By Gary Symons
TLL Editor in Chief
It’s going to be a bleak holiday season at Hasbro, as the toy giant announced layoffs for 1,100 workers, and closed its office in Providence, RI.
Hasbro says it is taking necessary steps stem losses and prepare for a recovery by making a second major workforce reduction. The layoffs now being announced follows a previous round of cuts that saw more than 800 positions eliminated following a strategic review in Fall of 2022.
The company sent a letter to employees to inform them of the upcoming job losses, and many of the workers whose jobs are being eliminated have already been informed.
CEO Chris Cocks said in the letter that market conditions are primarily to blame for the aggressive cost cutting. “The market headwinds we anticipated have proven to be stronger and more persistent than planned,” Cocks wrote. “While we’re confident in the future of Hasbro, the current environment demands that we do more, even if these choices are some of the hardest we have to make.”
Hasbro said it expects to notify all affected employees within 24 hours, and that any remaining layoffs will take place over the next year. Cocks acknowledged that the news is particularly difficult as staffers were preparing to enjoy the holiday season. “I know this news is especially difficult during the holiday season,” he said. “We value each of our team members—they aren’t just employees, they’re friends and colleagues. We decided to communicate now so people have time to plan and process the changes. For those employees affected we are offering comprehensive packages including job placement support to assist in their transition.”
In addition, Hasbro says it will let the lease expire on its “underused” office in Providence next year. Employees working at that location will be transferred to the company’s global HQ in nearby Pawtucket, RI.
The cost reductions come as the US retail industry has experienced a bumpy ride throughout 2023, and a decline in demand particularly for toys. While toy sales soared during the pandemic, inflation and economic uncertainty have caused a major decline in the demand for toys and other non-essential goods. During Q3 earnings calls, toy producers typically predicted lower sales for this holiday season, although those revenue declines are based on the sharp spike in revenue enjoyed during the pandemic.
While the U.S. retail industry has enjoyed a sales bump in recent weeks, the jury is still out on the health of the toy department this season. During Q3 earnings calls, the major toymakers unanimously cautioned a soft season as the industry continues to come down from historic pandemic-era sales spikes.
The retail industry analyst firm Circana’s toy division said in early November that the industry is going through a “rebalancing,” as overall sales declined versus 2022. Circana’s figures showed overall toy sales revenue in the U.S. dropped by 8% from January to September, while unit sales declined by 9%, and the average selling price increased by just 1%, which is well below inflation.
“After record-high sales during the pandemic, 2023 is a period of rebalance for the toy industry,” said Juli Lennett, U.S. toys industry advisor at Circana. “This situation is further amplified by the fact that consumers’ budgets are facing more headwinds than tailwinds this year. For manufacturers and retailers, a well-thought-out pricing strategy can mean the difference between success and failure closing out the year.”
However, while the decline in sales has impacted all toymakers, Hasbro seems particularly hard hit this year, after a less than stellar 2022.
Looking deeper, it’s clear there’s more than just a weaker economy to blame for the problems at Hasbro, although many of those issues are external to the company itself.
Overall, Hasbro said in its Q3 earning statement that revenue declined by 10%, but the drop was not felt across the board. The Wizards of the Coast and Digital Gaming segment again performed strongly for Hasbro, especially with the successful launch of the licensed Baldur’s Gate 3 video game, which brought $63 million to the company. The segment overall increased its revenue by an amazing 40%, but that wasn’t enough to offset the 18% decline in Consumer Product revenue (e.g., physical toys and games), and the even worse performance by Hasbro’s entertainment division, which saw its revenues sag by a nightmarish 42%.
Good news for Hasbro and its investors is that the drop in Entertainment revenue may well be a one-time event, as the company says much of that loss was due to the strikes by writers and actors in Hollywood this year. A return to normal production schedules could see that segment bounce back strongly in 2024 and beyond.
By contrast, however, Hasbro’s major U.S. competitor Mattel has faced similar headwinds, but managed to perform better during the same period.
Mattel’s overall net sales actually increased by 9% over Q3, although they did decline 5% overall over the first nine months of the year.
Net Sales in North America and globally increased 10% in Q3 year over year, giving Mattel an encouraging bump going into the holiday season.
However, unlike Hasbro, which saw its entertainment revenues sag due to loss of production, Mattel was fortunate to get its blockbuster hit Barbie: The Movie released over the summer, which drove revenues for entertainment, as well as greatly increased sales for for the dolls segment, driven by Barbie, Disney Princess and Disney Frozen. Vehicles also did well, through Mattel’s Hot Wheels division, although other segments like Action Figures showed a steep decline.
The good news for Hasbro and other toymakers is that Circana is predicting a decent bounce over the holidays.
Lennett says 80% of consumers reported that they have, or plan to, cut back on their overall retail spending due to inflation and the number-one tradeoff is choosing lower priced goods, according to Circana’s recent Omnibus survey. “The good news is that when asked which products they plan to cut back on, toys landed at the bottom of the list of things consumers will give up,” Circana says.
“During tough economic times, parents will pull back on themselves before pulling back on gifts for their kids,” said Lennett. “As the holiday season gets underway, the joy of unwrapping a toy creates a special moment that families will not sacrifice.”
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