I’m not sure what I expected: Hot-pink, bejeweled furniture in the lobby? Race-car tracks coiling through the hallways? Perhaps a gaggle of elfin employees, scootering in and out of meeting rooms on mint-colored mini-Vespas with blueprints for next season’s must-have toys?
I found no such frivolities—or merriment of any other sort—at Mattel’s corporate headquarters in El Segundo, Calif. Inside the banal, 14-story tower are all the hallmarks of a run-of-the-mill, old-economy compound: cubicles, mostly blank walls, and library-like silence. Even the top-floor C-suite is disappointingly un-fun. Yes, there is a display of limited-edition Barbies—complete with gem-studded dresses and miniaturized stilettos. But tethered to pedestals and imprisoned in glass cases, the dolls appear more showpiece than plaything. “You can look, but you can’t touch,” the injection-molded figurines seem to whisper from pursed and plumped lips. One wonders if anyone ever actually has any fun here.
Rewiring the Dreamhouse: Margo Georgiadis, a Google veteran, became Mattel’s CEO in February. Among her plans: Designing Mattel’s toys to collect better data from users, and using that data to build better toys.
Angie Smith for FORTUNE
Down the steely corridor, however, past private offices and even more silence, I find an unexpected corporate “play pattern.” (The term, industry jargon for how kids use a toy, will come up repeatedly over the next few days.) In a grand corner suite, Mattel’s new CEO, Margo Georgiadis (Fortune’s 2017 Most Powerful Women list, No. 49), is talking, even laughing, with her chief operating officer, Richard Dickson. The two share the office, working side-by-side at stand-up desks that look comically current in these stodgiest of business quarters.
“There was a real feeling that leaders were not accessible, and kind of ‘ivory-towerish,’ ” the chief executive, who took office eight months ago, says of Mattel’s past. “What better message to send than, ‘I don’t need this big fancy office—I can share it.’ ”
It’s a collision of cultures that Georgiadis welcomes—one, you could say, that she was hired to create. Georgiadis is a Google veteran, having spent eight years as a top sales exec for the freewheeling search giant, and she’s here to rearrange far more than the furniture. Yes, it’s ironic that the typical Google office boasts open floor plans, collaborative workspaces, and plentiful beanbag chairs—a more playful environment than her current toymaker employer’s. But more important, the tech company is data-driven, fast-moving, and relatively unhierarchical. Mattel, meanwhile, is notoriously bureaucratic. Divisions don’t really talk to one another. And technology has been an after-thought. The latter is sacrilegious to a Googler: “I almost feel like I’m in the 1990s,” Georgiadis admits.
She might as well be in the 1950s or 1960s, because the products that Mattel introduced in those decades—flagship franchises Barbie and Hot Wheels—still make up about 30% of the 72-year-old company’s global sales. These aging brands consistently rank among the top toys sold worldwide (see “How Little Things Change” below), but they haven’t exactly been springboards for innovation. And not coincidentally, Mattel’s revenue has slipped in recent years: In its last fiscal year, sales came in at $5.5 billion, 14% less than in 2012. Its stock price, meanwhile, has slid from $37 to $16 over the past five years. (Georgiadis is the company’s fourth chief exec in that same period.)
How Little Things Change
Many top-selling toy franchises have been around for decades, showing the power of big brands—and the dearth of innovation—in the industry.
Top-Selling U.S. Toy Properties in Dollar Terms, Jan.–June 2017:
Manufacturer: The Pokémon Co. (licensed from Nintendo)
- Star Wars
Manufacturer: Hasbro (licensed from Lucasfilm)
Manufacturer: Mattel (licensed from DC Comics)
- Hot Wheels
- Little Tikes
Manufacturer: MGA Entertainment
Manufacturer: Moose Toys
- Paw Patrol
Manufacturer: Spin Master Entertainment
- Lego Star Wars
Manufacturer: Lego (licensed from Lucasfilm)
Source: NPD Group
To be sure, Mattel isn’t the only toy giant whose innovative streak appears to be stuck in Slime (a product Mattel introduced in 1976). Rivals Hasbro and Lego also face challenges, as all three struggle to stay on top of the $49 billion global toy market. While the industry is expected to grow about 4.5% this year, these formidable players are up against fierce headwinds. Their dependence on licensing deals with movies—particularly at Hasbro, which owns “master rights” to Disney franchises like Star Wars—has become a double-edged lightsaber: When movies are down, so are toys. This past season produced Hollywood’s worst summer box office in over a decade, leading BMO Capital Markets analyst Gerrick Johnson to reduce his price target on Hasbro and Mattel. Among the factors Johnson blamed: “Fatigue in certain properties associated with multiple sequels, and competition from entertainment from other screens.”
Ah, yes, those “other screens.” In a digitally saturated era where even toddlers reflexively grab their parents’ smartphones for stimulation, technology presents a seemingly unsolvable puzzle for traditional toymakers. The more kids consume iPad apps and Netflix shows, the less time they spend playing with dolls or snapping together small, colorful bricks. (Privately held Lego has also suffered: In early September, following a 5% drop in midyear sales, the Danish company announced it would slash 8% of its workforce.) From an outsider’s perspective, the industry stands at an existential threshold: To break out of its rut, it has to go digital.
But here’s the problem: Kids may love screens, but it’s not clear that they like “tech toys.” The toys they gravitate toward—or at least the toys their parents buy for them—remain largely analog. Think Pokémon cards, Nerf guns and balls, and, yes, Barbie dolls, all among the five bestselling toy properties this year, according to research firm NPD Group. “There are pockets driven by technology,” says Juli Lennett, an NPD analyst. “But most growth still tends to be driven by some of the classic play patterns.” Another example: The fastest-growing category of toys sold so far this year was games and puzzles, a grouping that doesn’t include video games. As Stephen Pasierb, CEO of the Toy Association, a trade organization, argues, “Many parents want their kids to have some digital detox.”
Parents may not want screens and technology to replace toys. They do, however, want toys that meet the expectations that tech creates—more interactivity and customization, for starters. They also want to be able to buy toys without going shopping, which helps explain why once-dominant retailer Toys “R” Us filed for bankruptcy in mid-September, buckling under the weight of e-commerce giant Amazon (and creating another headache for big toymakers). As Mattel board member Dean Scarborough, chairman of labelmaker Avery Dennison, puts it, the business is no longer a simple process of “producing an item, advertising on TV, and pushing it into the stores.”
This is the gauntlet Georgiadis is running. The exec is already shaking things up, in a Google-y way, developing a shared technical infrastructure for toy development and investing in digital marketing. (Until recently, nearly all of Mattel’s ad spending was invested in television.) “We needed someone from the digital world,” says Scarborough. “And it’s pretty hard to get more digital than Google.” Ruth Porat, the search giant’s chief financial officer, expresses faith in her former colleague, pointing out that Georgiadis ran one of Google’s most important businesses, giving her the background she’ll need for “applying cutting-edge tech into all parts of Mattel’s business.”
Some toys, though, are better left in their analog state, and Georgiadis will have to know which levers to pull and when. There’s nothing particularly high-tech about the Chatter Telephone, for example. On the windowsill in the CEO’s shared office sits the smiling, plastic pull toy, first developed in 1961. It is a reminder that all the 0s and 1s in the world don’t diminish the appeal of a ringing rotary phone, as far as babies (and their parents) are concerned. In 2000, Mattel upgraded the old model with a push-button design that lit up. The result? Consumers protested, and the company brought back the original version.
If there’s a lesson there, perhaps it’s this: In a data-driven age, there is a science to developing products that match kids’ “play patterns.” But there is also an art.
After taking the top job last February, Georgiadis did what all new outsider CEOs are expected to do: She traveled the country, talking to as many of Mattel’s 32,000 employees as possible. Then she tore down a Barbie Dreamhouse.
Like Barbie herself, the mockup Malibu pad, first conceived of in 1962, has gotten multiple touch-ups over the years. By the ’70s, the one-story abode had grown to three floors and an elevator. In the 1990s Mattel spruced it up with a working doorbell and a fireplace that lit up. And last holiday season, Barbie moved into her first “Wi-Fi, voice-activated” Dreamhouse, which enabled kids to open doors using spoken commands. (With a price of $240, that’s about $30 per square foot.)
But according to Georgiadis, Wi-Fi wasn’t enough to bring the 58-year-old Barbie into the Internet age. That’s why she brought a screwdriver to the weekly management meeting and took apart the latest Dreamhouse, laying out each component—and each flaw—for all to see.
For starters, the voice-activated parts had a cumbersome amount of circuitry. “There were, like, seven chipboards in that thing,” Georgiadis says. Not only were the chipboards completely separate—not communicating with each other—but Mattel wasn’t using them to their full potential. The toymaker wasn’t recording or saving Dreamhouse owners’ voice commands—much less combining them into a system that could learn and evolve, otherwise known as natural language processing. “You want to know, how many times did she