Mattel is kicking off 2016 with a clear disadvantage: the maker of Barbie and Hot Wheels will lose 7% of the company’s annual sales, roughly $440 million, after ceding a key license to a top rival.
That’s the tough position the toy maker finds itself in after it gave up Walt Disney’s (DIS) Princess license to rival Hasbro (HAS), which officially takes over the business in 2016. The princess line, Mattel explained on Monday, was worth 7% of the company’s $6.28 billion in annual sales for 2015.
But Mattel’s (MAT) top executives told analysts that they could deliver revenue that equaled 2015’s total, news that sent the company’s shares higher in after-hours trading. Results for the fourth quarter, the most critical period for the toy industry, were also better than expected.
Mattel is entering 2016 at a critical point. Barbie’s gross sales have now slid for four consecutive years, while sales are also slowing for another key fashion doll line, Monster High, and for the traditionally resilient American Girl doll brand. Danish-based Lego has performed well in the U.S. and markets abroad, while Hasbro has been busy building up its entertainment licensed brands to piggyback off Hollywood’s biggest releases.
Recent deals to acquire construction building toy company MEGA Brands and Hit Entertainment, known for preschool brands including Thomas & Friends and Barney, haven’t been enough to offset the challenges for Mattel’s bigger brands.
So how will Mattel do it? It’ll be a mixed bag of well, almost everything already in the company’s toy box.
Investing in digital
Digital toys will play a role in innovation, and ideally, sales growth. Some recent examples of this space include partnerships that led to the development of a talking doll called “Hello Barbie” and a tech upgraded View-Master. A turnaround for Barbie will also be critical. The company last week generated a ton of media buzz when it announced Barbie would come in new shapes for the first time, as well as a second year to make the doll more racially inclusive.
Mattel is also betting bigger on licensed pacts. In future years, the toy maker will make toys for the upcoming “Toy Story” and “Cars” sequels. Another potential opportunity? Investments in entertainment to ideally boost the retail presence of Bob the Builder, Polly Pocket, American Girl, and other Mattel-owned brands.
But essentially, Mattel is looking to replace the revenue derived from a home-run hit – Disney Princess – and replace it with a mix of smaller, lesser known and not as popular brands.
Will it work? Investors seem hopeful, at least as of today, that the toy maker is building a solid foundation to eventually correct course and dominate the toy aisle again.