>>Either Mattel will cheapen the whole line, which would ruin the heirloom
quality, in my opinion, or it will be a little niche item that brings them mostly prestige. It all really seems antithetical to the rest of Mattel, which is definitely high volume, mass market. <<
"The acquisition is one of the best fits I have seen . . . it gives Mattel a major line with a tremendous consumer franchise." - Analyst David Leibowitz, managing director of Burnham Securities in New York.
Hi Christine!
A little background is in order:
Toys:
'Hi, Barbie! I'm Samantha; Can
I Boost Your Sales?'
----
By Lisa Bannon
Staff Reporter of The Wall Street Journal
EL SEGUNDO, Calif. -- Now even Barbie has to share the spotlight with
a younger woman.
Toy giant Mattel Inc., said it will pay $700 million for closely held Pleasant
Co., maker of the American Girls collection, a well-known line of historical
dolls, books and accessories. Aged roughly nine years old and sold
exclusively through catalogs, the American Girl dolls have a wholesome and
educational image -- the antithesis of the buxom, teenage Barbie.
Mattel's move signals a broader long-term strategy to reduce its reliance on
traditional retail stores. Yesterday, Mattel revealed just how harmful that
reliance had become when it disclosed that its second-quarter revenues will
decline by 10% and earnings per share will fall below Wall Street
projections. A big reason, it said: inventory reductions by Toys "R" Us Inc.,
the country's largest toy chain. The chain currently accounts for roughly
one-fifth of all Mattel sales.
In addition to the proposed acquisition, Mattel Chairman Jill Barad said that
the company plans to open a new flagship Barbie store in Beverly Hills,
Calif., and make its first serious foray into publishing. This Christmas
season, Mattel also plans to begin using the Internet to market its products.
Mattel is responding to signs that the traditional retail segment of the toy
business -- beset by ferocious price competition and a dwindling variety of
products stacked on store shelves -- is punishing even the industry's biggest
player. Mattel said discontinued product lines, primarily as a result of the
sale of its sports division last year, accounted for a portion of the revenue
decline.
Founded in 1986 by Pleasant Rowland, a former teacher and reporter who
still owns the company, the American Girls collection is designed to give
girls ages seven and up an understanding of American history and foster
pride in the traditions of growing up female in America.
In a speech Ms. Rowland made to a throng of surprised employees, she
acknowledged that at first blush the combination appeared incongruous.
The concept of the American Girl was, in fact, created specifically as an
alternative to Mattel's plastic princess. "Every single one of us knew that the
very idea of the American Girls living in Barbie's dream house would horrify
all of you and all our customers," she told the crowd.
But in the end, Ms. Rowland said, she realized that Ms. Barad was
determined to change Mattel and that the larger rival's marketing clout could
help her American Girls empire. The two executives talked for nine hours
and, at the end, "we were finishing each other's sentences," Ms. Rowland
recalled.
The champion of direct marketing, whose company boasts a mailing list of
seven million potential customers. called it "the most delightful irony" of her
life that she found herself "a kindred spirit of the woman who built Barbie
into a $2 billion global brand."
"I've been dreaming about this company for years," Ms. Barad says.
However, Ms. Rowland "really wasn't a Barbie supporter, so I never
thought this was doable." When the two executives met in January to
discuss a possible deal, Ms. Barad told her counterpart how Barbie had
changed: "She has become more aspirational."
Ms. Barad has pledged to maintain Pleasant as a separate, autonomous unit
headed by the founder, with headquarters remaining in Middleton, Wis.
Once the acquisition is completed Ms. Rowland is slated to become vice
chairman of Mattel.
Mattel's $5 billion in sales and operations in more than 30 countries dwarfs
annual revenue of about $300 million for Pleasant, all coming from the U.S.
Mattel says it has no plans to shift American Girl products to stores, but it
does aim to expand the existing offerings by adding more interactive toys. It
also believes its extensive experience in international markets will help boost
American Girl sales abroad. The product line is complementary, since
teenage Barbie appeals to younger girls aged two to eight and sells for an
average of $15. American Girls characters, on the other hand, appeal to an
older audience aged seven to 12, and retail around $80.
For its own products, Mattel hopes to apply Pleasant's expertise in using
characters to tell stories. Ms. Barad envisions producing books, magazines,
videos and television shows to broaden the appeal of existing Mattel
brands.
Analyst David Leibowitz, managing director of Burnham Securities in New
York, said the purchase could roil the industry by possibly forcing other toy
companies to seek out deep-pocketed partners. "The acquisition is one of
the best fits I have seen . . . it gives Mattel a major line with a tremendous
consumer franchise."
The acquisition isn't the first time Mattel has turned to direct marketing. It
previously agreed to sell an exclusive line of Barbie dolls through Avon
Products catalogs.
As long ago as the spring of 1996, Toys "R" Us signaled that it was intent
on changing its buying patterns with an eye toward reducing overall
inventories. Later, the Paramus, N.J., retailer announced an impressive goal:
cutting a whopping $500 million out of its $2 billion nationwide inventory,
with half the reduction coming this year. Most of the reductions are aimed at
the seasonally weak first half of the year, with orders expected to rise in the
second half approaching Christmas.
The acquisition is expected to be "modestly accretive" to earnings this year.
Ms. Barad says Mattel is on track to report an 18% jump in net income per
share this year and that the target would have been met without the
purchase.
---
Alexia Vargas contributed to this article.
---
Welcome to the Dollhouse
Samantha in lacy pinafore dress
Maker: Pleasant Co.
Sales: $287 million in 1997*
Number sold: More than four million since 1986*
Profile: Historical heroine, nine-years old,
18-inches tall
Cost: $82
Barbie as 'sleeping beauty'
Maker: Mattel Inc.
Sales: $1.9 billion in 1997
Number sold: More than 1 billion since 1959
Profile: Teenage bombshell, 11.5-inches tall
Cost: $15 on average
* Includes smaller Bitty Babies and American Girl of Today
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