Marketing classic brands across platforms connects Hasbro to new generations
CORPORATE CITIZEN: Hasbro Chairman, President and CEO Brian Goldner helps wrap toys during the company's all-employee volunteer day. He believes there's a connection between being in the toy industry and being a good corporate citizen.
PBN PHOTO/RUPERT WHITELEY
GIVING BACK: Tayla Reo, center, who works in Hasbro Inc.'s global brand licensing and publishing group, spends her morning on Dec. 15 packaging Hasbro toys destined for children.
PBN PHOTO/RUPERT WHITELEY
ANNUAL TRADITION: Former Hasbro CEOs Alan G. Hassenfeld, center, and Al Verrecchia, right, visit Ryan Hebert, 7, and his mother, Jeanne Hebert, at Hasbro Children's Hospital. Each year, the duo visits the hospital to hand out gifts to children and visit with parents.
PBN PHOTO/RUPERT WHITELEY
SPREADING JOY: Hasbro Inc. employees each holiday season wrap and deliver toys and games to children and families.
Leaning back in his chair, surrounded by toys, newspaper clippings, memorabilia and other family keepsakes, Alan G. Hassenfeld has a playful smile on his face.
With a twinkle in his eye, he explains what the holiday season means to him:
"It's a magical time, this time of year. If you're in the toy business, you never grow up. You're always 7 years old," he said.
Hassenfeld, former chairman, president and CEO of Hasbro Inc., is today chairman of the company's executive committee. His family founded the business in 1923 as a textile factory, making mostly pencils, school supplies and medical kits. Within a decade, however, the Hassenfelds started making toys, giving birth to one of the most successful toy companies in history, with $4.4 billion in revenue and net income of $446.9 million in 2015, and a market value, as of Dec. 16, of about $10.1 billion.
But don't call it just a toymaker anymore.
"It's not a toymaker," said Alfred J. Verrecchia, former president and CEO of Hasbro. "It's a global brand and entertainment company that's well-known throughout the world."
Toy-industry observers know Hasbro is no longer what many of a certain age locally remember as the toy manufacturer from Pawtucket. The company has transformed into a multinational giant in the toy, board game and entertainment industry, having found lucrative methods of capitalizing on stalwart and burgeoning brands by bringing them to life on different mediums.
"We're offering a range of play experiences that involve the toys … across a multitude of dimensions," said Brian Goldner, current chairman, president and CEO of Hasbro. "What we're trying to do is to have all people enjoy our brand in any format, at any place, at any time around the world. That's been the fundamental change of the company over the last decade."
Goldner is in many ways responsible for transforming Hasbro into the company it is today.
But the impetus for that change started before he joined the company in 2000, when the rising popularity of video games in the mid- to late-1990s changed how children played and how families spent leisure time. It threatened the very core of Hasbro's business model, which was over-reliant on single-dimension games and toys, and selling merchandise tied to movies.
"They were bleeding costs from across-the-board," said Anthony Wheeler, College of Business associate dean at Bryant University.
Wheeler, who joined Bryant earlier this year, taught previously at the University of Rhode Island, where he had his students study Hasbro as part of his curriculum. He's watched the company change over the years and notes Hasbro was slow to enter the gaming arena, resulting in a flurry of reactionary acquisitions that increased debt and ultimately slowed revenue, culminating in a major reorganization in the late 1990s to early 2000s.
The company was forced to let go about 5,000 employees and close manufacturing plants after a major reorganization in 1997, making it clear changes were needed.
"Al [Verrecchia] really took over and was able to stabilize the company, signaling a broader change happening at Hasbro," Wheeler said.
Verrecchia, known to many as just "Al," took over as president of Hasbro in 2000, which is the same year the company lost $144.6 million. Three years later, he assumed the role of CEO, becoming the first non-Hassenfeld family member to hold the position in company history.
"When I became president it was a tough year for the company," Verrecchia said. "We had some serious issues we had to deal with, and we didn't have a lot of time to think about them."
If there was an upside to those issues, Verrecchia said, it was that many were self-inflicted and not a byproduct of becoming antiquated in the marketplace. The first issue, Verrecchia said, was that more than 50 percent of the company's revenue was tied to licensing agreements, making sales too dependent on decisions that happened in someone else's executive suite. The strategy had to change.
"We began to move away from product and focused more on brands," he said. "I tried to get the company to go back to its core-brand strategy, and we succeeded in doing that."
The company unloaded several of its failed brands and subsidiaries that were producing lackluster results. It took write-offs and cut overhead. Hasbro focused less on what was "hot" in any given year, and more on how it could capitalize on such stalwart brands as Mr. Potato Head, Play-Doh, G.I. Joe, Transformers and My Little Pony.
The transformation happened between Hassenfeld and Verrecchia. The latter is lauded for his work to stabilize the company. But both former executives knew it would take a different type of leader to turn that transformation into growth.
"I was 60 years old when I became CEO, so one of the first things I had to do was focus on succession. Whether or not I'd stay for five years or 10, it wasn't going to be 20," Verrecchia said. "The true measure of a CEO's worth – his legacy – is based on what kind of succession he put in place and how well that succession goes. Given how well the company is doing [under Goldner], I'm pleased as punch."
GROWTH WITH GOLDNER
On May 19, Texas mom Candace Payne posted a video on Facebook of herself laughing hysterically while wearing a Chewbacca mask from the major motion picture series "Star Wars."
The mask, a Hasbro-licensed product, and Payne went viral. In November, the video had been viewed 162 million times on Facebook and been shared 3.3 million times. That's not to mention the millions and millions of times it was shared and reposted on other sites.
As a result, sales of the mask skyrocketed, giving retailers an unexpected bump.
"After she did that, it went through the roof," Hassenfeld said.
Of course, no executive could predict Payne would buy the mask, take a video and go viral, but Goldner, who took over as CEO in 2008, sees the value in looking in unexpected places to grow Hasbro core brands and products. This is exactly what Hassenfeld and Verrecchia say they saw in Goldner, and was the reason why he was groomed to take over as CEO.
"Good ideas come from many places," Goldner said. "The opportunity to grow our brands is unprecedented, and we're just getting into the early stages."
Historically, the company's performance each year has been closely tied to the successes or flops of various products, either introduced independently by Hasbro or as part of a movie launch. For example, sales historically spike in years "Star Wars" movies are released, as Hasbro is licensed to sell the movies' merchandise.
"They didn't have movies each year, resulting in wider swings in revenue," said Jamie M. Katz, equity analyst at the investment research firm Morningstar Inc. of Chicago.
Goldner – like Verrecchia – has focused much more on the company's core brands, trying to minimize year-over-year volatility associated with product releases.
So how does a company make new money off old products?
Goldner answered that question in 2007 when he produced "Transformers," a wildly successful, action-packed, science-fiction film based on the Hasbro toys. By 2009, the company launched Hasbro Studios in California. In 2013, it launched Allspark Pictures – its own film label – and this year bought Boulder Media, an Irish animation company based in Dublin.
The movie business, which is notoriously difficult to break into, has proven lucrative for Hasbro. The four "Transformers" films released so far have grossed roughly $3.77 billion and at least three more related movies are slated to come out through 2019.
"When Brian took over as CEO, what you got was this multifaceted entertainment company," Wheeler said.
Today, about 70 percent of the company's revenue comes from Hasbro brands and 30 percent comes from licensing. The strategy fits well into the company's so-called "Blueprint for Growth," which – in basic terms – takes its classic brands and tells stories about them to connect with customers on such mediums as movies, TV, online and through mobile apps.
"We recognized that if we weren't telling stories, we could be left behind," Goldner said.
Transformers showed it was possible through movies, but Goldner also sees growth potential in digital gaming and lifestyle licensing. Hasbro is one of many companies trying to figure out how to best monetize the mobile experience and in 2013 acquired a majority stake in Backflip Studios, a mobile-game developer.
"We have media-savvy families who're engaging with our brands on any number of screens at all times," Goldner said.
The Blueprint for Growth strategy – along with the company's continued licensing agreements – has proven successful as of late. In the 2016 third quarter, Hasbro reported record-breaking revenue and earnings.
"It's provided some more consistency to the top line than in the past," Katz said. "That gives analysts more confidence that Hasbro is on a different kind of trajectory."
Hasbro is clearly pleased with Goldner's strategy. On Dec. 16, the company extended his contract – set to end next year – until Dec. 31, 2020, increasing his base salary and incentives package.
Although the globalization of Hasbro products has led the company to different pockets of the globe, Hasbro, in many ways, is still just a Rhode Island company.
With about 1,600 employees in the Ocean State, it's the 19th-largest employer here, according to Providence Business News research. It doesn't manufacture toys locally anymore, as most of that work now happens overseas in China. But along with the Pawtucket corporate headquarters, there are complementary operations in East Providence and Providence, where its iconic logo emblazoned on a cube spins slowly above 1 Hasbro Place.
Rhode Island, by several measures, isn't the easiest – or least expensive – place to do business. This often raises questions about how committed a company – even as well-established as Hasbro – is to the state. Ask any of the three most recent CEOs, however, and it sounds like Hasbro is content – at least for now – to have its headquarters in Rhode Island, even if operations grow elsewhere.
"I think everybody knows, if we were to set up business tomorrow, we might not be in Rhode Island," Hassenfeld said. "But at the same time, look, we love Rhode Island."
The Hassenfelds are a Rhode Island family with longstanding ties to the state. The family trust, headed by Alan G. Hassenfeld, still owns just under 10 percent of the company, marking the largest stake, according to a federal filing. Goldner, who spends a lot of time on the West Coast, agrees with Hassenfeld, saying Hasbro has deep ties here.
He points to the company's many investments locally, including its employees, as evidence of those ties, and didn't fail to point out the company's recently announced "Hascon," a Comic Con-like event specific to Hasbro brands, scheduled for September 2017 in Rhode Island.
"The company has a long history here, and our employees enjoy being here," he said. "There's the old adage, ‘The home is where the heart is.' "
Rhode Island, likewise, has benefited in many ways from Hasbro. Beyond the jobs it provides, the company gives its employees paid time off to volunteer in the community. Eighty-nine percent of employees participated in 2015, which is much more than Hasbro's estimates that the average participation for corporate volunteer programs is 30 percent.
In 2015, the company's philanthropic support totaled $14.1 million, impacting an estimated 3 million children across the globe. The company has worked with Hasbro Children's Hospital, a division of Rhode Island Hospital, and the Hasbro Children's Fund for generations.
Each holiday season, its employees meet at corporate headquarters to wrap toys to give out to children. On Dec. 15, the company held an all-employee volunteer day. A few days later, Verrecchia and Hassenfeld both walked through Hasbro Children's Hospital to hand out toys to children and visit with parents. The routine has become a ritual for the duo each holiday season.
And the dynamic between giving and profiting is real at Hasbro, which, like other companies in the toy industry, is still largely dependent on fourth-quarter performance, "where the game is won or lost," according to Verrecchia.
This year, following Black Friday, Hasbro's Nerf brand, which is typically a type of foam-based weaponry, was among the most-purchased toys. TheStreet Inc., a financial news and services website, listed three Nerf toys as the "must buys" of the season, which could help boost fourth-quarter sales for the company. The company could also see a boost in "Star Wars" toys following the Dec. 16 release of "Rogue One: A Star Wars Story," the first standalone film in the "Star Wars" anthology.
"The fourth quarter makes or breaks it for a lot of production lines," Verrecchia said. "It's very, very important."
Last year, "Star Wars" and "Jurrassic World" merchandise helped the company top analysts' estimates and post profit totaling $446.9 million. The year before, Transformers, Nerf and Marvel products helped fuel a 45 percent increase in profit for the year, totaling $415.9 million.
In recent years, including this one, top-selling gifts have included toys designed for girls, including those based on Walt Disney's hit animated film "Frozen" and the expansion of Hasbro's My Little Pony brand. The strategy makes the company less reliant on the successes of toys for boys, and expands its customer base to be more gender inclusive.
"Fifteen years ago, people would think of us as a boys' toys business," Goldner said. "It was a personal goal of mine to grow a big girls' toys business."
Goldner and his predecessors also believe there's an intrinsic connection between being in the toy industry and being a good corporate citizen, which aligns with the company's basic mission to empower its customers: children and families.
"Whether you like it or not, Christmas is magical," Hassenfeld said. "Do I believe in Santa Claus? Of course, I do. I like to think I have a little bit of his DNA in me. It's the one day of the year that I really do think that people still think about peace and goodwill." •