Mattel unveiled its strategic growth plan during the company’s Investor Day event in New York City. CEO Margo Georgiadis and members of the management team presented the strategic plan and the company’s medium-term financial framework.
Mattel’s clear strategy for growth is focused on building its Power Brands (American Girl, Barbie, Fisher-Price, Hot Wheels and Thomas & Friends) into 360-degree connected systems of play and experiences; accelerating growth in emerging markets; and transforming its innovation pipeline. Management anticipates that reshaping operations and reallocating resources will unlock substantial reinvestment funds for growth, and will improve speed to market. Mattel’s large base of consistent revenue from core brands will continue to produce ongoing cash flow; and the company will maintain a strong balance sheet to support its growth strategy.
Mattel will focus on a five-pillar strategy:
- Build Mattel’s Power Brands into connected 360-degree play systems and experiences.
- Accelerate emerging markets growth with digital-first solutions.
- Focus and strengthen its innovation pipeline.
- Reshape Mattel’s operations to enable the strategy—leaner, faster, smarter.
- Reignite Mattel’s culture and team.
The company has created a brand development framework to unlock the scale and profitability of its brands, based on Mattel’s global brands. Each one of these brands is founded on a globally relevant and accessible play pattern—dolls, cars and trains—which are sold at huge unit volumes, in the hundreds of millions. The company will leverage its scaled consumer base, the framework then builds powerful communities of shared interest around the brand. Further growth will be driven by adjacent opportunities, including consumer products, gaming, content and live experiences.
Mattel plans to bring new scaled, digitally connected toy offerings to market starting in fall 2018.
Mattel plans to accelerate growth in emerging markets, which is expected to be the biggest driver of future industry growth. The toy market in these regions is still emerging with spend per child still a fraction of the U.S.
Mattel’s purposeful brands are well aligned with the needs of Chinese parents, and Mattel has taken a solutions-based and digital-first approach to localize products, which has enabled the company to scale rapidly over the past five years. This success, along with Mattel’s rich learning and development curriculum, has earned the company ground-breaking partnerships that will support accelerated growth. Mattel predicts that its China business can be three to four times bigger by 2020 if well-executed. In addition, the company has plans to take a similar approach to expand more rapidly in other priority emerging markets, including India and Indonesia.
To focus and strengthen its product innovation pipeline, the company is shifting to a company-wide approach to manage its innovation portfolio. This includes aligning metrics and investment levels with the respective opportunities and encouraging more aligned risk-taking across initiatives. As a result of this, the company expects to speed up its innovation cycle time—targeting six- to nine-month cycles to develop new products, versus 18 months today.
The company will drive growth within its innovation pipeline in three key areas:
- Further differentiating its offering for licensed partners, which leverage Mattel’s infrastructure and provide excitement at retail.
- Pursuing co-production with partners that align on shared interest.
- Driving innovation with Mattel’s own brands and launching new brands by leveraging the company’s deep insights and expertise in girls, vehicle play, games and STEAM.
To enable the company strategy, Mattel plans to reshape its operations to be faster, leaner, and smarter. As a part of this, the goal expects to free up $150 to $200 million to reinvest in rearchitecting the company. Changes will focus on three areas:
- Commercial—simplifying the organization and better aligning to market opportunities, as well as supporting a transformation to the omnichannel world.
- Manufacturing and supply chain—improving speed to market, deepening cost advantage, and creating scalable digital product platforms.
- IT transformation—optimizing critical business drivers with shared data and an insights-driven approach across all areas of the business.
To reignite the culture, Mattel has launched a new purpose, promise, and values that will help to unleash the innovation, collaboration, and speed the company needs to succeed. In addition, the company has hired and will continue to hire strategic talent to seed change across the organization and accelerate its progress forward.
Mattel has already added a suite of talent across the organization in areas including brand management, commercial, manufacturing, connected product development, ecommerce, content, and digital market. This will continue to be a priority going forward.
To drive growth and margin improvement, Mattel will be making incremental investments. The company expects the cumulative incremental investment to execute this strategy in both capital expenditures and operating expenditures will be approximately $250 to $350 million.
The company will right-size its dividend to free-up resources for reinvestment as well as strengthen its balance sheet and provide added financial and strategic flexibility.
In the medium-term, Mattel believes its future-state business model can achieve mid-to-high single digit revenue growth and operating profits at, or above, 15 percent.