A strategic overview of the toys and games industry, which I was reviewing as part of a study I was doing on Mattel. I hope you will find the information useful. Feel free to give me your comments!

1. Strategic Review of the
Toys & Games Industry
Francis Foo
March 27, 2013
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2. 2

3. Why the toys industry?
• Ten years of volunteer experience
working with children and juvenile
delinquents
• Personal conviction in the power of
play and toys
• Proximity to toys and games promotes
creative thinking among adults
• Thrive in a fast-paced, innovative and
challenging environment
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4. Outline
1 Industry Overview
2 Company Analysis
3 Strategic Opportunities
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5. 1. Industry Analysis
Industry growth driven by growth in children
population, personal income and product innovation
Industry Growth Forecast*
6
• Global toy sales total $85b.
Major markets include the US,
the UK, France and Germany
4.5
• Revenue of US toy and game
manufacturing estimated to be
$2b annually
3
• Major players include Mattel
(US), Hasbro (US), Namco
Bandai (Japan), Sanrio (Japan), 1.5
LEGO (Denmark), Steiff 2012
2013
(Germany) and gaming hardware 2014
divisions of Microsoft, Sony and 2015 0
2016
Nintendo 2017
* First Research 2012
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6. Four Major Product Segments
Non-
electronic Electronic
toys toys and Non-
games electronic
games and
puzzles
Children’s
vehicles
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7. Key Industry Challenges
• Intense competition from electronic
entertainment
• Reliance on foreign toy manufacturers
• Target market constantly changing due to
fickle nature of children, faster maturity
of children and changes in young children
population
• Short life cycle of toys and high failure rates of new toys
• Highly fragmented market with diverse products and brands
• Potential channel conflicts with major retailers such as Walmart and Target
• Seasonal cash flows
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8. 2. Company Analysis
• Mattel leads industry with sales revenue at $6.42b
7000
5250
3500
1750
Mattel 0
Hasbro
LEGO *
Jakks Pacific
Leapfrog
* LEGO is a privately held company
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9. Leapfrog
• Founded in 1995 by CEO Michael Wood who felt that
the toy market offered nothing to help his 3-year-old
learn phonics
• Develops interactive selling systems, educational
games, books and learning toys in five languages
$’m $’m
Net Income Revenue
90 600
67.5 • Cost savings measures
implemented in 2008 and
45 450 2009 paying off for company
22.5 as it returns to profitability
0 300 • Early focus on technology
products gives company
-22.5
advantage in digital age
-45 150
-67.5
-90 0
2008 2009 2010 2011 2012
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10. Jakks Pacific
• Started in 1995
• Makes and sells action figures (Pokémon, UFC), die-cast and plastic cars, electronic games,
dolls (Cabbage Patch Kids, Fancy Nancy), pool toys and floats, children's furniture, and pet
products (American Kennel Club, Cat Fanciers Association).
• Fueled growth through acquisitions that broaden its core
toy lines and extend its reach into new or related
categories. Also built its collection of licensing
agreements.
• Struggling to stay afloat, with a total net loss of $104.8m
recorded in FY2012
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11. LEGO
• Celebrated 50th anniversary in 2008.
LEGO toys named the Toy of the
Century by FORTUNE magazine.
• Defied economic downturn to log
revenue increases
• Winning strategies included:
- Focus on classic toy lines
- Product additions (e.g. Harry Potter and Star War lines)
- Alliances (e.g. with NBA, NIKE)
- Reduced product recall risks by having a fraction of production in China
- Leveraged strong brand name to produce videogames and DVD movies
• Strategy to focus on innovative product development contributed to a 25% jump in sales
revenue in 2012
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12. Hasbro
• #2 toy maker in the U.S.
• Producer of childhood favorites (e.g. G.I. Joe, Play-Doh, My Little Pony),
board games (e.g. Candy Land, Scrabble, Monopoly), and trading cards (e.g.
Magic : The Gathering)
• Benefited from growth in international business and
products targeted at boys, with boys segment generating
43% sales increase in 2011
• Growth strategies:
- Multi-platform JV with Discovery Communications
- Partnership with Electronic Arts to create video games
- Licensing agreement with Sesame Workshop and Marvel Entertainment
- Continued focus on international expansion, esp. in emerging markets
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13. Mattel
• #1 toy maker in the U.S.
American Girl
Hot Wheels
Barbie
Fisher-Price
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14. Mattel
$’m Revenue Net Income $’m
6500 800
6225 600
5950 400
5675 200
5400 0
2008 2009 2010 2011 2012
• Strong global and domestic sales drove revenue to record high of $6.4b in 2012
• Successful strategy of introducing new products while keeping core brands fresh through
innovative marketing campaigns
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15. Mattel
Weaknesses
Strengths • Frequent product recall
• Strongest portfolio of brands • High customer concentration (Walmart, Toys
‘R’ Us and Target accounted for more than
• Sales distribution network 1/3 sales)
• Licensing agreement and • Currency fluctuations
partnerships with highly
recognized entertainment • Cheaper imitations and counterfeit
companies (e.g. Disney, goods impact brand image
DreamWorks)
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16. 3. Opportunities
“Create the
• Growing young consumer base in emerging next big thing
markets
the cheapest
• Educational toys way possible”
• Online gaming
• Movement to address childhood obesity
• Eco-friendly toys
• Alternate retail channels
• Further market segmentation - “Tweens” and luxury toys
• Proliferation in mobile electronic device usage
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17. T hank You
francisfoo@wustl.edu
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