Dive Brief:
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In its latest effort to cut costs, toy maker Mattel announced plans Monday to close its New York office. The move is part of an October plan to cut $650 million in spending over the next two years, company spokesman Alex Clark told Retail Dive in an email.
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The office, which was not a strategic location, will close in phases throughout the year and affect 140 employees, Clark said. Most or all of the employees will be moved to Fisher-Price, American Girl, Thomas & Friends and other locations, including in Los Angeles; East Aurora, NY; Middleton, WI; and London, CNBC reports.
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"Decisions like this are never easy, but we are committed to taking steps to ensure our real estate footprint is fully aligned with our efforts to ensure our operations are run as efficiently as possible," Clark said. "Importantly, this move enables us to simplify our organization, bringing teams closer together, encouraging more direct collaboration and facilitating faster decision making."
Dive Insight:
The company — owner of iconic toys like Barbie, Fisher-Price and American Girl — has been struggling for awhile now with underperforming brands, and Toys R Us' blockbuster bankruptcy and ultimate liquidation has only exacerbated its dwindling financial outlook.
In many ways, Mattel's fate has been intrinsically intertwined with the country's largest toy seller. But as Toys R Us liquidates and begins auctioning off chunks of the business, it's a wakeup call to the iconic toy brand.
"We have taken aggressive action to enter 2018 with a clean slate so that we can reset our economic model and rapidly improve profitability," CEO Margo Georgiadis said in a February statement regarding the brand's fourth quarter earnings. At the time, the company reported that full year net sales were down 11% but in line with a warning the company issued in December just after the Toys R Us bankruptcy. At the time, the toy retailer owed Mattel $159 million, as well as millions more to Hasbro, Lego and other suppliers.
It's easy to see the affect the big-box toy seller's demise has had on the brand. While Toys R Us only previously accounted for only 10% of Mattel and Hasbro's annual revenue, a quick keyword on the fourth quarter earnings statement brought up the Toys R Us name 18 times.
Specifically, Mattel said that a dramatic 17% plunge in North American gross sales was primarily driven by lower sales "as a result of tighter retailer inventory management, certain underperforming brands and the Toys R Us bankruptcy filing." In December, Fitch downgraded Mattel due to weak operating performance and negative cash flow generation, along with "execution missteps," including an inability to adapt to industry challenges, such as evolving consumer behavior.
Susan Anderson, analyst and senior vice president at B. Riley FBR, said in a March note that Toys R Us' "initial bankruptcy and store closure announcement proved highly disruptive due to the timing around the volume-heavy holiday season" for both Mattel and fellow toy maker Hasbro. But Anderson also noted that both companies had been preparing for "potential further struggles" for Toys R Us in advance. That includes developing their direct-to-consumer channels, as Hasbro's CEO said earlier this year.
As Mattel looks for recovery, it's not clear whether more closures are part of the plan.