In an ideal world, a product does not compete with another brand or product underneath the same corporate umbrella. Unfortunately for Mattel (NASDAQ:MAT), this is not the case. Mattel's fourth-quarter and fiscal-2013 results show that its American Girl has been stealing sales from perhaps its most famous brand: Barbie.
While girls between the ages of three and twelve enjoy both products, it appears that they would rather have one American Girl doll than five Barbie dolls. This could spell trouble for Mattel unless it can find a way to keep sales strong for both American Girl and Barbie. Let's take a look at how sales for Barbie and American Girl have changed over the past year.
The fashion toy doll makes its appearance in retail
For over fifty years, Barbie has been a household name among young girls. Launched in 1959 at the Annual Toy Fair in New York by founder Ruth Handler, Barbie has designed and manufactured a wide range of unique Barbie dolls, accessories, furniture and much more. It was not until 1986 that Pleasant Company founded American Girl. American Girl dolls tend to be more unique than Barbie dolls as they each have a particular story associated with them as well as a large collection of accessories.
American Girl dolls are also generally more expensive than Barbie dolls due to their size, quality, and detail, which makes these dolls even more exciting for their target market. Both popular toy brands were brought into the same house when Mattel bought American Girl from Pleasant Company in 1998 for $700 million in an effort to diversify its brand portfolio. Unfortunately for Mattel's shareholders, American Girl is beginning to cannibalize perhaps the company's most important brand.
Barbie versus American Girl
While Mattel had yet another strong year as it grew sales for the fourth consecutive year by 1%, Barbie and American Girl have switched places in terms of their sales growth. From fiscal 2012 to fiscal 2013, Barbie sales fell by 6% from $1.275 billion to $1.203 billion. On the other hand, American Girl sales rose by 11% for the year to $632.5 million.
To make matters even worse, Barbie sales took a nosedive in Mattel's fourth quarter with a whopping drop of 14%, while American Girl sales climbed 3%. Clearly, Barbie's target market is being lured to American Girl's large retail stores, which are popping up in new locations every year.
In addition to American Girl's retail stores, which provide everything from dolls to accessories to furniture and more, customers can order American Girl products and dolls through the brand's catalog and website. What makes American Girl more unique than Barbie is the fact that girls can specially order look-a-like dolls for themselves by mailing in their pictures to the company, which Barbie does not offer. Barbie could be on its way out if it fails to create the buzz that gets young girls more interested in its products again so it can reclaim its lost sales.
This likely is, at best, neutral for Mattel shareholders. True, they own a profitable and growing brand in American Girl, but it appears to be cannibalizing the sales of Barbie, which will not lead to long-term growth. In an ideal world, a company will launch a new product or brand that enhances its other products, like how the iPod enhanced excitement and brand loyalty for Apple computers. Mattel would be wise to stir up excitement about Barbie by introducing a new item or feature to ignite this same excitement; otherwise, Barbie sales may continue to fall in the future.
Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Mattel. The Motley Fool owns shares of Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.