For those who are unfamiliar with the company, Mattel is
a US company that designs, manufactures, and markets a range of toy products
worldwide, most famously, the Barbie doll. Unfortunately for Mattel, their
recent earnings are not as ‘perfect’ as their dolls.
The company has just reported a 60% drop in fourth-quarter earnings! The company’s CEO and chairman Brian Stockton, has now resigned following his consistent poor performance. Profits have fallen more than £250m over the past year (BBC, 2015), causing a significant fall in the company’s share price as shown below.
The company has just reported a 60% drop in fourth-quarter earnings! The company’s CEO and chairman Brian Stockton, has now resigned following his consistent poor performance. Profits have fallen more than £250m over the past year (BBC, 2015), causing a significant fall in the company’s share price as shown below.
Figure
1: Mattel’s share price from 2012 to present
 |
| Source: Financial Times (2015) |
From the graph, we can see that share price declined
significantly from mid 2013. Poor strategy and poor leadership may have caused
this. The CEO has been criticised for neglecting the creative side of the
business, while fostering a bureaucratic, top-down culture (Financial Times,
2015). None of his strategies have been able to stop the recent plummet in
sales. Lately, the toy industry has been struggling to cope with an increase in
competition, as children’s attention draws towards electronic gadgets such as
iPad’s. In addition, Mattel recently lost the licence to make the many of the
more popular Disney character dolls, to their rival Hasbro starting in 2016
(Bloomberg, 2014). Furthermore, major rival LEGO, have now overtake
Mattel as the largest toymaker in the industry in terms of revenue.
In this instance, due to the declining profit, the managers’ may be reluctance to embrace shareholder value. According to Loderer, Roth, Waelchli & Joerg (2010) this is probably because generating shareholder wealth is simply not implementable given Mattel’s poor financial performance. It also supports theory that managers may in fact be wealth destroyers, which relates back to the principle and agent problem first discussed by Berle and Means (1932) which implies that managers don’t necessarily have the same objectives as shareholders.
This case reminds me of the AOL Time Warner case in
lecture 2, not because of the merger, due to the CEO quitting. I believe the
current CEO has managed to get out at a similar time to that of Gerald Levin in
the AOL Time Warner case. I hold this opinion because I believe that the Barbie
dolls will continue to decrease in demand and losing the licence to make dolls
to a rival will further cause a decline in revenue in the future. I believe the
CEO is lucky to get out now, because I cannot see future earnings increasing
without a dramatic change in strategy.
To conclude, it is clear that the company did have the
right capabilities and finance available to thrive in the market however, a
poor performing CEO and strategy has let the company down. In my opinion, I
cannot see Mattel recovering any time soon due to the changing nature of the market,
which is swaying children towards more technical products, as, appose to
plastic figures. However, I also believe the company could potentially change
their strategy in the long run to suit this change in consumer buying habits,
but I cannot see this happening any time soon. I wish the new CEO Christopher
Sinclair the best of luck, but it will take a dramatic shift in strategy to
turn around this struggling business.
References
BBC (2015). Mattel boss resigns on Barbie sales
slide. Retrieved 30th January 2015, from http://www.bbc.co.uk/news/business-30980751
Berle, A. A., & Means, G. C. (1932). The modern
corporation and private property. New York: Macmillan
Bloomberg (2014). Hasbro Wins Disney Frozen Toy
Licenses in Blow to Mattel. Retrieved 29th January 2015,
from http://www.bloomberg.com/news/articles/2014-09-24/hasbro-swipes-disney-s-frozen-princess-licenses-from-mattel
Financial Times (2015). Mattel chief quits as
earnings drop 60%. Retrieved 29th January 2015, from http://www.ft.com/cms/s/0/8513351c-a576-11e4-bf11-00144feab7de.html?siteedition=uk#axzz3QJQ6U5pa
Loderer, C., Roth, L., Waelchli, U., & Joerg, P. (2010).
Shareholder value: Principles, declarations, and actions. Financial
Management, 39(1), 5-32. doi:10.1111/j.1755-053X.2009.01064.x
