Mattel intends to cut the number of items it sells by 30%. A Barbie doll in 2016. PHOTO: MATTHIEU ALEXANDRE/AGENCE FRANCE-PRESSE/GETTY IMAGES Source: The Wall Street Journal
Mattel has had a vast manufacturing footprint because it has historically been an owner of large brands with predictable sales from year to year. “At certain points in time, it made total sense because they made so many die-cast vehicles and so many Barbie dolls,” D.A. Davidson & Co. toy analyst Linda Bolton Weiser said.
But now, aside from keeping plants that churn out more than half a billion Hot Wheels cars a year or have proprietary methods for sewing hair onto dolls, the need for a vast footprint isn’t necessary, Ms. Weiser said. Mattel says it plans to keep factories that are “strategically important” or that can make certain products at a better quality and lower cost than a third party could, while consolidating plants that are underused.
Mr. Kreiz is tackling problems that he inherited from a succession of three CEOs in the preceding three years. He promoted Mr. Isaias, who had been running Mattel’s Latin America business, to lead the effort, breaking from the practice of hiring supply-chain experts from outside the toy industry.
The company already changed how it sells and fulfills orders to retailers. In Europe, Mattel implemented an automated, online ordering system for wholesale orders, eliminating the need for its sales team to manually process orders. It also increased the minimum order size so that it wasn’t shipping orders valued at just a few hundred dollars into a fragmented retail market.
“That clearly resulted in an unprofitable proposition,” Mr. Isaias said.
Mattel has posted a loss in eight of its last 11 earnings reports.
More broadly, Mattel is using new algorithms to tie its manufacturing output more closely to demand, helping the toy maker to gauge the right number of toys for the holidays. Mr. Isaias said Mattel was shipping 97% of the product that it promised to its various owned subsidiaries across the globe, for sale to retailers in the critical fourth quarter. That is up from percentages in the mid-80s a few years ago.
Where to make products is now considered across the company, to avoid creating extra costs when trying to save. Mr. Isaias said Mattel at one point moved production of the Barbie Dreamhouse, a $200 dollhouse that is a signature toy each year, from Mexico to Vietnam. Projections showed it would be 7% cheaper to make the dollhouse there. But removing it from the Mexico production line meant the cost of operating that plant would be spread across the remaining items made there. “So the other categories go up in price,” Mr. Isaias said.
Mattel also will be making fewer products. The company is planning to cut the number of items it sells by 30%, targeting the 45% of the items it sells that only make up 6% of its revenue.
“We’re really taking action that has not happened in a long time whereby you basically accumulated product in the system with very limited contribution,” Mr. Kreiz said.
Fewer items to produce will help make it easier to cut many of the shades that have built up in Mattel’s color catalog. Mr. Isaias said designers don’t need that many colors and would only select from such a broad range because it was possible.
Having fewer shades of red, blue or yellow will hardly be perceptible to consumers, Mr. Isaias said. “It doesn’t matter,” he said.
Source: The Wall Street Journal, January 3, 2020 | Paul Ziobro