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Renovating the playroom

Arti Sharma | May 22, 2004

Can toymaker Mattel fight off the Chinese hordes in the playground?  For years it has struggled against cheaper Chinese imports and in recent times two managing directors have come and gone in quickfire succession.

Now Sanjay Luthra, who moved into the hotseat six months ago, has put together a new gameplan to win back young customers.

For a start Mattel has just launched its first concept store in Mumbai and it hopes to have 12 such stores in Indian metros by year-end.

The idea is that the company can play up its upmarket image with its own smart showrooms. "We are making it very clear to everyone in this company that the focus has to be profitable growth," says Luthra.

Inevitably, Mattel depends heavily on Barbie, the glam doll, which has ruled the shopshelves for several decades. But in today's media-dominated world children's toys have to be promoted in an entirely different way. And so Barbie is getting a website and will soon be having her own adventures on a CD.

That's not all. Children nowadays are heavily influenced by what they see on television and on the movies so Barbie is now starring in productions like Barbie of Swan Lake and Barbie in Nutcracker, which are shown on Cartoon Network.

As always Barbie is grabbing the biggest share of the action. But a slew of other launches is also on the cards. Coming soon is a new range of Hot Wheels and action figures apart from the current He-Man range.

Then in order to increase revenue from other avenues, Luthra and team are looking at merchandising in a big way. Two years back, Mattel had tied up with seven licenced manufacturers. Now, it's expanding that and today 14 licenced manufacturers are producing apparel, bags, accessories, cosmetics and other merchandise. Luthra is expecting merchandising to account for 20 per cent of revenue in two years.

Luthra needs to move quickly. While he doesn't talk numbers, as per market estimates Mattel India's turnover has fallen from two years back. Today, Barbie accounts for roughly 40 per cent of turnover, Hot Wheels about 33 per cent and Fisher-Price accounts for 22 per cent and the rest comes from its other lines.

The biggest difficulty is that unbranded Chinese toys are selling for much cheaper prices than Barbie and her friends can cope with. For instance, an imitation Barbie doll is available for as little as Rs 20 compared to the cheapest Barbie at Rs 175.

Another competitor Funskool sells a doll named Cindy for as little as Rs 99. "Parents are reluctant to spend large sums on toys their children will soon grow out of, the proposition has to combine value and quality," says a competitor.

Mattel is trying to match its cheaper competitors. For instance, in Mumbai, the company is offering a 40 per cent discount on its slow-moving, high-priced products. So a Rs 1,199 Barbie is now selling for Rs 720 and a Rs 99 Hot Wheels car model is retailing at Rs 69.

Luthra claims that the company has passed on the benefit of the duty reduction (from 52 per cent two years back to 20 per cent currently) to the customer. Mattel India imports all its toys from seven manufacturing units across the world, just like its parent.

However, two years back, the price for the cheapest Barbie was Rs 149 compared to the current Rs 175. "The company is only discounting products that are being phased out and for which they have excess stock," says one Mumbai retailer.

Today, in the Rs 1,500 crore-toy market, the unorganised players constitute 92 per cent while organised players like Mattel, Lego and Funskool account for the remaining 8 per cent. Another player Egmont International, exited the toy business recently due to a lack of funds from the Danish parent.

The other problem, is that mirroring global trends, the toy market target audience is shrinking in India. So where earlier, little girls bought dolls to play with till the age of 13, today retailers and companies are realising that girls beyond the age of eight are no longer interested in dolls.

To combat this, Mattel has launched a new range of four contemporary dolls -- with hip costumes -- called My Scene. The dolls were introduced globally early last year to combat competition from MGA Entertainment Inc's Bratz range of dolls.

The Bratz range targeted girls in the nine to 14 age group with dolls that wore contemporary clothes in line with teenage fashion trends.

In India, Luthra and team have launched My Scene to try and expand the target age group and induce slightly older girls to buy the range. Priced at Rs 699 to a maximum of Rs 1,499, the dolls come with accessories like mobile phones.

To make sure all this sells, Mattel is advertising on children's channels like Cartoon Network as well as targeting parents through channels like Star Plus. The ad budget is around 15 per cent to 20 per cent of turnover.

Currently, Mattel retails from 2,500 outlets in 35 cities. Compared to this, Funskool, for instance, retails from 7,000 outlets across the country.

"We are a premium brand and want to maintain that image," says Luthra. He adds that penetrating the second rung cities also comes along with logistic and distribution problems. "Our strength is building brands, we're not in the business of supply chain management," he says.

Mattel has revamped itself in recent years. The team has been downsized from 100 people two years back to the current 70 and tasks have been reallocated. Earlier there was only a sales and marketing team, today that has been divided to form a sales administration team for greater focus on tracking monthly sales and supply.

Today Mattel also has a trade marketing department, which caters to dealers and retailers. Retailers grumble that Mattel's products are slow moving and that margins are lower than local competitors.

Luthra is also looking at selling through other outlets like the Indian Naval Canteen Services and duty free shops. Where predecessor, Sangeeta Talwar had introduced the shop-in-shop concept along with visual merchandising, Luthra, in order to control costs of setting up the shop-in-shops has introduced the flex merchandising plan.

"There is no need for us to change the base unit of the shelving provided by the retailer, instead strips and flex units are added to the space for the same effect at a lower cost," he says.

So where earlier the company could afford to put up only 10-15 such shop-in-shops now they are able to afford 30 in a year since the costs are 10 times lower. Already 320 outlets have been covered.

Luthra is also betting big bucks on the retail revolution and believes that once organised retailing becomes the norm rather than the exception, Mattel and the organised market will grow from the current eight per cent to around 32 per cent of the total toy market.

Will all of this be enough for Mattel to turnaround? The trade doesn't think so and neither does competition. Everyone is waiting to see if Luthra can sweep the board.


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