TL;DR: The 16% drop in Barbie sales in FY2014 suggests that customer interest in toys with no or minimal social value may eventually dissipate.
Mattel Inc. (NASDAQ: MAT), known worldwide as the maker of Barbie dolls, is reportedly holding talks with fellow toymaker Hasbro Inc. over a possible merger. This news, apparently unpopular among financial analysts, puts Mattel under an uncomfortable spotlight.
In FY2014, the toymaker’s net sales fell by 7%, reducing shareholder value, according to Mattel’s FY2014 10-K filing. Returns on Mattel’s stocks dropped to $185.25 in FY2014 from $272.90 in FY2013, despite the steady growth of returns of S&P 500 stocks. Mattel attributed the sales drop to decline in sales a number of brands, notably including Barbie, its flagship product. The drop in Barbie sales was significant at 16% in FY2014 from FY2013, second only the 20% drop in sales in its Entertainment division. So what has gone wrong?
ESG Spotlight: Societal Impact of Products
Mattel is no stranger to criticism of its Barbie dolls. Over the years, studies have found negative effects of Barbie dolls on girls’ body image and gender roles. Advocacy groups are actively calling adults to stop buying Barbie dolls for their kids. To a certain extent, Mattel has been responsive to the changing times. It created numerous types of Barbie professions and recently launched Barbie dolls representing the different body types of women as well as ethnic groups in America.
Despite all these adjustments, Barbie sales dropped by 16% in FY2014. This is a clear indication that changing customer preferences have a direct financial impact on the company. Did Mattel act too late? Or is it time to re-evaluate the role of Barbie dolls in children’s lives, and the company’s future for that matter?
It is difficult to measure impacts of a product on people, but it is clear when a product has overstayed its welcome. Despite all adjustments made on the brand, Barbie continues to represent a negative image, and the risk that more parents will eventually refuse to buy these dolls for their daughters does not seem to be explicitly acknowledged by the company. The closest acknowledgement to changing preferences is as follows:
“If Mattel does not accurately anticipate trends in popular culture, movies, media, fashion, or technology, its products may not be accepted by children, parents, or families and Mattel’s revenues, profitability, and results of operations may be adversely affected.” (FY2014 10-K Risk Factors)
The growing opposition to Barbie dolls appear to be more than just a misalignment with popular culture. I suspect there is a growing realization that these dolls have done more harm than good. In contrast to Lego toys, for example, Barbie dolls do not encourage more learning or trigger positive attitudes among children. In fact, there is evidence to suggest that the “ideal” represented by a Barbie doll makes girls feel bad about themselves.
Mattel has made the following commitment:
“In 2015 and beyond, Mattel intends to utilize its unmatched portfolio of brands, global scale of infrastructure, capable management team, and strong balance sheet to work towards revitalizing its business and to deepen its connection with children and parents around the world.” (FY2014 10-K)
Deepening its connection with parents may mean facing the hard reality that at 57, Barbie may be at the end of her long run.