China Consumer

Pink profit?

US toymaker reins in expectations on Barbie sales at Shanghai megastore

Pink profit?

Looking, but not buying

It had to happen. First there was Shanghai Baby – an internationally best-selling novel – and then there was Shanghai Barbie.

Barbie, the iconic American doll, relocated to Shanghai in March. A six-story 3,500 square metre flagship store opened in time to celebrate her 50th anniversary.

The House of Barbie, as it was named, is located on the trendy Huaihai Road in Shanghai. It was in the planning for three years, and now carries all sorts of Barbie-themed merchandise in addition to the dolls themselves.

For instance, there’s a Vera Wang wedding dress designed exclusively in Barbie style. For brides keen to look like a plastic doll on one of the most important day of their lives, it can be made-to-order for a mere Rmb7 million ($1 million).

Likewise, there is also a Barbie-themed spa, cafe and a bar where Ken (Barbie’s other-half) shakes “Barbie-tinis” and “Glamour-politans”.

Barbie’s owners Mattel opted to open up in Shanghai in a bet that she would appeal best to Shanghai’s material girls. A sales boost was hoped for at a time in which consumers in other parts of the world were expected to be cutting back on spending.

But Mattel has now conceded that its China strategy might have been a little overambitious. Sales targets for the store have been cut by at least 30%, according to Bloomberg.

Industry observers say Mattel got it wrong. “They overestimated their brand recognition in China,” says Paul French, founder of Shanghai-based market research company Access Asia.

Mattel, the world’s largest toymaker, admits it has brought sales targets for the store down to between 65% and 70% of original expectations, says Dann Murphy, the general manager of the Barbie store.

Mattel originally intended for the store to generate more revenue from what it calls its “retail experience”.

That means the spa, the cocktails and the cafe, as well as activities in which kids can pretend to model clothes on a fashion runway or design their own dolls.

But storegoers do not seem sufficiently Barbie-bewitched to spend much on living her lifestyle. Business-school Barbie would probably tell you that her brand equity is not quite as strong in China as she hoped.

That’s not to say she does not have some allure. The store hasn’t been a total flop: more than 500,000 people visited it between the March 6 opening and October 9.

But many of the visitors are behaving more as sightseers. Fewer are making big purchases. “Attracting large numbers of people to your store in China is not hard but getting them to walk out with a bag with your name on it is a different story,” says French.

Still, Mattel seems determined to stay optimistic, not least with statistics showing that China’s general retail sales rose 15.3% in the January-October period from a year earlier. Domestic consumption is also expected to make up a bigger proportion of next year’s gross domestic product, says state-run news agency Xinhua.

Barbie is Mattel’s highest-margin product and about $3 billion worth of Barbie-branded products are sold every year. And Mattel is looking to China to offset dwindling sales in the US. Third-quarter profits fell 3.5% to $229.8 million as American parents cut spending on toys.

Other analysts say Mattel has misjudged the economics if it is hoping for mega sales. The real problem, says the Financial Times, is that China is still a poor country. The country’s 750 million rural citizens survive on an average income of Rmb4,761. To put that in perspective: it would buy you 12 Barbie dolls a year.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.