hasbro

BUSI3800

Hasbro Inc: Aiming For The Top Written for Linda Schweitzer by Robert Curtis for the sole purpose of class discussion. The author does not intend to accurat ely

represent the real situation surrounding Hasbro and its business environment. Some information may be fabricated to create

an appropriate exercise. This case is intended for use by students at the Sprott School of Business in the BUSI 3800 course

exclusively.

2015-08-31

Wading through a sea of people leaving a small theatre in Rhode Island Hasbro manager John Law

could not be more pleased. Hasbro's newest licensing project "Jurassic World" looked certain to have the

highest grossing opening weekend all time. Film licensing is another success in a line of strong strategic deci-

sions made by John's management team at Hasbro. The previous decade had seen Hasbro able to capitalize

on strong brands and well developed intellectual property to an entrance into feature films by licensing the

"Transformers" franchise. Alongside the expansion into new product segments Hasbro also saw continued

growth in new markets and within existing customer segments.

However, there will be a new challenge for John and his management team. Hasbro's board of direc-

tors had set the ambitious goal of becoming the number one firm in the Toys and Games sector by 2025 (See

[Exhibit 1] for current Toys and Games firms organized by revenue). John knew that reaching this goal would

be no simple task. The toys and game industry is extremely competitive and usurping market leaders The

Lego Group and Mattel Inc. would require strong strategic direction. Hasbro and the other market leaders

offered a range of different products to a number of separate customer segments. Companies targeted chil-

dren of different ages and genders with their toys as well as offering games for customers of all ages. These

companies also offered different types of products to try to capitalize on a changing set of end consumer

needs. The success of educational toy firms like Leapfrog Enterprises shows evidence that parents are inter-

ested in providing toys that actively engage their children while stimulating learning. John understood that

becoming the market leader will involve market share gains in many different customer and product seg-

ments.

John understood that competition no longer just comes horizontally from other Toys and Games firms. Verti-

cal competition from industry substitutes such as video games and sporting goods needed to be considered as

well. Children are increasingly moving away from traditional toys towards electronic games (Brigg, 2014).

John wondered if winning the Toy and Games market would be enough for Hasbro. In order to achieve long

term success Hasbro may need to address the influence of the video game industry on the Toys and Games

sector. John believed that long term growth would require managing this threat of substitutes and under-

standing the changing tastes of customers.

Business Model Primer

Hasbro's mission of " Creating the best play experiences" is achieved by leveraging their strong portfo-

lio of brands. Their portfolio is comprised of some of the most recognizable toy brands in the world, includ-

ing: Play-Doh, Monopoly, My Little Pony, Transformers, and many more. These brands are either developed

in house, like My Little Pony and Transformers, or through acquisition of firms like Wizards of the Coast or

Parker Brothers (Hasbro Inc, 2015). Hasbro’s management team operates most these brands centrally , alt-

hough some acquired firms like Wizards of the Coast remain independently operated by their own manage-

ment teams.

Hasbro does not generally sell their products directly to end customers. It sells its products wholesale

through regional distributors who then provided stock to a variety of retail stores through dedicated sales

agents ( [Exhibit 2] has a diagram of the simplified sales structure) (Exhibit 2). Hasbro products are found in

many types of stores from large retailers like Wal-Mart to small family operated general stores. Recently, the

firm began selling their products directly to end consumers through online channels like their website in the

US and through Amazon.com.

Performance and Projections 2014 was a strong year for not only Hasbro but also the entire consumer goods sector. Fueled by US

economic recovery and growth, Hasbro's revenues increased nearly $200 USD million, compared with 2013

(Income statement's can be found in [Exhibit 3]).

This growth was led by significant increases in the "boys" product category while the other three segments

(Games, Girls and Preschool) saw slight revenue decreases {Exhibit 3}. Hasbro saw global revenue growth

across all of its international sectors and in its licensing operations (Exhibit 4) leading to a 5-year average

growth rate of 1.78%

The two firms leading the Toys and Games sector in market share currently are The Lego Group and

Mattel Inc. Mattel has seen it's title as market leader fall into question as its growth has stagnated to less

than 1% over the last 5-years. The Lego Group, however, has been making a serious push for the industry

lead with a 5 -year average growth of over 15%. John realized that if the historic performance of these firms

continues Hasbro's main challenge may not be overtaking Mattel, but keeping up with Lego's global growth.

Two smaller firms are also of interest to John's teams. Jakks Pacific Inc. is seen as a cautionary tail for John's

team. Once a market leader with over $800 USD million in sales the firm had seen a 5-year average growth

rate of almost -6% due to poor management of their brands and an inability to keep up with changing con-

sumer demands. By contrast LeapFrog Enterprises is a firm quickly becoming a market leader by leveraging

its educational products. LeapFrog has achieved over 10% 5-year average growth. Hasbro needs to keep an

eye on this smaller competitor that may threaten to capture a significant share of the Toys and Games indus-

try. (See [Exhibit 1] for the list of 5-year average growth rates of Hasbro Inc. and its competition)

Moving Forward

The next decade was set to be a challenging, but exciting, one for the staff of Hasbro. The board's new

goal showed that the company was not going to rest on it's successes and wants to continue to change and

adapt its strategy to best suit the changing Toys and Games sector. As John prepared for tomorrow's staff

meeting he knew that he needed to address a number of important questions. How was his team going to

capture market share from its competition? Would his team be better off streamlining their business down

to their strength in boys products or by looking to their other more stagnant lines like girls and preschool?

Would this decision require additional in house brands or new brand acquisition? Did Hasbro need to evalu-

ate its different regions and try taking advantage of international growth? What was the future for Hasbro

Inc.’s successful licensing and entertainment segment? All of these questions would need to be answered by

John's team if the 2025 goal is to be reached

EXHIBIT 1: TOYS AND GAMES SECTOR BY ESTIMATED ANNUAL SALES

Company Estimated Annual Sales

(Millions USD) 5 Year Growth

Rate

Mattel Inc. $6,300 0.84%

The Lego Group $4,500 15.69%

Hasbro Inc. $4,000 1.78%

MGA Entertainment $2,000 -

Playmobil $790 -

Jakks Pacific Inc. $700 -5.76%

Leap Frog Enterpris-es

$580 10.51%

MEGA Brands Inc. $400 -

Melissa and Doug $325 -

Note 1 - 5-Year Growth Rates are averages calculated from revenues taken from each

firm's public annual reports.

Note 2 - Estimated Annual Sales from (Sicoli, 2014)

EXHIBIT 2: SIMPLIFIED SALES MODEL

EXHIBIT 2: STATEMENT OF OPERATIONS (HASBRO INC, 2015)

Consolidated Statements of Operations

Fiscal Years ended in December 2014 (Thousands of Dollars Except Per Share Data)

2014 2013 2012

Net Revenues 4,277,207.00 4,082,157.00 4,088,983.00

Costs and expenses Cost of sales 1,698,372.00 1,672,901.00 1,671,980.00

Royalties 305,317.00 338,919.00 302,066.00 Product development 222,556.00 207,591.00 201,197.00 Advertising 420,256.00 398,098.00 422,239.00 Amortization of intagibles 52,708.00 78,186.00 50,569.00 Program production cost amortization 47,086.00 47,690.00 41,800.00 Selling,distribution and administration 895,537.00 871,679.00 847,347.00

Total expenses 3,641,832.00 3,615,064.00 3,537,198.00 Operating Profit 635,375.00 467,093.00 551,785.00

Non-Operating (income) Expenses Interest expense 93,098.00 105,585.00 91,141.00 Interest income (3,759.00) (4,925.00) (6,333.00) Other expense, net 6,048.00 14,611.00 13,575.00 Total non-operating expense, net 95,387.00 115,271.00 98,383.00

Earnings before income taxes 539,988.00 351,822.00 453,402.00

Income taxes 126,678.00 67,894.00 117,402.00

Net earnings 413,310.00 283,928.00 335,999.00 Net loss attributable to noncontrolling interests

(2,620.00) 2,270.00

Net earnings attributable to Hasbro,Inc 415,930.00 286,198.00 335,999.00

EXHIBIT 4: NET REVENUES BY PRODUCT CATEGORY (Hasbro Inc, 2015)

Net revenues by product category

for the years ended December 28, 2014, December 29, 2013 and December 30, 2012.

2014 2013 2012 Boys $1,483,952 $1,237,611 $1,577,010 Games $1,259,782 $1,311,205 $1,192,090 Girls $1,022,633 $1,001,704 $792,292

Preschool $510,840 $531,637 $527,591 Net Revenues $4,277,207 $4,082,157 $4,088,983

Net revenues and operating profit data fro Hasbro Inc's three principal market segments

Years ended 2014,2013 and 2012

2014 2013 2012

U.S and Canada $2,022,443 $2,006,079 $2,116,297

International $2,022,997 $1,872,980 $1,782,119

Entertainement and Licensing $219,465 $190,955 $181,430

Operating Profit

U.S and Canada $334,702 $313,746 $319,072

International $270,505 $235,482 $315,489

Entertainment and Licensing $60,550 $45,476 $53,191

Net revenues by geographic region for the Hasbro Inc's "International" segment for 2014, 2013

and 2012.

2014 2013 2012

Europe $1,258,078 $1,190,350 $1,154,310

Latin America $463,512 $407,710 $362,689

Asia Pacific $301,407 $274,920 $265,120

Net Revenues $2,022,997 $1,872,980 $1,782,119

EXHIBIT 5: REVENUE BY MARKET SEGMENTS (HASBRO INC, 2015)

Bibliography Brigg, M. (2014). How the Ipad replaced the toy chest. http://www.dailymail.co.uk/sciencetech/article-2565061/How-iPad-replaced-toy-chest-Researchers-children-play-touchscreens-traditional-toys.html.

Hasbro Inc. (2015). 2014 Annual report . Hasbro INC.

Hasbro Inc. (2015, June). Hasbro Fact Sheet. Retrieved June 2015, from Hasbro.com: http://www.hasbro.com/corporate-2/documents/Corporate_Fact_Sheet_May_2015.pdf

Sicoli, C. (2014, January 21). Fun For Profit: The World’s Nine Biggest Toy Companies. Retrieved June 23, 2015, from TheRichest.com: http://www.therichest.com/business/companies-business/fun-for-profit-the-worlds-nine-biggest-toy-companies/9/

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