The Toy Industryand Recalls

BA 358:Lacey Bowman

Allie BricekFrank CastronovoLorelay CoronaMatthew Vital

The Toy Industry• Term used to describe industries

that produce small number of goods in any material– Hinges, buttons, belts, hooks,

etc.• “Playthings”

• 1st based on small-cottage manufactories– (London) Rise of the

middle class, a demand that led to rapid expansion of the industry• Mid-18th century

– Later, a number of very large manufactories were built.

Background (Cont’d)• The US toy manufacturing

industry includes:– About 700 companies and– Has annual revenue of $20

billion

• Most manufacturing is conducted in overseas factories– Primarily in China.

• Highly concentrated industry– Top 50 companies generate

about 75%of revenue

Differences betweenSmall vs. Large Companies

Small Companies: Competitive Specialize in product

segment Respond faster to

market trends

Large Companies: Wide selection of toys Have scale advantages

in: Purchasing Manufacturing Distributing Selling Marketing

US vs. InternationalCompanies (List)

United States• Tiger Electronics, Massachusetts• Fisher Price, New York• Leapfrog, California• Playskool, Rhode Island

International• Hasbro, global• Mattel, global• Bandai, Japan

Differences between US & International Companies

US Traditional Toy Markets

Differences between US & International Companies

International Traditional Toy Markets

Major Players

1. Mattel2. Hasbro3. Bandai4. Lego5. Tiger Electronics

Matel

• "Leadership" at Mattel is the ability to develop and communicate a compelling picture of the future that inspires and motivates others to take action.

• Leaders at Mattel align themselves with Mattel's core values, exhibit leadership competencies and drive for success in our business strategies.

• In this way, we will work to achieve our vision, "Creating the Future of Play.”

• Every day as Mattel's 30,000 employees worldwide strive to realize that vision, our leadership team is guiding the way

#1. Mattel• World’s largest toy

company– Barbie

• Generates 80% of revenue sales

– Hot Wheels– American Girl– Polly Pocket– Matchbox

Problems for Mattel

• August 2,2007: toxic toy scandal:– Recalled almost all Chinese made toys, potential hazard of being

colored with lead based paint– Was up to 11% lead in some U.S. allows for .06%

• August 14,2007: recalled over 18 million products – Small magnets in toys can detach allowing kids to swallow these

items• September 4,2007: recalled 530,000 affected toys in U.S. and

318,000 outside of U.S. because of levels of lead• June 5, 2009: Consumer Product Safety Commission fined

Fisher-Price division $2.3 million for violation of Code 16 of Federal Regulations for lead paint

Mattel: Effects and Response

• Effect on Mattel: Fortune Magazine rated the recall of Mattel’s products The “dumbest moments” in business of 2007

• Increased audits and testing of all products

• Took full responsibility of magnet recall

• Closed its last American factory in 2002

• 2007 primarily manufactured by subcontractors in Asia

#2. Hasbro• 2nd largest global toy

maker– Long-lasting toy

franchises since the 1920s• Mr. Potato Head• G.I. Joe• Transformers• My Little Pony

– Board Games• Monopoly• Candy Land• Scrabble• Trivial Pursuit• Pictionary• Recently, Cranium Inc.

for $77.5 million

Hasbro Manufacturing

• Out sourced the manufacturing of their products, mostly to China

• Hasbro doesn’t directly own the factories• 2007: factories investigated by a workers right group– Found 1000 junior high students working there, they now

send independent auditors since they do not have control over this

• Outside China- Hasbro owns and operates two manufacturing facilities one in Waterford, Ireland, other in East Longmeadow, MA

Hasbro Recalls

• 2007: Recalled 985,000 easy bake ovens, children would get their hands caught in them

• 2008: Recalled 330,000 Nerf Guns, they could cause bruising, abrasions, pinching, blood blisters and welts

#3. Bandai

• Business Philosophy:– to provide timeless

entertainment through endless creativity

• 3rd largest toy manufacturer– Based in Japan

• Popular video games for– Nintendo– Sega– PlayStation– Game Boy– Wii– Xbox

Bandai Recalls

• February 2010: Tales of Graces: a Wii game due to glitches

• January 2007: 173,816 video game consoles as a result of or faulty cords that can cause burns and smoke

Bandai International• European Region: • Works closely with U.S.• Goal of expanding their sales channels into

Eastern Europe.• North American Region: – Products for boys is their focus• Power Rangers

#4. Lego

• 1934, Danish toymaker– Ole Kirk Christiansen

• 1st line of wooden toys, then produced plastic bricks (legos)

• Popular culture phenomena– Star Wars– Harry Potter

Lego’s Philosophy

• “Good Play” enriches a child’s life – and its subsequent adulthood.– Developed and marketed a wide range of

products, all founded on the same basic philosophy of learning and developing–through play.

About Lego• Products sold all over the world

– One of the world’s largest toy manufacturers, and largest in construction toys

– Began in 1932• Took the first two letters of the Danish words LEG

GODT, meaning “play well”, and put them together• There are about 2,350 different elements, plus 52

different LEGO colors– Total number of active combinations is more than 7,000

• LEGO brick was acclaimed “Toy of the Century” –by Fortune Magazine and by the British Association of Toy Retailers

International

• Relocation began in 2006• LEGO Group has production facilities in Denmark, Eastern

Europe and Mexico.• The new production facilities in Mexico and Eastern

Europe have been chosen for their proximity to the• Group’s main markets in Europe and the USA.• The most specialized and skills related LEGO products will

still be manufactured at the Group’s Danish plant in Billund– in order to preserve important skills in molding, processing

and packing within the group’s own organization.

Fun Facts• Laid end to end, the number of LEGO bricks

sold in a year would reach more than five• Times round the world• The world’s children spend 5 billion hours a

year playing with LEGO bricks• On average there are 62 LEGO bricks for every

person on earth

Recalls

• 2002-2003: Lego Explore Super truck– Wheels can separate from truck (potential

puncture hazard to children)• April 8, 2009 and May 6, 2009 :Power

Functions IR Speed Remote Control– Remote controls heating up

#5. Tiger Electronics

• American electronic-toy manufacturer

• Subsidiary of Hasbro– Handheld games– Furby– Giga Pets

• Leading electronic toys for:– Star Trek– Neopets– Barney– Jeopardy– Who Wants to Be a

Millionare?– Winnie the Pooh

Tiger Electronic Recalls

• -August 2009: Pooh Poppin' Piano: top of the microphone breaking off

Common Trends AmongMajor Players

• Budget Toys– Basic, nostalgia

• i.e. remote controlled cars

• Movie Toys– Movie-licensed toys

• Iron Man, Superman, Batmam

• Organic & Green Toys– Eco-friendly raw

materials from reused & recycled materials

• Interactive and Digital Toys– Computerized-

virtual world

Minor Players

• Fisher-Price• Leap Frog• Playskool

Minor Players International• All 3 of these minor players are traded internationally• Fisher-Price

– Sold in North America and most European, Latin American, and Asian countries and also in Australia, Canada and New Zealand

• LeapFrog– Products are available in 4 languages in more than 44 countries

and in more than 100,000 classrooms in the U.S.• Playskool

– U.S., Canada, Europe, Asia, and South America; in 2009 expanded operations in Brazil, China, Russia and Korea by pushing main brands such as Playskool

Fisher-Price

• Headquarters: East Aurora, NY

• Infant toys– Subsidiary of Mattel, Inc.

(1933) • Products– Little People toys– Power Wheels– Others: Disney,

Sesame Street, Barney, Dora the Explorer, & See ‘n Say

Leap Frog

• Based in Emeryville, CA

• Leading designer, developer, & marketer of innovative, technology-based educational products world-wide

• Most engaging & effective learning experience for all ages– Tag, Tag Jr., Zippity,

Scout, Leapster

Playskool

• American company; headquarters in Pawtucket, RI– Subsidiary of Hasbro

• Educational toys & games for children– Mr. Potato– Play-Doh– Tonka– Tinker Toys– Lincoln Logs– Weebles– Gloworms

Minor Players—Sales Revenue

Fisher-Price 2009

• Fisher-Price business unit sales• Worldwide gross sales- 2.17 billion, down 8

percent• Fisher-Price brands made up 36.7% of Mattel’s

2009 sales

LeapFrog Enterprises 2009 Sales

• Total Sales- 379.8 million, down 17.3% from 459.1 million

• Web Sales- 19.2 million, up 20% from 16.0 million in 2008

• Total International Sales- 73.4 million, down 23.3% from 95.7% million

• Net loss was 2.7 million, versus a net loss of 68.4 million in 2008

Playskool 2009 Sales

• Hasbro- global net sales- 4.07 billion• Net earnings- 375 million

• Playskool made up 11.1% of the revenue made in 2009

Innovations• Webkinz– Ganz Company• Stuffed animal with

unique “Secret Code”• Webkinz World website

– Concept: Giga pets

Green Toys Inc. Line of classic children’s toys

constructed from recycled plastic & other environmentally friendly materials.

Helps reduce fossil fuel use and greenhouse gas emissions Improving the overall

health and happiness of the planet

Production & Operation:Push System

• (def) Produce goods in advance of customer demand using a forecast of sales […]– Replenish shelves as needed

The Toy Industry Productions and Operations: US & International:

Value Chain ModelManagement

Outsourcing

• 70% + toys are manufactured in China

• Reasons for Outsourcing:– Experience-specialization– Fast-track response

quick opportunities emerge

– Save money & time• Market

Intelligence3rd party research on market trends

Ethical Concerns

Labor Standards: Increased focus on

standards Req. by USA brands

Relocation of factories to cheap, remote area

Hiding bad practices

• Recall of 45 million toys imported from China– Consumer Product

Safety Improvement Act• Passed: August 2008• In-Effect: February 2010

Social Responsibility

• AKA Corporate Social Responsibility• Complexities in international business:– Balancing the idea of a global stance on social

responsibility against the local conditions that may compel differential approaches in the various countries where a firm does business

2006 RECALL TIMELINE for MATTEL

1-Aug-07 7-Aug-07 14-Aug-07 4-Sep-07Recalls Increase (in millions)

0

5

10

15

20

25

MAGNETS • 71 Makes/Models were recalled• normally used for industrial purposes• that can easily come loose • could easily ingest the parts and have them bond together along their

digestive tract• if several magnets were swallowed they would pull together in the

stomach and rip through stomach tissue

Recalled toys:Polly Pockets, Batman action figures, and Barbie and her dog Tanner

LEAD PAINT• 91 Makes/Models were recalled

– Elevated levels have been shown to create learning and behavioral problems, slow muscle and bone growth, hearing loss, anemia, brain damage, seizures, coma, and in extreme cases, death

• Mattel had previously given manufacturers in China a list of eight paint suppliers that they could use, but in order to cut costs, subcontractors used unapproved suppliers. In some cases the lead content was over 180 times the legal limit

• Recalled toys:Many of the toys coated with lead-based paint were from Mattel’s Fisher Price line

Hasbro Recalls• Playskool Team Talkin' Tool Bench 9/22/06

-Suffocation hazard- toy nails may become forcefully lodged in the back of children's throats.

• Easy-Bake Oven 7/19/07-Entrapment and burn hazard.

• Cranium Cadoo Board Game 1/17/08-Surface paint on die contains excessive levels of lead.

Mattel’s Product Safety• At Mattel, the safety of our toys is our number one priority. We create and produce

some of the world's most beloved toys and brands for children, and we know that with this comes the responsibility to ensure quality and safety. We strive to sustain the trust of consumers by employing strict standards that extend from product design to manufacturing and through distribution.

• Mattel applies internal operating procedures designed to meet or exceed compliance with regulations and laws enforced by the U.S. Consumer Product Safety Commission (CPSC), and their regulatory counterparts around the world.

• If questions ever arise about a product, consumers can contact Mattel directly at our Consumer Relations Call Center. In addition, consumers can make contact 24 hours a day via the company's Consumer Relations Answer Center website.

• Learn more about our approach to product safety: Go to the 2009 Global Citizenship Report

China’s Temptation

• Lead paint is cheap & China is under extreme cost pressure

• Lead added to paint speeds up the drying process and enhances moisture resistance, thus reducing corrosion and mold.

The Producer Using Lead• Lee Der Industrial Company• Mattel allowed them to hold their own inspection tests• Mattel Trusted Lee Der through a 15 year relationship they had with them• Mattel also conducted random audits of Lee Der’s testing records as well

as some of the products themselves• In fact the Lee Der had inadequate controls over their supply chain. • Turns out they had received a shipment of yellow paint, not knowing it

contained toxic lead compounds• Chinese regulators believe that the paint supplier provided Lee Der with

false quality of inspection documents. • As well as Lee Der’s lead detecting equipment failed to detect the

presence of lead• Mattel doesn’t know which of 3 supplier passed the paint

Fixing the problemObjective 1: Get all information about the recall to the public accurately, quickly, and efficiently.

Objective 2: Reassure consumers – especially parents – that Mattel is committed to making safe toys, fixing the problem, and being open and honest.

Objective 3: Take responsibility for the recall. Solve the problem while maintaining a stable relationship with China.

How Mattel Handles RecalledProducts Involving Magnets

How Mattel Handles RecalledProducts Involving Lead Paint

Summary and Conclusion• Background of the toy industry• Small vs. large and US vs. International companies• Major Players

– Common Trends Among Major Players• Minor Players• Innovations• Productions and Operations• Outsourcing• Ethics and Social Responsibility• Product Recalls• Recommendations

Any Questions???