Barbie is an iconic worldwide brand. Even Mattel's (MAT) Hot Wheels and Matchbox brands are widely recognized as imagination creators for children. Something is seriously wrong with these brands, however, as seen in their sales trends.
Barbie sales have declined in a range of 13% to 15% in the past three quarters. Mattel's Wheels segment, which includes Hot Wheels and Matchbox, has logged four straight quarterly sales drops. While this has happened, Mattel's gross margin has been vaporized in the last two quarters alone by 820 basis points.
Here's why I believe these iconic toy brands may be on their deathbeds.
Since being unbundled on June 9, essentially dropping the price to $399, Microsoft (MSFT) said its Xbox One sales had more than doubled vs. May. In April, the company said it had shipped more than 5 million consoles to retailers to date. When a console is sold, Microsoft on average is selling 2.9 games to the consumer. Sony's (SNE) PlayStation 4 had shipped 7 million units worldwide as of April. The system has sold more than 20.5 million titles to date.
So what's happening here? Parents are seeing greater value in hooking their children up to digital experiences as opposed to plunking down $100 for Barbie dolls and the endless accessories. Remember, every two games bought for an Xbox One or PS4 is about $120 that could have been spent on traditional toys by Mattel and Hasbro (HAS).
Another possible explanation for Mattel's troubles is labor market conditions. According to a study by Juliet Schor, author of The Overworked American, the average U.S. worker is now on the job about one month longer per year than his or her 1969 counterpart. I find it interesting that as the U.S. jobs market has accelerated its pace of growth since January of this year, Mattel's Barbie's sales have worsened.
My read on this? Parents are not home enough to sit down with their children to race cars or dress up Barbie dolls.
Yum! Brands Should Be Very Scared of Three Major Food Trends
The team at Yum! Brands is on a new product innovation roll. On July 25, the company will begin testing its Cantina Power menu at 40 Taco Bell stores in Dayton, Ohio. The goal is to get more healthy protein into the mouths of consumers. This follows the company's incursion months ago into the breakfast category that McDonald's (MCD) has long dominated.
Even though Yum! Brands operates more than 15,000 U.S. locations with its KFC, Taco Bell and Pizza Hut restaurants, if I were a Yum! executive, I would be concerned about these major developing industry trends.
The first is farm-to-table restaurants, which are a byproduct of Chipotle's (CMG) mode of using sustainable raised ingredients. In a recent interview with the CEO of NYC's farm-to-table leader Dig Inn, I learned the company has strong agreements in place with local farms. Hence, the company is getting a fresh and healthy menu in front of consumers in urban markets.
Next is the reinvention of mall food courts, a destination that has long been dominated the concepts at Yum! Brands and McDonald's. Mall owners across the country are undergoing extensive remodels to introduce upscale food court eateries, pushing Yum! and McDonald's into the background.
Finally, packaged food companies are injecting innovation into their name-brand products. For example, General Mills (GIS) recently introduced new breakfast and meal-type products that address consumer interest in gluten free and protein-packed food options. So why bother driving to Taco Bell for breakfast?