Mattel’s E-Commerce Dilemma

It has been eight months since toy giant Mattel, Inc. put on a dog and pony show for stock analysts, touting ambitious plans to storm cyberspace.

At the time, Mattel CEO Jill Barad bragged that in three to five years, Mattel.com would become a billion-dollar (US$) business with a 70 percent profit margin.

Not so fast. Instead of cashing in on this year’s e-commerce holiday bonanza, Mattel is only offering a small fraction of the thousands of toys it makes.

What went wrong?

Mattel’s Dilemma

Many industry observers believe that Mattel’s e-commerce woes are based upon a riddle that no major manufacturer of consumer goods has been able to solve: How can a company sell products directly to consumers from its Web site without losing business from the retail giants — such as Wal-Mart Stores, Inc. and Toys “R” Us — that purchase vast amounts of products for resale in their stores?

Additionally, Mattel’s e-commerce foray has been stalled by financial problems — especially those of its Learning Co. software center.

Deal Must Be Struck

Mattel officials concede that the company will not be offering its entire line of products via the Internet any time soon, despite the fact that it expects to create revenue of about $60 million from all of its Web sites this holiday season.

Before it will even attempt to become a real e-commerce player, Mattel must first strike deals with the major brick-and-mortar retail outlets.

One rumor has it that Mattel has been in discussions with Wal-Mart about the possibility of putting a Mattel “boutique” on its site.

Unfortunately, the stumbling block I see in this scenario is that Wal-Mart may defeat the purpose by demanding too much of Mattel’s action.

Move Toward Amazon

Meanwhile, as Mattel pours millions into its half-hearted e-commerce effort, Amazon.com is expanding the number of manufacturers that it does business with every day.

Instead of kowtowing to its brick-and-mortar masters, Mattel should cut an exclusive deal with Amazon.com to provide toys directly to its millions of customers. This way, Mattel could become a real e-commerce player instead of just another wannabe.

What do you think? Let’s talk about it.