Companies like Mattel (NYSE: MAT) and Hasbro (NYSE: HAS) have apparently decided that selling toys in a recession means offering products that the consumer can buy even in the face of a poor economy. That means toys that sell for less. And that means lower revenue -- perhaps losses.
According to Reuters, "Mattel is selling Elmo gloves for $30 this year, while its $60 Elmo Live doll was in the spotlight a year earlier. Hasbro is promoting its $28 Lil' Patter Pup, whereas last year's focus was on the $180 toy puppy called Biscuit."
Over the past year, shares in Hasbro and Mattel have behaved very differently: Mattel is off more than 40% while Hasbro is down about 10%.
But, Hasbro's business model creates high operating margins, in some quarters as good as 16%. If the profits on low-prices toys erode that, the company could lose its major attraction for investors.
Hasbro's chances of outperforming the market this year are quickly going away.
Douglas A. McIntyre is an editor at 24/7 Wall St.