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|Secondary competitors of Mattel include '''LEGO''' (toy brick building sets), '''Bandai''' (Japanese action figures and video games) and video game manufacturers such as [[Electronic Arts (ERTS)]]. None of these companies compete directly in the toy market for the same demographic of customer as Mattel, however.||Secondary competitors of Mattel include '''LEGO''' (toy brick building sets), '''Bandai''' (Japanese action figures and video games) and video game manufacturers such as [[Electronic Arts (ERTS)]]. None of these companies compete directly in the toy market for the same demographic of customer as Mattel, however.|
|+||*Sales of "Cars 2" merchandise and favorable foreign currency exchange rates led to a 56% rise in earnings.<ref>[http://news.morningstar.com/all/ViewNews.aspx?article=/DJ/201107151056DOWJONESDJONLINE000386_univ.xml Morningstar.com:Mattel 2Q Profit Soars On Cars 2, Strong Sales]</ref>|
Mattel (NYSE: MAT) is the world’s largest toy manufacturer. Mattel makes some of the best known brands in the toy industry, including Barbie, Matchbox, Fisher-Price and Hot Wheels. In fiscal 2010, Mattel reported net sales of $5.856 billion and net income of $684.9 million.
In addition to the threat from video games, profit margins at Mattel and other traditional toy manufacturers are being squeezed by macro-economic factors largely out of their control, including pressure from retailers and rising input and distribution costs. The retail landscape for toys has shifted and specialty retailers such as Toys'R'Us and FAO Schwartz are slowly adopting to the shift in childrens' entertainment towards video games. Behemoth discount retailer Wal-Mart (WMT) is currently the largest retailer of children's toys in the U.S., a shift which has pressured Mattel's margins as Wal-Mart demands low prices from its suppliers. Additionally, fluctuations in oil prices affect input costs for making plastic-based toys as well as distribution costs for transporting products from factories in Asia to other parts of the world.
Mattel groups all of its products into three major brand groups:
Mattel divides its business into two primary sectors: Domestic/North America and International. Mattel products are sold directly to retailers in most European, Latin American and Asian countries; in Australia, Canada and New Zealand, its products are sold through agents and distributors (Mattel has no direct sales presence). Except for American Girl, which is not sold internationally, Mattel offers the same products in both domestically and abroad. It does tailor product mix to regional fads and the quality is varied due to price sensitivity. International net sales were $2.92 billion in fiscal 2010, up 6% from fiscal 2009.
Toy sales in the U.S. have been growing at a very low rate for the last few years, mainly due to the shift from traditional toys towards video games. Mattel does own the digital gaming company Radica, but Radica produces handheld electronic games (such as electronic devices that offer games such as 20 Questions, Checkers, etc) while the major growth in electronic games is in console gaming (Sony's PlayStation3, Microsoft's Xbox 360 and Nintendo's Wii). Without a major foray into video gaming, Mattel could stand to lose significant market share as youth turn to digital entertainment over traditional toys.
A considerable amount of Mattel's manufacturing cost comes from plastic resin, which accounts for approximately one-quarter of cost of goods sold. In recent years, resin prices have soared because of a rise in prices of its key component: petroleum. These price movements cause the price of manufacturing plastic-based toys rise, in turnhurting Mattel's profit margins. This effect is augmented because oil prices play a primary role in Mattel's distribution costs related to transporting its products from manufacturing plants in Asia to customers and retailers around the world. Conversely, a return to rising oil prices would put downward pressure on Mattel's profit margins.
The toy retailing environment has changed greatly in recent years. Specialty retailers such as Toys'R'Us and FAO Schwartz have faced difficulty in the current decade. The latter has already been in and out of several bankruptcies and Toys'R'Us has flirted with bankruptcy. Part of this change has been driven by the slow growth of the traditional toy market and the rapid rise of video games, a category that toy stores were slow to adopt. Instead, the video game market became dominated by electronic retailers such as Best Buy (BBY). Compounding the woes of toy stores is that growing dominance of large discount retailers such as Wal-Mart (WMT) and Target (TGT), both of which have captured a significant chunk of both the traditional toys market and the video game market.
Secondary competitors of Mattel include LEGO (toy brick building sets), Bandai (Japanese action figures and video games) and video game manufacturers such as Electronic Arts (ERTS). None of these companies compete directly in the toy market for the same demographic of customer as Mattel, however.