. "The selling season was so short. We wondered what would the
trade do with it after the holidays?"
There was also the issue of price. Holiday Barbie's $30-$35 retail cost
offered more profit potential than the $10 maximum charged for regular
Barbie, but some Mattel executives "worried that it would cannibalize the
other [Barbie] business that was out there," remembers Steve Geller, a
former Mattel executive.
Despite the doubts, "Jill drove it through the company," Mr. Geller says.
"She personally honchoed the retailers and made marketing, sales and
finance all come together."
Limited production was a key to the line's success initially. "We were very
cautious in terms of the numbers we produced," says Rita Rao, another
former Mattel executive who was there in 1988. The Barbie team didn't
know if the concept would work, she says, "but the Sears buyer took one
look and said he would buy every piece if we'd let him."
The line did take off. Holiday Barbie became a model of Mattel's new
segmentation strategy -- designing different professions and activities for
Barbies that would prompt girls to want several dolls, instead of just one.
By the mid-1990s, American girls on average had eight Barbies. Sales
soared to $1.7 billion in 1997 from $430 million 10 years earlier.
With the launch of the Holiday line, Mattel also discovered a collectors'
market among adults. The company enclosed a questionnaire in the box in
1989, and "we figured out that half of those who received it were over 18,"
Ms. Rao recalls. Over the next few years, the company began catering to
the new market, tailoring limited-edition lines for collectors and increasing
sales in that market to $220 million in 1996 from $35 million in 1993. After
becoming chief executive in 1997, Ms. Barad proclaimed the Barbie
collector market so promising that it could become a $1 billion business
itself.
"Those early [Holiday Barbie] models were very hard to find. We all
wanted them," remembers Karen Caviale, editor of the collectors'
magazine Barbie Bazaar. Within a year, the value of 1988 Holiday Barbie
had shot up to $300 from $30 retail. A secondary market began, fueling
demand for the next year's model.
The line emerged each year in October with a different dress and style. In
1989, Holiday Barbie sported a white-tulle gown with a faux-fur stole. In
1992, Ms. Barad became Mattel's president and chief operating officer,
and Holiday Barbie wore silver lame with glittering ruffles. By 1995,
decked out in green satin with a holly print and a Victorian collar, she was
the hottest toy in the U.S.
"I called my mother in Oregon and told her to buy up every one she could
find and ship them to me. Everybody was selling out," recalls Tom La
Flamme, owner of Dolls on Broadway, a shop in Long Beach, Calif.
Voucher Program
Facing the prospect of demand that far outstripped supply, Ms. Barad
promoted the idea of a voucher program. Stores would sell a certificate in
December with a promise to ship a doll to customers the following April.
At Cut Rate Toys in Chicago, Mr. Hecht not only sold out of dolls; he ran
out of vouchers, too. "People thought the certificates would become
collectors' items," he says.
Mattel doesn't disclose the number of dolls it produces. But several
former executives say the company, to avoid being caught short again,
increased production in 1996 to an estimated two million dolls, from just
over one million in 1995. It also expanded distribution to include
department stores and lengthened the selling season by shipping in July.
The company was drawing a fine line between limited-edition and
mass-market as it set ever-higher sales targets. But demand remained
feverish, and Holiday Barbie sold out again in 1996.
By 1997, Ms. Barad had assumed the helm at Mattel and vowed to
continue delivering 15% average annual profit growth, amid signs that the
toy market was slowing and retailers were changing their buying patterns.
Despite her new duties as leader of the company, former executives say
she remained intimately involved in the fate of Holiday Barbie -- personally
choosing the doll's eye color, hair ornament and even the background
packaging.
The star of the industry's annual Toy Fair in New York that January was
again Holiday Barbie. Retail executives led by Toys "R" Us Inc. and
Wal-Mart Stores Inc. were clamoring to be guaranteed more that year,
following the second successful sellout in 1996. But back at Mattel
headquarters, some executives involved with the line were beginning to
worry.
Overlap in Demand
While retailers reported hundreds of thousands of individual buyers,
Mattel researchers saw overlap in the numbers, former executives say.
Scalpers and collectors were buying up and hoarding large quantities.
Other customers were putting their names on waiting lists at several
different stores, meaning the individual consumer market wasn't as large as
retailers claimed.
When it came time to set production quotas for 1997, the pressure was on
to satisfy retailer demand and meet the company's sales targets. At
meetings that spring, the research department reported to Ms. Barad the
data indicating overlaps in consumer demand. Executives also voiced
concern about how flooding the general market might affect the collectible
market.
"Don't underestimate the power of Barbie in the marketplace," Ms. Barad
told doubters at one meeting that spring, recall two executives who were
there. Production was jacked up to more than three million dolls, one
million more than the previous year, say several people who were at the
company then. A Mattel spokesman, denying that there was dissension
over the decision, said the production increase was partly based on strong
belief in the appeal of the first brunette Holiday Barbie.
In a conference call to financial analysts in October 1997, Ms. Barad
forecast robust Christmas sales. "Leading the way in Barbie sales is the
first-ever brunette Holiday Barbie, which now projects sales of $100
million alone," she announced.
Retailers were just as enthusiastic, buying up every one of the dolls. But it
didn't take long to see the limits of the marketplace. By mid-December, it
had become apparent: The brunette was a bust.
Too Many Diamonds
By January 1998, Holiday Barbie was ubiquitous. Thousands of dolls were
left on store shelves and needed to be cleared out. Dayton Hudson Corp.'s
Target stores discounted them to $9.99. Toys "R" Us kept them on shelves
at a discount until April. Consumers saw they could wait for markdowns.
They also began to get angry.
"If De Beers let loose, the price of diamonds would plummet," says
Barbara Peterson, a Barbie collector who also runs a monthly Barbie trade
show. The secondary market for Holiday Barbie began to decline and
collectors rebelled.
The problem wasn't just Holiday Barbie. Overproduction of other Barbies
and aggressive selling to retailers also were catching up with Mattel. By
early 1998, Mattel was unloading excess Barbie inventory at discounters
and cable-TV shopping networks. Exclusive dolls for which collectors paid
as much as $100 were showing up on the Home Shopping Network for
$29.99.
In a presentation that January to bankers and analysts at the industry's
annual trade show, known as Toy Fair, Ms. Barad warned about the
leftover Holiday Barbie inventory, but added that the carryover "was
almost all worked through." As it turned out, the discounted Holiday
Barbies remained parked in many stores until the second quarter. Quarterly
Barbie shipments began to back up and, after years of consistent
double-digit growth, Barbie sales plummeted 15% for the first half of
1998.
At the same time, the retail environment was changing dramatically. For
years, if Mattel was falling short of quarterly sales targets, it could
negotiate deals with retailers to take extra merchandise in exchange for
discounts, credits or promise of free goods in the future. Common practice
in the toy industry, the "quarterly push" nevertheless often created a
backlog at retailers.
In early 1998, Mattel's largest customer, Toys "R" Us, weighed down by
excess inventory and facing big losses, warned toy makers that it would no
longer tolerate the quarterly pushes. It announced plans to slash inventory
and move to just-in-time deliveries. The cuts meant $110 million less in
orders for Mattel in the first half of 1998.
Still, Ms. Barad didn't back off her 1998 earnings targets that summer.
Despite the inventory cutbacks and a plunge in Barbie sales for the first
half, she maintained her original projection of a 10% increase in Barbie
sales and an 18% increase in Mattel's per-share earnings for the year. At
the time, Ms. Barad and other company officials said they believed the
worst was over, and that retailers had dealt with their excess inventory
problems.
Tricky Decision
It was then that Mattel faced a tricky decision. It didn't want a repeat of
the previous year's debacle by flooding the market, but it still needed to hit
its self-imposed ambitious sales targets. Production of Holiday Barbie, one
of the highest-margin products in Mattel's lineup, would be trimmed by
25% in 1998, the company announced on its Web site.
But that cutback wouldn't leave enough to reach Mattel's sales targets or
be enough to rescue the line's exclusivity. In early November 1998, with
Holiday Barbie sales already slowing, some stores began discounting the
dolls. Analysts began downgrading Mattel stock. By late November, the
reorders Mattel was counting on didn't materialize, and Toys "R" Us
announced a further cutback. Stunning Wall Street, Ms. Barad announced
in December that fourth-quarter sales would be $500 million short of
expectations. The stock plummeted nearly 30% in one day.
Mattel announced that Holiday Barbie would be discontinued as of 1998
"to commemorate this special era of the Barbie doll and to embark toward
the new millennium." A Mattel spokesman said the company will issue a
Millennium Barbie this year and inaugurate a new holiday series in 2000.
"You don't want to lose an aura," says Ms. Peterson, the disgruntled
collector. "It's hard to win back." |
