Big Article in NY Times this morning about Mattel. Pretty critical of CEO Barad.
Is Mattel's Chief Up to a Companywide Makeover?
Related Article
Mattel CEO Jill Barad and a Toyshop That Doesn't Forget to Play
(Oct. 11, 1998)
By DANA CANEDY
ill E. Barad built a career as Barbie's surrogate mother, giving her makeovers,
expanding her wardrobe and lavishing her with creature comforts to enhance
her enchanted imaginary world.
All that attention paid off: under her direction, the Barbie line grew to an estimated
$1.7 billion in sales in 1997 from $200 million in 1982, vaulting Ms. Barad into the
chief executive's office in January 1997.
But Barbie is 40 years old, and, like other Mattel Inc. products, is showing signs of
aging. Children are abandoning traditional toys like Barbie sooner in favor of
computers. Toys that have been hot, like the Beanie Babies, are increasingly
coming from smaller, more nimble competitors. Toys "R" Us and other large
retailers have been ordering fewer stuffed animals and board games to cut costs.
As a result, Mattel's earnings have slumped, and its stock price has tumbled. For
Mattel, the question is whether Ms. Barad, who is so identified with Barbie, the
company's flagship toy, and who is known mostly for her strengths in marketing,
can turn the company around at a time when the toy industry is undergoing such
rapid change.
"One of the real challenges Mattel has is to educate Wall Street that they are not
just the Barbie company anymore," said Chris Byrne, an industry consultant and
editor of the Toy Report, a weekly newsletter. "Their stock goes up and down on
Barbie's fate, and that's a lot for those little plastic shoulders to carry."
So far, her efforts to stem the decline are drawing mixed reviews. She shook up
management last month by announcing that two senior executives were leaving
and that five new department heads would be directly accountable to her. And she
has developed a plan to sell more toys directly to consumers through catalogs and
the Internet. The strategy, however, has angered some retailers who accuse her of
trying to compete directly with them.
Moreover, investors who were once enamored of Ms. Barad appear to have grown
impatient waiting for her to deliver results. Since she took over, the stock has
fallen 10 percent, while the Standard & Poor's 500-stock index gained nearly 74
percent. Monday, the stock rose 31.25 cents, to $24.625. Many big investors say
that Mattel needs to generate hefty returns from recently acquired companies,
reduce its reliance on Barbie and respond more quickly to changes in the way
children play.
"My sense of Jill is that she is very good and capable, but that her relationship
with Wall Street has been a little bit strained because she is so positive and
marketing-oriented that I think people feel a little bit oversold," said Joe Kennison,
a money manager with American Express Financial Advisers, which sold nearly
half of its 8.3 million Mattel shares in December.
Through a company spokesman, Ms. Barad declined to be interviewed. But
interviews with more than a dozen money managers, analysts and retailers, as well
as people who have worked with her, paint a portrait of a charismatic and driven
executive who is a marketing whiz but who has not fully demonstrated that she has
the financial skills and leadership ability to turn around the $4.8 billion company.
Her harshest critics contend that Ms. Barad, 47, spends too much energy on
charming Wall Street analysts and bankers to keep them bullish on Mattel instead
of on coming up with ways to grow profits.
A Mattel spokesman, Glenn Bozarth said that 1998 results "were affected by
unexpected events and issues" and that this year Mattel's goal was to
"underpromise and overdeliver."
Some analysts suggest that the issue may be more one of style than of substance.
"Most of the people who deal with her are professional men, and their ability to
critique her can't be taken out of the context of them being men," said Sean
McGowan, an analyst who follows Mattel for Gerard Klauer Mattison. "Jill brings a
level of animation and feminization to the role that people find off-putting at times
because they are not used to it."
In company presentations that he has attended, for instance, Ms. Barad has been
known to dance to music used in product promotions, apparently to drum up
enthusiasm. "This must be very infectious in a sales presentation at a toy
company but you are not accustomed to seeing it at banker presentations,"
McGowan said.
Analysts and former company executives also say that instead of keeping watch
of the entire company, Ms. Barad manages the Barbie brand so obsessively that
she often devotes too little time to other areas of the business. "I think she has
passion for part of the product but not the whole," said one of the former
executives, who spoke on condition of anonymity. "Should she really be critiquing
the color of eye shadow for a doll?"
Indeed, there are other areas of Mattel that could use more attention. The
company's boy's toys unit, for instance, will soon face tougher competition
because Mattel failed to win the "Star Wars" license. Its chief rival, Hasbro, will
roll out products based on the much anticipated new film, which is due out next
month. And revenue in Mattel's infant and pre-school business fell 3 percent last
year, hurt in part by a $27 million charge related to a recall. The Fisher-Price
Powerwheels cars, which children ride, were recalled because its electrical
components could overheat and catch fire.
Even with all of the attention she devotes to Barbie, however, shipments of the
brand -- which represents an estimated 40 to 50 percent of the company's profits --
fell 14 percent last year, contributing to a 67 percent earnings drop in the fourth
quarter. Mattel, analysts say, flooded the market with too many holiday-season
versions, which forced retailers to cut prices sharply to unload aisles of unsold
dolls. The glut of Holiday Barbies, the analysts added, diluted the cachet of the
doll for collectors.
To be sure, Mattel remains the world's leading toy maker and has had some
successes on Ms. Barad's watch. Just a year ago, parents were lining up for blocks
to get their hands on a Tickle Me Elmo doll, and last year the new Blue's Clues
product line generated $40 million in revenue in four months.
"It is impressive to me that they've got so many of these characters that kids
absolutely love," said Mark Greenberg, a portfolio manager at Investco Funds
Group's leisure fund who recently bought 100,000 shares of Mattel and is bullish
on Ms. Barad.
"I think there is substance there," he said. "What I like about Jill is I think she
really understands the product and she understands the business."
While few doubt her command of the business, others question her ability to
attract and hold on to talented managers. The job of president of the Barbie unit --
the company's most important brand -- went unfilled for a year until last month,
when Adrienne Fontanella, who had been in charge of Barbie licensing and
collectibles, was named to the post.
Also last month, Bruce Stein, whom Ms. Barad recruited in 1996 to help bolster the
boys business, resigned as chief operating officer and president of the worldwide
business. Another division head, Gary Baughman, president of the company's
Fisher-Price subsidiary, also stepped down. Mattel swiftly named a new head of
the boys division, but has not named a new chief operating officer, effectively
handing those responsibilities to Ms. Barad.
Former company executives and some analysts contend that Ms. Barad is
concentrating her power, staking her reputation more securely on a turnaround.
"I think if they are in the same position at the end of the year, there will be a big
outcry for a huge management change," said Byrne, the industry consultant, who
still counts himself as one of Ms. Barad's supporters. He says he expects the
company to begin to show improvement this year.
Ms. Barad, Greenberg of Investco said, is managing in a difficult environment
because in some ways Mattel is a victim of its position in the marketplace. "They
are the largest company in the industry," he said, "so nothing they can do can
have that big an impact on the company outside of an acquisition."
The company is counting on two recent acquisitions to improve its
competitiveness. Mattel is expected to close soon on its purchase of Learning Co.,
the leading maker of educational programming. The deal will significantly increase
Mattel's competitiveness in a fast-growing market by combining its strength in
research and development, distribution and purchasing with Learning Co.'s
software expertise.
And last year, Mattel bought Pleasant Co., giving it a second brand of best-selling
dolls, American Girl. Mattel also gained a company with expertise in direct selling,
since the dolls are sold exclusively through catalogs.
Ms. Barad has said that Mattel, which generates about 10 percent of its revenue
from goods sold directly to consumers, "will aggressively build this segment" this
year.
The strategy comes with some risk. While it would smartly reduce Mattel's reliance
on a few large customers, the push to diversify Mattel's distribution further
threatens to strain relationships with some of its most important customers,
according to two executives at competing retail chains.
"Let's face it, we're not happy about it," said one of the executives, who spoke on
condition of anonymity. "We're watching, and we're concerned about it."
Bozarth, the Mattel spokesman, said the company's consumer-direct selling
strategy would enable it to sell more specialty items such as collectibles, and was
not meant to compete with retailers.
And in making acquisitions to increase its direct-selling capabilities, as well as to
expand in interactive toys, Mattel may have paid too much, some analysts say.
"In both cases, I wish the price was less," McGowan of Gerard Klauer Mattison
said.
Typically, toy companies command one and a half to two times sales, though it is
not unusual to pay a premium for top brands or expertise.
Mattel, however, paid $700 million for Pleasant Co., a business that has $300
million in annual revenue. And it is paying $3.8 billion for Learning Co., which had
$850 million in revenue in 1998. Bozarth said the price Mattel paid for each
company was appropriate and that "both were structured in such a way as to be
accretive to earnings."
Still, McGowan said, "toy companies just don't get that kind of multiple."
"You have to take on faith that the numbers will be there," he added.
Faith may be in short supply among Mattel investors, who have been caught off
guard in the past.
Last year, while analysts were saying that they were concerned about possible
weakness in the Barbie division, Ms. Barad maintained that the product line was
on track, leaving many dumbfounded when the company then reported a 14
percent drop in Barbie orders for the year. Last fall, Ms. Barad told analysts that
the fourth-quarter results would be in line with expectations, only to report weeks
later that Toys "R" Us had unexpectedly cut its reorders of products after
Thanksgiving and, as a result, profits tumbled.
For unlike the 9-year-olds who are Mattel's ultimate customers, investors do not
like to find surprises wrapped in pretty packages.
"I think she understands," McGowan said, "that is not something that goes over
very well with investors." |
