Hey, toy companies: Cheaper toys means lower profits

Posted Feb 15th 2009 3:40PM by Douglas McIntyre
Filed under: Competitive Strategy, Mattel, Inc (MAT), Hasbro Inc (HAS)

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.

Tags: cheap toys, HAS, Hasbro, inthenews, MAT, Mattel

Print this

Reader Comments (Page 1 of 1)

2-15-2009 @ 5:58PM

Carol said...

Sorry to disagree. There is a tipping point. A point where you have to keep the factories busy, they are machines that need fed. Idle production time will eat your profit faster. You can't give away margin but you also have to feed the machines to keep the production up. I know they offshore, but that doesn't mean the contract factory isn't holding them to a guarantee. There is a point where volume makes up margin. As a grandma with 8 grandkids-- I am buying cheaper toys, spending more time really looking at what the kids would appreciate vs what is hip. So they get x% of a lesser dollar, vs 0% of nothing. You have to produce what people are buying, or leave it sitting on the shelf. The company that understands this will most certainly make their numbers in this economy

2-16-2009 @ 6:25AM

Rod said...

I absolutely agree with you Carol. First off, if you have 0 or onearly 0 income, the daily cost of being in buisness will eat you up. Any good buisness man knows less profit is better than none. And when you take in to consideration what the compnies profit was 2 years ago, there is plenty of room for depeciation. Next there is almost always way to reduce overhead. Being self empoyed, I assure you I will work for less prfit before I'll not work at all for 0 profit. This is the major problems with unoins in this country today.

2-16-2009 @ 10:02AM

TX CHL Instructor said...

>>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."

$30 for a set of (vibrating) gloves?!? $28 for a toy puppy?!?

Wow. Just... Wow.

I think that this provides some additional insight into why our economy is currently in the toilet.
--
www.chl-tx.com