Mattel Makes Play to Revive Declining Sales of Barbie

Mattel Inc., almost midway through a three-year financial realignment plan, is getting good marks from Wall Street for renewed fiscal discipline, speedier product cycles and tighter inventory controls. Profit has rebounded.

But as the 18-month-old management team works on the business problems left over from previous administrations, a more enduring challenge is rearing her head.

Barbie, the doll that accounts for nearly a third of the El Segundo-based toy maker’s $4.8-billion revenue, is showing signs of age as she turns 43 this year. Sales of Barbie slumped last year, continuing a decline since 1997 that stems in part from shifting tastes of young girls.

Although Mattel is developing other products aimed at young girls, a revival of Barbie’s sales growth is seen as critical for the company, given the doll’s high profile and high profit margins.

Like other aging starlets, Barbie and her handlers are determined to find the right platforms to keep Barbie on top. Stimulating sales and excitement for a brand of Barbie’s size and age is a daunting proposition, one that helped propel earlier management teams into the same financial missteps the company is working to undo.

For the coming year, Mattel’s plans include a return of Barbie to the small screen via a new video and possible TV special in “Barbie as Rapunzel,” building on last year’s $150-million “Barbie in the Nutcracker.”

The new movie features Barbie in an updated version of the fairy tale classic, although she doesn’t let down her hair for Ken to climb.

And in addition to an array of new-for-2002 Barbie dolls--which include a soft-body Barbie with glow-in-the-dark hair and pajamas for girls to bring to bed--Mattel will launch a dramatic marketing and product-licensing campaign aimed at establishing Barbie as a ubiquitous “lifestyle brand,” with a product for a girl’s every fashion need.

At the same time, the company continues to expand its other products within the girls division. Those new products helped boost the $2.2-billion sales in the division, offsetting Barbie problems.

Among other products, Mattel this year will add pets and houses to the What’s Her Face line of write-on, wipe-off dolls and new baby dolls called Shining Stars that include materials to name and register them with the International Star Registry.

“We criticized Mattel and the girls division for years for being a one-trick pony, and now they’re growing their gross margins” despite declines in Barbie sales, said Hayley Kissel, leisure industry analyst for Merrill Lynch. “No one would have believed they could do that.”

Last year, U.S. Barbie sales dropped 12% when compared with the same time a year ago, with sales of higher-end collectible Barbie dolls, a mostly adult product, falling 40%. Worldwide, Barbie sales in 2001 fell 3%, to $1.55 billion, the company said, well off a 1997 Barbie peak of $1.8 billion.

“Those numbers are history,” said Jill Krutick, an analyst with Salomon Smith Barney in New York. “We’re not anticipating Barbie revisiting a double-digit growth trajectory any time soon.”

Still, double-digit international Barbie sales and strong sales in the other girls products pushed the division to an overall sales gain of 3%. Those numbers include a 5% gain for Mattel’s pricey American Girl dolls aimed at slightly older girls; Polly Pocket, a micro-size doll for young girls; and the Diva Starz group of talking fashion dolls.

“I think this year is a great illustration of what we’ve done as a division,” said Adrienne Fontanella, president of Mattel’s girls division. “To come out 3% ahead on a worldwide basis really speaks to the portfolio of brands that we’re managing.”

Some financial analysts and investors, however, worry that even strong earnings from licensing fees and newer toys can’t make up for profit losses when Barbie has a bad year. The company does not disclose earnings by division.

“There are very few products in the history of the toy business that are as profitable as Barbie, which has high margins, no royalties, low advertising costs and high markup,” said Sean McGowan, a longtime toy industry analyst for Gerard Klauer Mattison in New York. “They may be doing everything a company in their position should do, but nevertheless the slowing of their most profitable brand is a problem.”

Even as Barbie sales climbed to new highs in the mid-1990s, Barbie’s core customer was changing.

Girls older than 7 or 8, a group that years ago continued playing with Barbie dolls through their preteen years, began giving up the doll and her dream house in favor of video games, stereo systems and other high-tech entertainment products. Soon, Barbie’s perpetually sunny expressions seemed best suited for a younger sister, age 3 to 5 years old.

When sales of Barbie and other traditional toys began to shrink, former Mattel Chief Executive Jill Barad hoped to revive Barbie and other products in part by moving them into online interactive properties. The strategy culminated in the disastrous $3.5-billion acquisition of software maker Learning Co., a money-losing albatross that eventually cost Barad her job.

Since taking the chief executive spot at Mattel in 2000 after the dismissal of Barad, Robert Eckert has shifted the company’s focus away from such high-tech aspirations and back to the real world of toy making. This came as Eckert reversed Mattel’s earnings decline, slimmed down the company and bolstered thin management ranks.

For the last 10 years, a thriving collectors market helped fill in Barbie sales with higher-priced, higher-quality dolls that often featured marquee designers, such as Vera Wang, fashioning a Barbie gown.

But when the economy faltered last year, even before Sept. 11, that collectors market began to fade.

“I don’t think people are lining up to pay these kinds of dollars for things to look at and put in their closet given what’s going on in the economy,” Eckert said in a conference call last month with analysts and investors. “So I’m not thinking about [the collectors market] being a growth avenue, and I think the same is true with holiday Barbie.”

The goal instead, Eckert said, is to revive the Barbie franchise by making fewer, better-quality dolls that can command higher prices and still be in demand.

New consumer product efforts offer another opportunity for reinforcing Barbie as a brand and, if all goes well, reaching an older age group.

For younger girls, items include new bath products with removable Barbie bangle bracelets and a luggage line that for the first time can be checked through airport baggage systems.

To capture slightly older girls, Mattel is introducing Mystery Squad, envisioned as a cross between Barbie dolls and a Nancy Drew book, in which new Barbie dolls carry detective accessories and a dossier outlining the “Prom Caper” for girls to solve.

Still in the planning stage are designs for an apparel line for teens and young women in the United States, including highly stylized Barbie depictions that border on kitsch-cool, such as a giant outline of a Barbie’s head plastered on to a tight-fitting T-shirt and wild-color illustrated Barbie images splashed across jeans and skirts.

Later this year, the company will introduce a line of women’s accessories, including china and stationery sets designed with colors and patterns from vintage Barbie dresses and featuring more subtle Barbie images.

“Years ago the only thing that excited people was the doll and toy products and now the doll and toy products are a piece of the brand,” said girls division president Fontanella. “Now there are many, many other pieces.”

Mattel shares closed at $17.33, down 7 cents, on the New York Stock Exchange.