Hasbro is in the midst of a multi-year turnaround, and with second-quarter earnings beating expectations, the company’s efforts appear to be paying off.
Following this morning’s earnings release and conference call, I sat down with Hasbro CEO Chris Cox over the phone to dive deeper into how the company is reinventing its business to embrace consumption for all ages in new ways or and refocus on the game.
During this morning’s earnings call, you noted that 60% of Hasbro’s revenue comes from consumers 13 and older, and that “games are aging and becoming more international, more digital and more immediate.” How to break it down?
Wizards of the Coast is getting older, a lot of our board games are getting older, and then we have a collection business. Many companies are only now realizing the power of fans and the importance of the “kid” audience we’ve embraced over the years.
These audiences are powering many direct-to-consumer (DTC) businesses across the industry, with Hasbro Pulse being a prime example. Can you talk about the scale of Hasbro’s DTC?
We haven’t disclosed the size of that business yet, but it was our fastest growing pipeline last year. Overall, this is a very important pipeline. Walmart, Amazon, Target and Smyths are large and important, but the biggest growth channel is DTC.
If you look at some of the other companies in our space, such as Lego and Game Studios, these companies are driving industry growth with the uniqueness of their higher-priced products.
I noticed there wasn’t much discussion on the conference call this morning about the licensing business outside of digital games, which is a win. How does the out-licensing business outlined during Blueprint 2.0 begin to pay off for Hasbro?
I’d say so far, so good.
Littlest Pet Shop brings many benefits to our licensee, Basic Fun! They have been great partners and we hope that continues.
When we think about out-licensing, we look at smaller companies with deep expertise to take over brands that don’t meet our internal sales thresholds of $50 million, $100 million, etc. Not a bad deal.
You mentioned basic fun! , some recent headlines have raised some concerns about how these relationships will work if licensees get into trouble. Basic fun! are restructuring — and it looks like they’ll be fine — but there are rumors that other similarly sized companies may also be teetering on the edge of some problems. How do you deal with that?
You have to keep your portfolio balanced and not put all your eggs in one basket. The right partner can help grow a brand or business, but if anything happens, we can pivot quickly. Through Basic Fun! , they have prepaid guarantees for this year, and I heard their financing has been backed. They are a pleasure to work with and many of their best selling toys are Hasbro branded.
One of the growth areas in the toy industry that we cover extensively is location-based entertainment (LBE). Having discussed recent work with other members of your team, such as opening Planet Playskool and The Gameroom powered by Hasbro in New Jersey, what are your thoughts on this aspect of the business and where it can go?
One of the biggest surprises since becoming CEO has been discovering how much LBE drives things. Currently, we have 100-125 locations and receive 55 million visitors per year. Over the next 3-4 years, we will have approximately 350 locations bearing the Hasbro name or our brand name. There are fast-food restaurants like the one we did in Hong Kong with Transformers; bar and gaming concepts; and even cruise ships and restaurants that are being built. This is brand gold and a new revenue stream.
Going back to the core toys and games business, with all the talk about teen, teen and adult consumers, how is your team working to develop new gaming experiences and engage children, especially 5-10 year olds?
Going all the way back to two-year-olds, it’s the first time kids shake hands with our brand. We need to make sure we have great partners and innovate [Note: PlayMonster currently markets much of the Playskool portfolio]. Birth rates are falling in much of the world, and children are becoming more picky. It’s important to understand today’s children and their needs.
At the same time, it’s not realistic for us to do business in every category, which means building massive partnerships with Lego or Mattel so that we always have a presence in those areas.
Finally, I want to talk about price perception. Toy prices have risen in recent years, and many consumers feel the prices are too high – including many products from Hasbro. How do you solve this problem?
Pricing needs to cover the entire spectrum. When I joined the team in the early days, we were too focused on creating products in the $25-$50 range. We need to refocus and start creating more products in the sub-$20 or even $10 range. We do this by driving better supply chain optics to create value and working with retail partners to develop programs that have the greatest impact.
Going forward, we are committed to improving customer insights, using more design resources, and creating products at lower prices from the beginning. This is “design value”.
We will launch a new version of Jenga later this year or early next year that is a better product, easier to use, and cheaper. We are now replicating this approach in Hungry Hungry Hippos, Candy Land and Monopoly.
We will take the same approach across all brands and categories.
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