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  • In turbulent times, parents turn to toys to keep their kids happy.

  • That has helped propel sales at some of the biggest toy makers in the U.S., including Hasbro,

  • the largest producer of board games.

  • Hasbro has over 1,500 brands, including Monopoly, Play-Doh and Transformers, and designs and

  • distributes toys for some of the biggest names in the entertainment world, such as Marvel and Star

  • Wars. It also makes TV shows, movies and digital games.

  • In the first quarter of 2021, Hasbro had a net revenue of $1.1 billion, a 1% increase from the

  • previous year. The toy maker's Consumer Products segment jumped 14% during that period.

  • "The toy industry actually put up one of the strongest growth years we've seen, at least in my

  • 20 year career tracking it.

  • And we've not seen double digit to mid teens, mid upper teens growth rates in the traditional toy

  • category in a long time."

  • "During the early days of the pandemic, we saw our games business accelerate very substantially.

  • And, you know, people were looking for ways to be together and to play together while they were at

  • their homes. We really also saw that creative play brands like Play-Doh performed incredibly

  • well."

  • And it's not just kids who Hasbro sells games to.

  • The toy maker has a roster of over 40 million competitors worldwide who play fantasy world

  • building games like Magic: The Gathering and Dungeons and Dragons.

  • In 2020, Hasbro's Wizards of the Coast studio had its biggest year ever, with revenue of $816

  • million dollars, a 24% increase from a year earlier.

  • But once the pandemic subsides, will family game night endure?

  • And what does the future of toys and games look like for Hasbro and its rivals Lego and

  • Mattel?

  • Hasbro traces its roots back to Providence, Rhode Island, in 1923.

  • Hillel and Henry Hassenfeld, brothers who emigrated to the U.S.

  • to escape persecution in what is now Poland, got their business chops selling rags and remnants

  • from the textile industry in New York's garment district.

  • The duo later moved into making wax crayons and pencil boxes for school children in New England.

  • "So they would buy wooden pencil boxes, line them with these remnants.

  • That was their innovation, and then put in them, you know, things like pencils and compasses and

  • whatever to sell them to parents for school kids.

  • And they became very popular."

  • At the beginning of the Second World War, the family run business made its first foray into the

  • toy industry, selling junior air raid warden kits and doctors and nurses kits to kids.

  • But it was the 1952 launch of Mr.

  • Potato Head that helped change the trajectory of the company and the toy industry.

  • Mr. Potato Head, the first toy advertised on TV and the first television commercial aimed directly

  • at children, sold a million units in its first year alone.

  • The original toy required a potato or similar-sized vegetable.

  • "The vegetable and potato and pepper thing didn't really work out, because kids would lose it under

  • the couch and then it would rot.

  • And that was considered wasteful.

  • And also kids began, you know, sort of stepping on these plastic parts and whatever.

  • So they again innovated.

  • And this has really been the story of Hasbro, innovation after innovation, by making it entirely

  • plastic."

  • About a decade later, the company had one of its first major flops.

  • In 1963, it launched Flubber, a gooey plastic putty.

  • After the product hit store shelves, reports of skin rashes, lawsuits and an FDA investigation led

  • to a company recall.

  • Reeling from the mistake, the toy maker was on the hunt for a new hit.

  • In 1964, it introduced the first action figure to rival the popular Barbie doll made by Mattel.

  • The 11.5 inch male figure wore a U.S.

  • military World War Two uniform and had 21 moving parts.

  • G.I. Joe turned out to be a blockbuster for Hasbro.

  • The company went on to produce a string of other hits, too, including 1983's My Little Pony and

  • 1984's Transformers.

  • And to broaden its consumer base even further, Hasbro was buying its competitors.

  • In 1984, it bought Chutes and Ladders maker Milton-Bradley for $360 million, and in 1991,

  • Hasbro took the top board game slot, buying Play-Doh maker, Tonka, including its Parker

  • Brothers division that makes Monopoly and Trivial Pursuit.

  • But in addition to the successes, there were also setbacks and headwinds.

  • "It was boom and bust.

  • And you would, you'd put all your money into market research and sales and advertising, and you

  • might get a hit. And oftentimes you didn't get a hit.

  • And that certainly was true for Hasbro in the 70s and 80s."

  • "It's one of the things in the toy business that always gave me a lot of anxiety as an analyst.

  • It was really a one shot on goal year.

  • Alright, you planned, you planned, you planned, and then you kind of cross your fingers, you hope

  • the consumer responded, and you put a lot of dollars behind these big key items to try to drive

  • the holiday season."

  • In the mid-2000s, Hasbro's Playskool division recalled more than 250,000 Team Talking Tool Bench

  • toys, following the death of two young children.

  • Around the same time, Hasbro Easy Bake Ovens were recalled after the company received 249 complaints

  • of children getting their hands or fingers caught in the oven's door.

  • There were 77 reports of burns and one report of a serious injury.

  • The toymaker faced a different kind of obstacle in 2018 when Toys R US announced plans to sell or

  • close all of its 885 U.S.

  • stores. Prior to the bankruptcy, Toys R US was Hasbro's third largest U.S.

  • customer and its second largest customer in Europe.

  • But the company quickly adapted, making new products and finding new markets for its toys and

  • games. By 2020, 59% of net revenue in the U.S.

  • and Canada was derived from just three customers: Wal-Mart, Amazon and Target.

  • Hasbro is one of the biggest toy makers in the U.S., with a May 12th, 2021 market cap of

  • $13.6 billion.

  • With people stuck at home and widespread lockdowns in place, U.S.

  • toy sales reached $25 billion in 2020, a 16% increase from the year earlier.

  • That gave a boost to some of the biggest toy makers, including Mattel, Lego, and of course,

  • Hasbro.

  • "In late March and early April last year in the U.S., when categories like construction or brands

  • like Lego, arts and crafts, games and puzzles, those categories really started to take off.

  • And we saw weekly sales numbers that were just unprecedented, even bigger, in some cases, than

  • the holiday season."

  • In the first quarter of 2021, Mattel had net sales of $874 million dollars, up 46% higher than a year

  • earlier, driven by growth of Barbie dolls and Hot Wheels.

  • In their latest earnings report, Lego said consumer sales surged 21% in 2020.

  • The Danish toymaker had revenue that year of about $7 billion dollars, up 13% from the year

  • prior. It was a similar story for Hasbro.

  • In the first quarter of 2021, Hasbro revenue was up 1% to $1.1 billion dollars from the year

  • earlier. Its Consumer Products segment, made up of games like Play-Doh, Jenga and NERF, rose 14%

  • and its Wizards of the Coast and digital gaming segment surged 15%.

  • "Hasbro is the largest producer of board games, traditional board games, and so they saw a lift to

  • their entire business.

  • But certainly we have to call up brands like Monopoly.

  • And the company has done an outstanding job of taking what was really a classic play pattern,

  • this idea of this around-the-table board game, competing for ownership of property, and they've

  • layered on licenses.

  • They've extended the brand."

  • "Parents were really just looking for great experiences.

  • And so, you know, our NERF business and their toys, were selling well, gave kids an opportunity

  • to have adventures outside to get outside the house, but in a, you know, safely in the

  • backyard."

  • In 2020, Hasbro had net revenue of almost $5.5 billion dollars, down 8% from the year earlier,

  • due to a decline in its Latin American and Asian markets and lower TV and film revenue, due to

  • Covid-19-related shutdowns.

  • Consumer products like toys and board games made up almost 67% of 2020 net revenue.

  • Wizards of the Coast and digital games made up 16.5%, and entertainment net revenue for movies

  • and TV made up almost 17%.

  • And while the company saw a drop in the sale of its licensed content for partner brands, like

  • Disney and Marvel, it did see a surge in growth from one blockbuster franchise.

  • Fueled by the sale of toy light sabers and baby Yodas, seen in The Mandalorian, sales of its Star

  • Wars products grew by 70% in 2020.

  • Another trend for toy makers in 2020 was the shift to online shopping.

  • According to analysts, e-commerce has given toy makers like Hasbro the ability to showcase their

  • brands in a whole new way.

  • And you're starting to see the convergence of content and entertainment and consumption.

  • This idea that I can go on to Wal-Mart.com and I can type in Transformers, and in addition to the

  • product, I might be able to see a little bit from the movie or the most recent animated series.

  • And so you're starting to see companies like Hasbro, with their own internal entertainment

  • capabilities, are saying, 'How do we now use this as a marketing vehicle?'"

  • With retail stores closed and consumer social distancing in place, Hasbro reported over a

  • billion dollars in e-commerce revenue in 2020, a 43% increase from the year prior, making up just

  • under 30% of global revenue.

  • For the superfans in 2019, Hasbro unveiled Pulse.

  • The direct-to-consumer site offers devotees and collectors exclusive products, some of which are

  • crowdfunded. For example, the 4-foot long Star Wars: The Vintage Collection Jabba's Sail Barge,

  • comes with a 64-page booklet containing set photos, as well as behind-the-scenes development

  • updates.

  • "The price points are really what the fans are looking for, and then they give us their

  • commitment, and in return, then we go and produce the product, and we take them along the journey.

  • We're offering them early booklets on the blueprints of the sail barge from Star Wars, and

  • then taking them along the journey, meeting the designers and developers of the product."

  • Hasbro is making moves in other parts of its business, too.

  • In 1999, the company acquired fantasy world-building business, Wizards of the Coast.

  • Wizards had its biggest year ever in 2020, generating revenue of $816 million, 24% higher

  • than the previous year. That growth was led by record-breaking years from Magic: The Gathering,

  • up 23% and Dungeons and Dragons, up 33%.

  • "This gaming area is just huge, and there's huge fandom, and it continues to grow very rapidly."

  • "For many years, these were analog businesses, where Magic: The Gathering was played as a trading

  • card game, was played face-to-face.

  • We would run on average in 2019, we ran nearly a million tournaments globally.

  • Now, some of those tournaments were literally "Friday Night Magic," as we call it, at your local

  • hobby shop with 15 people."

  • The game eventually went digital, moving to the PC, and in March 2021, went mobile.

  • "We have seen incredible success and millions of downloads.

  • People are playing Magic Arena about nine hours a week online, which is an amazing statistic.

  • And it's really building the whole 24-hour engagement with the brand."

  • And the toymaker might have even bigger plans for its own iconic properties on the big and small

  • screens. In February 2021, Hasbro announced plans for dozens of new films and television shows.

  • The projects include films based on Dungeons and Dragons and G.I.

  • Joe, scripted series based on Risk and Clue, and potentially unscripted TV shows based on Monopoly

  • and Play-Doh.

  • "The key is to start with strong brand, start with strong evergreen brands that are based on play

  • patterns that will always exist for children, and then build upon that with the storytelling and the

  • content in the media."

  • While Hasbro has been part of the entertainment industry for years, with blockbuster films like

  • its Transformers franchise, its $3.8 billion dollar acquisition of entertainmentOne is expected

  • to triple the number of its projects.

  • While a byproduct of the pandemic may have been a resurgence of traditional toys and games, analysts

  • think that Hasbro, with its diversified portfolio and storytelling capabilities, might have an edge

  • over its competitors as consumers seek out new forms of entertainment in an increasingly digital

  • world.

  • "I think what we're seeing now, particularly through Hasbro, is the de-seasonalization of their

  • business. You're bringing brands to life in the spring, you're bringing brands to life in the

  • summer, and you're really anchoring that around gaming experiences, digital experiences,

  • entertainment, and you're less and less reliant on that gift-giving season for children in the

  • holiday period."

In turbulent times, parents turn to toys to keep their kids happy.

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Why The Toy Boom Has Been Good For Monopoly Maker Hasbro

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    joey joey posted on 2021/06/13
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