Mattel, Hasbro play with shipping, pricing strategies to optimize supply chains

Toymakers Mattel Inc. and Hasbro Inc. have published revenues for the second quarter of 2021 and have illustrated the supply chain challenges facing the sector.

Mattel reported a significant rebound in revenues, with second-quarter 2021 up 40.2% year over year. The firm cited a return to shopping in person and "impulse shopping" among consumers. Mattel has had to deal with supply chain challenges in the first half of the year.

CFO Anthony DiSilvestro noted during the earnings call that these challenges include "shipping container shortages that were exacerbated by a temporary port shutdown in China and temporary plant shutdowns in Asia related to COVID-19 restrictions." Those are unlikely to be resolved in the short term, as Executive Chairman and CEO Ynon Kreiz flagged an expectation of "continuing supply chain challenges for the rest of the year."

Hasbro Inc. reported higher revenue growth of 53.7% year over year for the second quarter ended June 27, in part bolstered by digital franchises.

Comparative growth in the remainder of the year will depend on successfully delivering the right products at the right time ahead of the critical holiday season and on overcoming the supply chain challenges that Mattel also experienced. In order to ensure that, Hasbro's strategy "includes sourcing more products earlier out of multiple countries," CFO Deborah Thomas has said.

The proof of earlier shipments may take a couple more months to emerge, given that the annual peak in U.S. seaborne imports of toys and games normally comes in October after ramping up from July to August. There is already some evidence at the macro level of increased shipments in the second quarter of 2021, however, with Panjiva data showing U.S. seaborne imports climbed 23.9% year over year and by 10.0% compared with the second quarter of 2019.

Hasbro has already adapted its logistics strategy to deal with congestion factors, with Chairman and CEO Brian Goldner noting the firm has "secured more ports, and we've got more shipping lanes than we've had in the past."

Panjiva data shows shipments linked to the company increased 26.1% year over year, including a 133.3% rise in imports into New York and a 74.8% increase in shipments into Savannah, Ga. By contrast, the use of West Coast ports fell, with shipments into Seattle/Tacoma, Wash., and Los Angeles/Long Beach, Calif., up just 1.1% and 15.2%, respectively.

The strategy to pursue earlier and diversified shipping comes as container rates remain elevated, potentially generating significant supply chain inflation, as discussed in Panjiva's research of July 16. Both firms have experienced that effect.

In Mattel's case, there was a "slightly higher negative impact from cost inflation than we previously guided due to further increases in ocean freight," DiSilvestro said during the earnings call, adding that this will be "partly offset by cost savings and upcoming pricing actions."

Goldner has said Hasbro will also pursue "price increases that go into effect during the third quarter and provide an offset to the rising input and freight costs in the business."

The inclusion of price rises into the third quarter — resulting from cost increases in the first half of the year — illustrates the bow wave effect of supply chain inflation on consumer price inflation. It remains to be seen whether the relative level of price rises will generate different demand responses from consumers for toys from different manufacturers.

In terms of preparing for peak season, imports in the second quarter of 2021 linked to Hasbro and Mattel increased 26.1% and 10.1% year over year, respectively. It is worth noting that Hasbro's shipments are only 2.1% above the same level of 2019, while Mattel's are 19.7% higher.

Among the second-tier toymakers, imports linked to Spin Master Corp. climbed 24.7% year over year while shipments associated with JAKKS Pacific Inc. climbed 62.5%. Not all firms saw an improvement, though, with shipments linked to TOMY Company Ltd. down 24.3% after a jump in the first quarter of 2021.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.