Hasbro has long been synonymous with the kinds of toys kids can hold in their hands: iconic brands such as Transformers, Nerf, and Play-Doh, which came in the form of plastic figurines, dart guns with foam bullets, and moldable wads of wheat flour, salt, and water. But lately, digital sales are seeing double-digit growth, while demand for physical toys is slumping. In fact, the trade-off between the two is roughly one-to-one. In the second quarter, sales in the company’s Wizards of the Coast and Digital Gaming segment increased 20%, while its consumer products segment declined 20%.
But amid this transition from battle bots to bits, Hasbro is also starting to see higher profits, which have more to do with actions the company is taking behind the scenes than the composition of its sales. After facing monumental logistical challenges during the pandemic, Hasbro is working to sort out its global supply chain and bring down costs in the process, delivering $40 million in net cost savings in Q2.
“Hasbro is emerging as a more profitable, agile, and operationally excellent company delighting fans of all ages through the magic of play,” CEO Chris Cocks said in a statement.
Less is more: The way Hasbro is pulling this off is twofold, James Zahn, editor in chief of The Toy Book, told Retail Brew. First, the company is engaging in more outbound licensing, which is the practice of outsourcing the manufacturing of licensed products to other companies. Hasbro is generally handing over licenses to smaller manufacturers with less bloated overhead costs that can produce toys at a lower price point. A recent example of this is a deal allowing Playmates Toys to manufacture, distribute, and even develop its own cross-category Power Rangers-branded products.
Hasbro’s other cost-cutting strategy is to streamline its global supply chain. Zahn said these efforts began in earnest under the late CEO Brian Goldner when the company started looking for suppliers outside of China due to the country’s rising production costs and rampant IP infringement, particularly of its Transformer brand. Then the pandemic hit, Goldner died in 2021, and Hasbro “ran into some of the greatest problems of any toy maker during the global supply chain crisis of a couple years ago,” Zahn said.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
Too much stuff: The result of these unfortunate events was that Hasbro became seriously overloaded with inventory, and a large portion of that extra product got funneled into bargain outlets such as Ross Dress for Less, TJ Maxx, and Ollie’s Bargain Outlet. “Closeouts and overstocks always end up in those channels, but the industry, I don’t think, has ever seen the quantity that came from Hasbro,” Zahn said. This created a “price perception issue with the public,” he added, because Hasbro products were widely available at such low prices that it drew customers away from the higher-priced newer products that were entering into mass retail channels such as Walmart.
So a supply chain problem turned into an overstock problem, which turned into a pricing problem. To address this triple threat to its business, Hasbro has hired executives who are focused on cleaning house, and that has entailed radically cutting back on inventory. Zahn said this included reducing its product lines and focusing on its best-sellers. Now the fruits of that labor are showing up in the company’s earnings. Owned inventory is down 51% year over year, and its consumer products inventory is down 55% year over year. “By putting the right underlying demand and supply planning processes and systems in place, we’ve been able to bring aged inventory down to historic lows, while ensuring we have suitable inventory levels to support sell through for the holidays,” CFO Gina Goetter told shareholders during an earnings call.
Going forward, Zahn expects Hasbro will continue to refine its supply chain with a focus on its in-house production and distribution process, including looking more closely at raw material costs, tooling, packaging, shipping, and warehousing.