The Times Mirror Company
Los Angeles Times
May 24, 1987, Sunday, Home Edition
Business; Part 4; Page 1; Column 1; Financial Desk
HEADLINE: EMBATTLED MATTEL SEARCHES FOR PROFITS AND SUPERHEROES
BYLINE: By DENISE GELLENE, Times Staff Writer
the headquarters of Mattel, the troubled toy maker, a curious
question is going around: Could mild-mannered John W. Amerman
be the firm's new He-Man?
-- as most any 8-year-old will tell you -- is the centerpiece
of Mattel's Masters of the Universe army of action toys and
simply "the most powerful man in the universe."
And for most of the mid-1980s, He-Man and the rest of his
pals helped guard Mattel's position on top of the toy world.
those days are over, and Mattel finds itself in need of a
new He-Man. Not just another line of toys to match the success
of Masters of the Universe, but also a chief executive who
can cut costs, expand its booming overseas business and, perhaps
most importantly, inspire Mattel's toy designers.
who built Mattel's international business into a powerhouse,
was named chairman and chief executive in February. It was
his success overseas that apparently led Mattel's directors
to place him in charge of the beleaguered company, which has
recently experienced flat sales, lackluster profits and layoffs
-- as well as impatient investors.
Count on Help
But Amerman is far from discouraged. "I think we've got
great people and innovative products," he says. "I
see nothing but opportunity."
knows he can count on help from Barbie, the doll created by
Mattel 28 years ago. The ageless teen-ager, who has her own
swimming pool, car, rock band and steady boyfriend, Ken, now
brings in a whopping one-third of Mattel's yearly $1 billion
underestimate the power of Barbie," says Ron Qualles,
head toy buyer for Merchants West, which operates 27 Karl's
Toy and Hobby stores in California. Barbie had her best year
last year, despite competition from Jem, Hasbro's new punk-rock
doll. Some retailers predict that this year will be even better,
as little girls like the new "jewel secrets" version,
which comes with glittery jewelry and dresses that can be
folded into purses.
then there's Captain Power, one of Mattel's newest toys and
one of the few that toy experts consider promising. The controversial
"interactive toy" comes with a spaceship that can
shoot infrared beams at cartoon characters to be featured
in a Captain Power television series starting this fall. Children's
advocacy groups have criticized this new kind of toy, but
some retailers say the criticism may help sales.
Amerman's challenge comes when U.S. toy sales are generally
flat and the industry is becoming more competitive. Once the
nation's biggest toy company, Mattel in 1985 fell to No. 2,
behind Hasbro. Mattel lost $1 million last year.
is taking a beating in the important U.S. market. Mattel's
operating profits in the United States and Canada skidded
to $6.2 million from $96.7 million in 1985. This came as sales
of two key toys -- Masters of the Universe and Rainbow Brite
dolls -- plummeted by a staggering $250 million last year,
as children apparently lost interest in the once-popular items.
weak sales upset the investment group that controls more than
one-third of Mattel's shares. The group isn't happy with the
way things are going and is willing to sell out at the right
price. "Mattel hasn't performed as well as we would have
liked," says John M. Vogelstein, vice chairman of E.
M. Warburg, Pincus & Co. and a Mattel director.
with management consultants, Amerman hopes to reduce overhead
by $20 million, or 8%, this year, partly by laying off as
many as 200 management employees -- or about 10% of the firm's
U.S. work force. He is looking to relocate operations overseas,
where they can be performed more cheaply. Amerman is also
looking for ways to sharpen Mattel's reflexes, so that the
company can move fast when children's tastes change.
we're through, Mattel will be a very different company,"
came to Mattel after 15 years as a cosmetics and chewing gum
company executive at Warner-Lambert, the New Jersey drug company.
Before that, he was a college recruiter for Colgate-Palmolive.
"It was a great experience. I learned how to deal with
people," he says.
colleagues say he is a relaxed and confident executive who
listens to employees. "He was very friendly and open
to suggestions," says John F. Walsh, who worked for Amerman
at Warner-Lambert's American Chicle unit. "He was also
very responsive," recalls Walsh, now president of American
Chicle. "You knew you could always go to John for a quick
was named chairman and chief executive Feb. 19 when Mattel
abruptly shuffled its top management. At that time, Amerman
was part of a triumvirate running the company after the retirement
of chairman Arthur S. Spear. The other two were Mattel President
Thomas J. Kalinske and Ray Ferris, executive vice president
and chief financial officer.
then, Ferris and Kalinske have reported to Amerman. On Friday,
Mattel announced that Kalinske has resigned to become president
and chief operating officer of Universal Matchbox Group, the
nation's eighth-largest toy maker.
said Amerman will take the additional title of president.
employees found out what Amerman was like in February, when
he summoned all 2,000 headquarters employees to the cafeteria
-- the first such meeting in recent years. His first goal
was profits, but his second was "to shake the cobwebs"
from Mattel. "Let's open the windows and let some fresh
air in," he told employees.
a subsequent meeting, he paraded the company's 22 foreign
sales managers before Mattel's headquarters employees. Said
a surprised executive: "There they were -- in living
color -- and we could ask questions."
are trying to create a more open company," says Amerman,
who has held four mass meetings with employees. "If everybody
knows where we're headed and there are no surprises, I think
we'll get there."
who follow the toy industry give Amerman high marks for developing
Mattel's overseas business. When he took charge of the company's
international division, it sold toys in just seven countries.
Now it sells toys in 22 countries, including most of western
Europe and Japan, Korea and India. More significantly, Mattel's
international business is profitable and contributes nearly
half of the company's sales. "They are way ahead of the
rest of the industry. . . . It was a smart move for them,"
says Rick Anguilla, editor of Toy & Hobby World, a trade
that edge may not last. More companies -- including archrival
Hasbro -- are looking abroad. At a meeting with toy industry
analysts in Boston two weeks ago, "just about every toy
industry executive said a major objective was to become more
international," Amerman concedes. He doesn't have to
look far for proof: Tonka recently wooed away Mattel's marketing
executive for the United Kingdom to head its overseas sales
in the toy industry expect competition overseas to intensify
when Toys R Us -- the largest U.S. toy retailer -- opens stores
in Europe during the next year as part of an international
expansion. That move will give the big U.S. toy makers a natural
outlet for their products abroad.
he won the top job at Mattel, Amerman was part of a three-man
office of the chief executive, along with Thomas J. Kalinske,
Mattel president, and Raymond W. Ferris, chief financial officer.
The three were appointed to that office when Arthur S. Spear
retired as Mattel's chairman last October.
Young, director of research for John G. Kinnard, a Minneapolis
brokerage, says it made sense for Mattel to streamline its
top management. "There was too much inertia in the company.
They are beginning to recognize a need to be flexible to respond
to a changing market," he says.
Mattel has often been slow to react to changes in the market.
Qualles and other retailers say Mattel failed to realize that
a glut of discounted Masters of Universe dolls last Christmas
would hurt sales of its new action figure, the Marshal Bravestarr
Brady, vice president of the company that operates the Playco
stores in San Diego, says he didn't even order Marshal Bravestarr
last winter because his stores were stuffed with discounted
last count -- and I stopped counting -- there were 47 different
action-figure concepts for boys," says toy buyer Qualles.
"Only one or two can make it. The rest are markdowns."
of Mattel's difficulties have their roots in the company's
disastrous foray into video games in 1982. Mattel, which started
in the 1940s as a maker of miniature furniture, bet heavily
on the success of its electronic games. When the video-game
market collapsed in 1983, Mattel lost a record $394 million
and was forced to sell not only its Intellivision electronics
business, but its other companies. It sold Western Publishing
Co. -- the maker of Magic Slates -- and its Circus World theme
park in Florida to raise much-needed cash.
back to just a toy company, a nearly broke Mattel received
a financial lifeline from an investment group led by the Wall
Street firm E. M. Warburg, Pincus & Co. The investors
got 35% of Mattel in exchange for $231 million cash and a
$225- million revolving credit line. Mattel paid a high price
for the badly needed cash infusion; dividends to the investment
group last year came to $6.4 million.
has other plans for Mattel besides reducing costs. He says
that the company -- often mentioned as a takeover candidate
-- might buy a smaller company to beef up its weak preschool
and games lines. He hinted that an acquisition might involve
a foreign company.
is also relying increasingly on outside toy designers for
new ideas. Many of Mattel's new toys were designed or developed
outside the company. For example, the company's most promising
toy for this year -- the Captain Power spaceship set -- was
developed by Landmark Entertainment Group. Its best-selling
new toy so far this year, the Lady Lovely Locks doll, was
developed by American Greetings -- the same company that developed
another leading Mattel toy, Popples.
is Popples -- more than any toy developed in-house -- that
"signifies what we're trying to do at Mattel," says
Amerman. The colorful plush animals that roll up into balls
were Mattel's best-selling new toy last year, with sales around
$65 million, according to analysts. Not only was it developed
under license, but it was introduced worldwide at the same
new emphasis on licensing represents a shift at Mattel, which
prides itself on innovation. Its best-known and most enduring
toys -- Barbie, Hot Wheels cars and See 'N Say preschool toys
-- were developed in-house. Together, those three toy lines
account for about 45% of Mattel's sales. "We're changing
the culture," Amerman acknowledges.
Amerman says he doesn't intend to reduce Mattel's design and
development unit. "Investment in design and development
is the key to the future," he says. There is "no
intent to cut back on what I would call our lifeblood."
the Kinnard analyst, says Mattel's decision to tap outside
toy inventors is a modest step in the right direction. Licensing
is cheaper than in-house toy development, he says, noting
that most other toy companies rely on licensing to reduce
development costs. "Look at Tonka with Pound Puppies,"
he says, refering to the popular stuffed dog. "It came
from an auto worker in Ohio."
industry executives say Mattel could use the outside help.
The company's in-house design staff hasn't had a major success
since Masters of the Universe, in which good guy He-Man fights
the Evil Horde. Sales of the toy declined significantly last
year, but it entranced children long enough to rack up around
$1 billion in sales over four years.
need to become leaders in toy design and development again.
If you look, the only place where they are leaders is with
fashion dolls," says Brady, vice president of R&T
Sales, which operates 10 Playco stores.
toys created by Mattel's designers have been big disappointments.
One is Princess of Power, a collection of six-inch superwomen
with long hair, gilded capes and weapons introduced in 1985.
Sales slid to $40 million last year, and the toy is being
discontinued in the United States. Looking back, Amerman says,
"I'm not so sure (superwomen) was a viable concept. .
. . Girls like to hug dolls, and dress them and comb their
disappointment last year was Doozles, a plastic preschool
toy that can be converted from people into cars. The toy,
a version of Hasbro's highly successful Transformers, "didn't
go over at all. . . . It wasn't exciting," says Qualles,
the Karl's toy buyer.
changes are under way to revive Mattel's own design unit.
Many toy designers got new assignments last fall after Jill
E. Barad took over as executive vice president for product
design. Barad, 35, shook up the department by shifting some
longtime Barbie designers to newer lines, such as Masters
of the Universe -- a move unheard of at Mattel.
also set up a special new product task force in which toy
designers meet to thrash out ideas for new toys. Amerman says
the shifts are intended to bring "a fresh look to some
of our products. . . . We were getting stale."
Chart, WHAT WILL BE YOUR TOP-SELLING DOLL IN '87?, Los Angeles
Times ; Photo, Cheryl Mitchell, 3, with Barbie doll accessory
at Toys 'R' Us store in Burbank. JOSE GALVEZ / Los Angeles