Donald Trump’s plans to introduce import taxes and punish American companies that produce overseas could mean playtime is over for Mattel. Around 90% of the world’s toys are manufactured in China, according to finance chief Kevin Farr, making protectionist policies a threat to the entire industry. He warned analysts that the toymaker had few options in the short term. “I don’t think there is much we can do, because all of our manufacturing facilities are outside the US.”
Mattel, which owns Barbie, Hot Wheels and Fisher-Price, might move production to the US in the future though. Management continues to reduce costs through automation, says Farr, and could reassess and adjust its manufacturing base in the face of large US import tariffs.
The toy giant won't be thrilled at the prospect of higher costs, as its revenues and margins fell in 2016. Net sales - excluding currency movements - fell 2 per cent in 2016. The key drivers were the loss of its licence for Disney Princess dolls to rival Hasbro in late 2015, a broader industry slowdown and a greater proportion of customers leaving their Christmas shopping until the last minute (Mattel typically earns about a third of its annual revenue in December). Last-minute shoppers pushed up Mattel's shipping costs and prompted nervous retailers to discount the company's toys, narrowing its gross margin by 2.4 percentage points to 46.8%.
Mattel’s bosses suggested the absence of films such as Star Wars: The Force Awakens and Minions may have depressed foot traffic to toy stores in 2016, compared with 2015. On the bright side, sales of Barbie, Hot Wheels and Fisher-Price benefited from brand repositioning, new marketing and refreshed product lines. The company’s partnership with Warner Brothers also paid off, as consumers snapped up Batman v Superman and DC Super Hero Girl action figures.
Management also highlighted a strong slate of upcoming products. They predict toys related to Disney’s upcoming Cars 3 movie will generate $300m in extra revenue in 2017. They also expect to benefit from the release of Wonder Woman, Justice League and a new Fast & Furious movie this year, followed by Toy Story 4 and a Jurassic World sequel in 2018.