Do The Mattel Job Cuts Signal A Need For Brands To Go DTC?
Even after cutting approximately 2,200 jobs in the wake of poor Q2 sales, Mattel still has more decisions to make regarding its future. It’s clear that the demise of Toys ‘R’ Us has impacted Mattel enough to make such drastic changes in a single quarter, and raises the possibility that the toy manufacturer relied too heavily on the retailer for its success. Should Mattel have done more to partner with other retailers in advance of the Toys ‘R’ Us liquidation? And should direct-to-consumer (DTC) sales serve as a larger component of the company’s offerings?
The RTP team discusses whether more brands should supplement (or bypass altogether) traditional store sales, particularly if the retailer isn’t holding up their end of the bargain. The editors share steps Mattel and other brands should take to keep damage to a minimum if a major retail partner is performing poorly.
Debbie Hauss, Editor in Chief: As digital commerce has grown, brands have definitely been moving toward more direct-to-consumer selling, both online and in their own stores. One significant challenge is maintaining a good relationship with store partners while becoming a competitor of sorts. Another challenge is maintaining brand consistency as well as marketing and merchandising consistency. If brands can manage those challenges effectively, it’s smart to expand the marketplace by selling direct-to-consumer. It also may become even more relevant as AI/chatbots begin to recommend products to consumers.
Adam Blair, Executive Editor: The recent Mattel job cuts, the latest (though probably not the last) aftershock from the demise of Toys ‘R’ Us, spotlight the dilemma many major brands face in today’s retail climate. Particularly in the toy vertical, brands really need a physical space where kids and parents can see their products in action in order to sell effectively. For economies of scale, they need the national footprint and advertising clout that only a major retailer can provide. Mattel at least has a strong brand name that it can leverage to reach consumers via other retail or direct-to-consumer channels, but what about the dozens of smaller, lesser-known toy companies that relied on Toys ‘R’ Us for shelf space and exposure? To at least partially fill the gaping hole left by Toys ‘R’ Us, brands large and small will need to do what everyone needs to do: use the customer data they have to target prime shopper groups, and then personalize their marketing efforts.
Glenn Taylor, Senior Editor: While DTC seems like a bright option for brands seeking to pave their own way toward the consumer, it’s not all rosy on that front either. With Amazon crawling into more categories and more retailers making the jump to private label goods, brands will be seeing increased competition on both the retail and DTC sides. A CPG giant such as Procter & Gamble can have complete control over its massive array of brands, but the company recently saw sales in its grooming division (namely Gillette products) drop 3% after a price cut. In trying to combat weak demand, P&G is changing course for next year in other venues, raising prices 4% for Pampers and 5% for Bounty, Charmin and Puffs. Whether these products are being sold within a store or on their own web site, I don’t think either option would make a difference when it comes to demand. For name brands like Mattel or smaller brands trying to get their name out there, it’s all going to depend on the effectiveness of that product and the ability to engage with the consumer, regardless of sales channel.
Bryan Wassel, Associate Editor: While it may be tempting for Mattel to deliver directly to customers, a consumer-focused fulfillment network and a retailer-focused fulfillment network are very different undertakings. Many manufacturers have seen success with their direct-to-consumer options, but outside of brands that were set up with this model in mind, the direct business is only supplemental to sales through standard channels. Mattel in particular is suffering from a cash crunch due to the collapse of one of its major customers, which makes the logistical challenges even more difficult to tackle. However, the fall of Toys ‘R’ Us and its ripples throughout the toy industry could be a warning to other manufacturers. Seeing an example of what could befall their own segment might encourage these suppliers to put together an alternative system before it’s too late.