Mattel 2015 Annual Report Download - page 15

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Mattel’s failure to successfully market or advertise its products could have an adverse effect on Mattel’s business,
financial condition, and results of operations.
Mattel’s products are marketed worldwide through a diverse spectrum of advertising and promotional programs. Mattel’s
ability to sell products is dependent in part upon the success of these programs. If Mattel does not successfully market its
products or if media or other advertising or promotional costs increase, these factors could have an adverse effect on Mattel’s
business, financial condition, and results of operations.
Mattel’s business is highly seasonal and its operating results depend, in large part, on sales during the relatively brief
traditional holiday season. Any events that disrupt Mattel’s business during its peak demand times could significantly,
adversely and disproportionately affect Mattel’s business.
Mattel’s business is subject to risks associated with the underproduction of popular toys and the overproduction of toys
that are less popular with consumers. Sales of toy products at retail are highly seasonal, with a majority of retail sales occurring
during the period from September through December. In recent years, many consumers have delayed their purchases until just
before the holidays. As a result, Mattel’s operating results depend, in large part, on sales during the relatively brief traditional
holiday season. Retailers attempt to manage their inventories tightly, which requires Mattel to ship products closer to the time
the retailers expect to sell the products to consumers. This in turn results in shorter lead times for production. Management
believes that the recent increase in “last minute” shopping during the holiday season and the popularity of gift cards (which
often shift purchases to after the holiday season) may negatively impact customer re-orders during the holiday season. These
factors may decrease sales or increase the risks that Mattel may not be able to meet demand for certain products at peak
demand times or that Mattel’s own inventory levels may be adversely impacted by the need to pre-build products before orders
are placed.
In addition, as a result of the seasonal nature of Mattel’s business, Mattel may be significantly and adversely affected, in a
manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events,
such as terrorist attacks, economic shocks, severe weather, earthquakes or other catastrophic events, that harm the retail
environment or consumer buying patterns during its key selling season, or by events, such as strikes, disruptions in
transportation or port delays, that interfere with the manufacture or shipment of goods during the critical months leading up to
the holiday purchasing season.
Mattel has significant customer concentration, so that economic difficulties or changes in the purchasing policies or
patterns of its key customers could have a significant impact on Mattel’s business and operating results.
A small number of customers account for a large share of Mattel’s net sales. In 2015, Mattel’s three largest customers,
Wal-Mart, Toys “R” Us, and Target, in the aggregate, accounted for approximately 37% of net sales, and its ten largest
customers, in the aggregate, accounted for approximately 48% of net sales. While the concentration of Mattel’s business with a
relatively small number of customers may provide certain benefits to Mattel, such as potentially more efficient product
distribution and decreased costs of sales and distribution, this concentration may expose Mattel to a material adverse effect if
one or more of Mattel’s large customers were to significantly reduce purchases for any reason, favor competitors or new
entrants, or increase their direct competition with Mattel by expanding their private-label business. Customers make no binding
long-term commitments to Mattel regarding purchase volumes and make all purchases by delivering one-time purchase orders.
Any customer could reduce its overall purchases of Mattel’s products, reduce the number and variety of Mattel’s products that
it carries and the shelf space allotted for Mattel’s products, or otherwise seek to materially change the terms of the business
relationship at any time. Any such change could significantly harm Mattel’s business and operating results. Furthermore, the
bankruptcy or other lack of success of one or more of Mattel's significant retail customers could negatively impact Mattel's
revenues and profitability.
Liquidity problems or bankruptcy of Mattel’s key customers could have a significant adverse effect on Mattel’s
business, financial condition and results of operations.
Mattel’s sales to customers are typically made on credit without collateral. There is a risk that key customers will not pay,
or that payment may be delayed, because of bankruptcy, contraction of credit availability to such customers, weak retail sales or
other factors beyond the control of Mattel, which could increase Mattel’s exposure to losses from bad debts. In addition, if key
customers were to cease doing business as a result of bankruptcy or significantly reduce the number of stores operated, it could
have a significant adverse effect on Mattel’s business, financial condition, and results of operations.