MATTEL AND THE TOY RECALLS (A)1
Professors Hari Bapuji and Paul Beamish wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail firstname.lastname@example.org. Copyright © 2008, Ivey Management Services
Version: (A) 2009-12-21
It’s sad to say that the most safe product coming out of China these days is fireworks. – Jay Leno, U.S. Talk Show Host
Jay Leno aptly reflected the mood of U.S. consumers during the summer of 2007. Many Chinese-made goods such as pet food, toothpaste, seafood, and tires had been recalled in recent weeks. These recalls began to severely erode the confidence of U.S. consumers in Chinese-made goods. On July 30, 2007, the senior executive team of Mattel under the leadership of Bob Eckert, CEO received reports that the surface paint on the Sarge Cars made in China contained lead in excess of U.S. federal regulations.2 It was certainly not good news for Mattel, which was about to recall 967,000 Chinese-made children’s character toys such as Dora, Elmo, and Big Bird, because of excess lead in the paint. Not surprisingly, the decision ahead was not only about whether to recall the Sarge Cars and other toys that might be unsafe, but also how to deal with the recall situation.
TOY INDUSTRY – OVERVIEW
The global toy market was estimated to be a $71 billion business in 2007 — an increase of about six per cent over the previous year.3 About 36 per cent of the global market was concentrated in North America (about $24 billion), but annual sales in this region were growing at a slower pace — about one per cent. European markets accounted for about 30 per cent of the global toy sales and were growing at about five per cent each year. In contrast, the markets in Asia grew at 12 per cent in 2006, and were expected to grow by 25 per cent in 2007.4 A large part of this growth was expected to occur in China and India, whose burgeoning middle-classes were thriving on the double-digit economic growth in their countries. 1
This case has been written on the basis of published sources. Consequently, the interpretations and perspectives presented are not necessarily those of Mattel and other organizations represented in this case or any of their employees. 2
Mattel, Inc.’s communication (dated September 5, 2007) to the Subcommittee on Commerce, Trade and Consumer Protection.
Source: International Council of Toy Industries and NPD.
The toy industry in the United States had a large number of players. About 880 companies operated in the dolls, toys, and games manufacturing industry in 2002. This figure was about 10 per cent less than the 1,019 companies that operated in 1997. Approximately 70 per cent of the toy companies employed less than 20 persons.5 The industry was dominated by a few key players such as Mattel, Hasbro, RC2, JAAKS Pacific, Marvel, and Lego. The industry leaders were Mattel and Hasbro, whose combined sales in 2006 were about US$8.7 billion. The sales of many other major players were under a billion dollars. Exhibit 1 contains key financial data of some major U.S. toy makers.
Big retailers like Wal-Mart and Target had become major players in the U.S. toy market. They not only sold the products of other toy companies such as Mattel, Hasbro, and...