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March 3, 2014

Comments

Richard Gill

Richard - great commentary on the purchase. It is going to be an interesting time internationally as Mattel brings its overseas muscle into play. You last point regarding RoseArt is very intriguing!!


Hala AlDuwik

This is a great article. Thank you for sharing useful insights.

Lisa Orman

Enjoyed your insight a lot! Agree about RoseArt!

Gor Ceb

Great article with all the points disclosed. It seems the big players are heading towards the construction segment. After SpinMaster' acquisition of Meccano, now Mattel' acquisition of Megabloks. What is your vision about the market for the next 5 years. Can these bands really take over some market share from Lego?

Andrew Dobbie

Hi Richard,

Lego is a private not a public company. This is significant because it means the owners can invest all their huge profit in defending and building their position if they wish, which a public company cannot readily do.

Looking at the history of acquisition of Tyco, Power Wheels and Radica, it is by no means sure that Mattel will build and make a success of Megabrands, though I personally would bet on them doing fairly well with it. However Lego has kept its powder dry and could unleash huge promotional investment to combat Megabrands growth in its category. In some countries, particularly Germany, Lego has an iconic status with consumers which results in them buying Lego even if Megablocks are next to it on the shelf with similar products at much lower prices. I have received an email yesterday from the director of a major toy retailer in Germany telling me that Lego is liked because it at least tries to give retailers a worthwhile margin, and he is negative about Mattel saying it is 'opportunistic'. These widely held views in Germany can take a long time to turn round.

A crucial issue is the sales effort which will be allocated to Megabrands. It has been common for toy chief executives to add an acquisition , thinking the existing sales resource can do the job. This is usually a mistake. It will mean the salespeople will have less time available to sell Barbie, Hot Wheels, etc. If salespeople are incentivised to sell Megabrands hard, something will suffer. Time and time again I have seen that management which lives and dies by success with one range will compete much harder than those responsible for the same brand once it is acquired and sold as part of a much broader range. This happens often when an infant product manufacturer is acquired by a toy company. Faced with competing draws on their time the sales force ends up neglecting the new range which is a tougher sell. I have experienced this lack of insight by CEOs because I spend some time sniffing around stores in Europe and listening to what not only retailers say but also what reps for the toy manufacturers say. The chief executives of companies are so far removed from the cutting edge of their business they would be shocked to hear what some of their own employees say to their customers.

Having explained my caveats , I think Mattel will probably succeed in building Megabrands significantly, though I think the main opportunity will be in the area of character licenses, where Megabrands with Halo etc has already managed to win turf from Lego with unique products which appeal strongly to fans of the character.


Andrew Dobbie

Gameplan Europe Ltd

Sarah Dugo

Thanks Richard-you once again have broken a complex situation down into understandable chunks.

@Andrew-thanks for the insight into the sales reps thought process with a new product.

Sarah Dugo

College Savings Dolls, Inc.

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