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Barbara Farfan

Mattel Tells Analysts About Today's Challenges, Which Are Small Compared to Devastating Acquisition and Recall Losses of Yesterday (MAT)

By May 13, 2010

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Mattel's (MAT) CEO Robert Eckert and CFO Kevin Farr answered analysts' questions today about the challenges the toy company faces for the rest of the year. There was no mention during that webcast about the challenges that the company was facing eleven years ago today.

On this day in Mattel Inc. history, the California-based toy company paid $3.5 billion to acquire The Learning co., the makers of educational grade-based software programs. With the acquisition of The Learning Co. on May 13, 1999, Mattel was no longer just an entertainer of children, it became an educator of children.

One year later, it was Mattel that was getting the biggest education, reportedly losing $1.5 million per day because of its Learning Company acquisition. Mattel "sold" its high-tech acquisition just 16 months after it was purchased, for the price of zero dollars, to Gore Technologies. In less than two years, Mattel losses were substantial - $4 billion dollars, one CEO, and a whole lot of share value. But the company did earn itself a place in U.S. business history, with a solid position on the "worst American business deals of all time" list.

Understandably, this is a milestone in Mattel's history that didn't make it onto the Mattel website history time line. But it's not something that Mattel or any other American business should want to forget. Eleven years later, The Learning Company acquisition debacle still provides a relevant lesson for businesses large and small... That which almost kills you can make you stronger if it serves as a catalyst for re-examination and conscious change.

Robert Eckert became Mattel's CEO one year and four days after the ill-fated purchase of The Learning Company. In the midst of the greatest upheaval in the company's history, Eckert told his newly acquired employee team that they were going to turn the company around by "building brands, cutting costs, and developing people." What Eckert seemed to understand was that Mattel didn't need to get into new businesses, it just needed to do the things it did best even better.

In its latest quarterly earnings report, Mattel posted a surprising and solid sales, profit, and earnings increase. Most of the increases came from Mattel's core brands - Hot Wheels, American Girl, Barbie, and Fisher Price. Mattel is still finding ways to make its best brands even better.

For example, Barbie got her 126th career after a voting campaign from adult consumers went viral on the internet. Computer Engineer Barbie was born out of that virtual consumer campaign, and probably when she's released in the fourth calendar quarter, she will be carrying her own doll-sized version of the Barbie Special Edition X170 notebook that was released in Korea this month. The Barbie of today can be beautiful, geeky, and relevant all at the same time.

The biggest Barbie buzz of the year so far is centered around the six-story Barbie flagship store that opened in China in conjunction with the Shanghai World Expo. Following the successful American Girl retail-entertainment-experience model, the Barbie store features a spa, people-sized Barbie fashions, restaurants, a karaoke bar, a makeup department, and enough Barbie branded beauty, baubles and bling to satisfy even the most bubbly Barbie boosters.

Most of the reviews of the store have said that the Barbie flagship store is a pink-till-you-puke experience, which is exactly what Barbie fans would want it to be. And those who have had a first-hand American Girl retail experience wonder why it took Mattel so long to build Barbie her own retail kingdom.

Mattel's American Girl and Barbie stores do for its dolls what Apple stores do for its computers. They provide a level of customer engagement that is visceral and meaningful. These stores are not just about selling stuff, they are about forging relationships with customers. Not surprisingly, when those relationships are good, so are the store's sales. It's the highest level of retailing and undoubtedly we'll be seeing more of these types of stores from Mattel, and other leading-edge retailers around the world.

The Eckert-led Mattel is doing well today, but has not been without its challenges. On July 13, 2007 Eckert became aware that there was a major problem with lead paint and loose magnets that eventually forced the company to issue a worldwide recall of 20 million toys, which cost the company considerable money, reputation, and stock value. This event is also absent from the company's website history time line, but like the Learning Company acquisition disaster, the massive recall propelled the company forward because the company seemed to use the incident to re-identify with its own core values and mission.

In this year's Q1 2010 earnings call, Eckert took the time to articulate just what the values and mission are for Mattel today when he said, "We don't just make toys. We create emotional connections that last a lifetime by encouraging children to stretch their imaginations, creating joy and allowing children to become lost in play. That is the real value of our toys. That is the value of play."

And that is the real value of the company. If Mattel's biggest challenges have helped it gain crystal clear focus about its own mission statement for the future, then eleven years ago today marks the day that Mattel started the acquisition of something extremely valuable.

By the way, Eckert and Farr said their biggest challenges for the rest of this year are rising Chinese labor rates, higher packaging costs, and foreign exchange rates. Considering some of Mattel's challenges in the past, it seems like a pretty easy year.

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May 14, 2010 at 10:13 pm
(1) Myrna Hoffman says:

Barbara, thanks for this insightful, warts-and-all article!

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