January 31, 2008 – Business Management Article
For Mattel, 2007 was dubbed “the year of the recall.” ‘How will Mattel fare in the aftermath?’, was a question put forth by many. Analysts were divided over whether the leading toy maker was able to handle the crisis situation effectively.
Mattel Inc (MAT), the world’s largest toy company, with its headquarters in California was founded in 1945. The company designs, manufactures, and markets toys worldwide. Its well known brands include Barbie dolls, Fisher-Price items, American Girl dolls, Hot Wheels, Matchbox, and others.
Product Recall Crisis in Mid 2007
In the middle of year 2007, Mattel had to deal with a product crisis, the worst-ever in its history. Mattel feared that its toys had toxic lead content higher than the permissible level. This could lead to a risk of health hazards for kids. Mattel was heavily criticized for allowing Chinese made toys with unacceptably high levels of lead paint to enter U.S. stores. In August 2007, Mattel recalled about 1.5 million Chinese-made Fisher-Price infant toys. These toys included characters such as Dora the Explorer, Elmo and Big Bird. A second recall followed soon after, when Mattel withdrew approx. 9.3 million Chinese-made toy sets. This time Mattel feared that these toys with small magnets and other parts, could be dangerous if swallowed by kids. This was followed by a third recall of its toys withdrawing more than 800,000 toys across the globe. Mattel even announced that a significant portion of the toys were recalled because of a design flaw and not substandard manufacturing. During this crisis, Mattel’s stock plunged by as much as 25 percent from its year-to-date high.
Robert A. Eckert, Chairman and CEO of Mattel Inc. had then stated that, Mattel was at the forefront of responsible corporate citizenship and the recent challenges have presented it an opportunity to again be an industry leader. Many analysts would not have been that optimistic. But Mattel, posted a better-than-expected fourth-quarter profit. Mattel was helped by stronger international demand for its Hot Wheels cars and Fisher Price line and by $47.3 million in tax benefits. And of course not to forget the significance of the fourth quarter for toy companies because it includes the holiday shopping season. Research firms like NPD have reported that the toy industry makes nearly half its annual sales during the holiday season. The results included charges and costs of about $42 million stemming from a spate of recalls last year. Worldwide gross sales of Barbie increased by 4 percent, Fisher Price segment by 4 percent and overall Mattel’s girls and boys brands by 9 percent. Mattel’s Wheels business, which includes Hot Wheels and Matchbox cars, increased 15 percent. Net income grew to $328.5 million, from $286.4 million, a year ago.
Mattel, Scams and Controversies, Toy Industry, Turnaround Strategies
Learning from the faults of others can be a useful training tool. However, when it’s your company’s name being tossed around in discussions of what not to do, you need to do something…fast. In 2007, toy company Mattel embarked on four major product recalls. The recalls were the result of large quantities of lead found in the paint used in a number of their products. Mattel, like many other companies, uses contractors in China to manufacture products. This case raises supply chain concerns, bringing to light the importance of quality control and keeping an eye on the actions of your overseas operations and partners.
Mattel isn’t the only company to have been exposed to regulatory and reputational risk. Learn about 13 other companies that learned lessons the hard way. Download the free eBook The Unlucky 13: Lessons Learned from Companies Caught in the Act.
Here are 5 key lessons learned from the crisis at Mattel:
1. Always Act Fast
A quick reaction won't solve all of your problems, but failing to do so, will open up a new can of worms to deal with.Confront the issues, don’t hide from them. In Mattel’s case, the company was very public about the recalls and the CEO even issued a public apology. A quick reaction makes it easier for companies to cope with and take control of the situation. Reacting quickly helps companies score “bonus points” with the public, slightly reducing the negative impact that the recall has on the company’s reputation. When companies are slow to react or spend most of their time placing blame on others, the public reacts negatively, criticizing companies for their negligence and irresponsibility. A quick reaction won’t solve all of your problems, but failing to do so, will open up a new can of worms to deal with.
2. Keep an Eye on Your Supply Chain
To save on costs, Mattel has shipped manufacturing overseas to China. Having multiple offices and operation sites makes it difficult to keep an eye on day-to-day operations. According to the Financial Times Press article “Trouble in Toyland: New Challenges for Mattel–and ‘Made in China’,” one of the main issues in the lead paint crisis at Mattel was that the Chinese contractors had subcontracted the painting of the toys to another company that used inferior and unauthorized products. A lot of companies get caught in similar traps.
3. Take Responsibility
Take the blame. Public finger pointing isn’t going to get you anywhere. In the Reuters article “Mattel Sued Over Toy Recall,” it was reported that Mattel’s CEO said that the company was increasing the aggressiveness of toy testing methods, which would likely result in additional recalls as a precautionary measure.
4. Tighter Regulations and Inspections
In the Wall Street Journal article, “Mattel Settles Suit Over Lead in China-Made Toys,” author John Kell writes:
“Toy makers were hurt by a number of product recalls in 2007, leading to millions of dollars in costs for testing, legal expenses, advertising and product returns. Mattel recalled millions of toys that year, including those produced under licenses for characters including Elmo, Big Bird, Barbie and Polly Pocket. The issue later led to mandatory federal toy-safety standards, which included testing and tough new regulations for lead and chemicals in products intended for children under 12.”
5. Take Action and Communicate
During a crisis, such as the one experienced by Mattel, business leaders may say that changes are going to be made and policies will be followed more consistently, but do they actually follow up on their word once the storm has passed? Give weekly updates and use the power of social media to communicate to consumers about the progress your company makes as it works toward a solution. If 100 products have been tested, let the public know. Control the media and communicate your commitment to your consumers. It’s never more important than in a time of crisis to communicate and reassure the public.