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MattyCollector Pre-Orders – Why Mattel Should Bite the Bullet, and Why They Won’t

With recent statements by Toy Guru and the Four Horsemen about the Masters of the Universe Classics Club Eternia subscription, alongside the anemic thermometer for the DC Club Infinite Earths subscription, it’s clear that with a week remaining for the sign-up period, MattyCollector’s subscription programs for 2013 are at extreme risk of failing. This has raised the perennial question – why not just take pre-orders? Let’s take a look at the pros and cons.

Here’s why I think Mattel should do it:

1) Customers want choice. Toy Guru announced that for 2013, production will be more limited than in the past, such that there would be little to no inventory available for day-of sales. This leaves the all-in subscriptions as the only real option for collectors.

With a dwindling number of core characters left to be done, some MOTUC collectors are faced with being saddled with more figures they don’t want – a tough prospect considering the $5 price hike. Not all Masters fans are also fans of Princess of Power, New Adventures, or even the newly created characters for Classics, like the Fighting Foe-Men. DC fans also face the same challenge because of the character breadth and diversity of the universe.

Pre-orders would give collectors the most flexibility – the choice to commit to each character individually.

2) Mattel wouldn’t have to guess about production levels. Early on with MOTUC, Mattel had problems gauging interest in the line, and missed out on sales while frustrating the rapidly growing customer base. And while it’s true that tying production to the number of subscriptions also removes the guesswork, it means quantities will be more or less the same for each figure regardless of popularity – but this “averaging” only leads to frustration for folks who can’t get the more popular characters and for others who can’t offload the less wanted ones.

Pre-orders would allow production levels to vary drastically from figure to figure, allowing the true demand for each to be fulfilled.

3) Mattel would get their money sooner. Making toys has a long lead time, and a a lot of the hard costs, like for design (prototypes and paint) and tooling, come half a year or more before the figures get shipped to collectors. With pre-orders, the money comes in to help defray these costs. And even a big company like Mattel benefits from the time value of money.

Coupled with knowing the production numbers, Mattel could also make better decisions on how much more or less to plus up each particular figure, improving the profit margins.

That said, here’s why Mattel won’t do it:

1) Mattel wants a sure thing; otherwise they’d spend their resources on the products with greater returns. Toy Guru has said many times that the collector-oriented Masters and DC lines are relatively small when compared to powerhouse brands like Barbie. When the Mattel brand managers are planning for the upcoming year, they’ve got to present financial plans for their ideas, and they’ll have more ideas than Mattel will actually be able to make. Management then picks the ones that have the best expected profits – those will move forward and the rest will be mothballed.

Take what’s happened in DC Universe as an example. When you think about Classics versus the new kid-oriented Batman line, each would require similar up front design costs – sculpt, paint, tooling, etc – but presumably management felt the kid line would yield better results.

With guaranteed revenue, subscription-only plans look better – at least on paper.

2) Mattel’s production facilities have minimums. Toy Guru has also said that if quantities fall below certain minimums, there’s a premium on the the production costs. I presume this to mean that MOTUC and DCUC are produced in non-Mattel-owned factories (Mattel owns more of its production facilities in Asia relative to other toy manufacturers) since it wouldn’t impose minimums on itself. Uncertainty with the quantities could wreak havoc with the financials, if figures on a pre-order system keep falling below those minimums, incurring the premiums.

Factories would also favor guaranteed subscriptions and the associated stable quantities. It’s tougher for them to balance out production for a monthly program if one month you’ve got a big hitter like Ram Man and the next a smaller one like Netossa. Factories do better financially when they’re running at peak efficiency, and the ups and downs inherent with a pre-order system messes with that.

3) Mattel doesn’t want to deal with the accounting for pre-orders. The flip side to collecting pre-order money well in advance of delivering the product is that Mattel will have to carry the obligation (of owing the product that was purchased) on the books for half a year or more. For corporate entities like Mattel, accounting rules dictate that they cannot recognize the revenue until the product is delivered.

Then there’s the accounting complications if Mattel ends up not delivering the end product – and the earlier they take the pre-orders, the more likely the possibility that will happen. If this were to happen, Mattel would have to back out the transactions and return the money.

Sure, this also applies to subscriptions that don’t go through, like Ghostbusters last year, but Mattel has got to be asking themselves if it’s worth it to go through this on a figure by figure basis, especially when the numbers are small.

So there you have it – some of the whys and why nots of pre-orders for Mattel. Clearly, for a company that plans a year in advance, pre-orders are out of the question the upcoming year – but if the results for the 2013 subs turn out as badly as Mattel is hinting, we may see them soften their no pre-order stance for 2014. (Toy Guru took the first step in this direction on a recent podcast.) If they go this route, I’ve got a couple of suggestions that could help them succeed.

First, improve the character selection and product quality. Particularly with MOTUC, I think the team grew complacent thinking that Club Eternia was a forgone conclusion, and let the hubris they exhibited with the 30th Anniversary line permeate the main line – sure, we’ll buy anything you put in there, because with the sub we don’t have a choice! Coupled with the $5 price hike and increased shipping for international customers, the prospect of lackluster figures has taken its toll.

With pre-orders, each figure will live or die on its own – and that means they’ll have to be better. Core characters will sell, but more obscure ones will have to really kick ass. And while there will still be opportunities to extend the MOTUC mythos, it’ll have to be with figures with the wow factor more like Draego Man and less like (sorry Toy Guru) the self-indulgent Mighty Spector.

And finally, cut Digital River out of the picture already. Online retailers (like Fwoosh sponsor Big Bad Toy Store) are buying subscriptions of their own for resale. And if you ask them, they’ll tell you that the bulk of their sales for collectible figures come via pre-order – so they know how to handle the pre-order business. Why not let them?

Cutting out the middle man would also allow all parties to increase their margins while keeping the collector’s costs from skyrocketing. Mattel could raise their price, and with online retailers paying that instead of the price we pay Digital River, they could have a decent markup without crazy prices above where we are now.

This will be an interesting week, as Mattel and the diehard fans conduct their last minute pushes for more subscribers. I’ve put in my orders for all three Matty subscriptions, but think it’s very possible that we miss on all of them. If that should happen, we’ll see a real scramble as MattyCollector goes through damage control for 2013, and makes some tough calls for 2014.

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