IT’S TIME TO PLAY BY THE RULES

A look into how circular economy practises can be applied to address critical climate change issues facing Mattel, a global toy producer.

The circular economy rethinks the economic model that we, as consumers and businesses, operate under today. It is a proposed solution to many of the issues driving climate change, to reducing emissions of greenhouse gases and resource usage[i]. The European Commission estimates the adoption of legislations contained in its 2015 Circular Economy Package could avoid 600 million tonnes of CO2 equivalent emissions by 2035[ii]. The goal of the circular economy, instead of minimising the flow of materials from cradle-to-grave (i.e. the product use cycle), is to create ‘cradle-to-cradle’ systems whereby materials are re-used across multiple cycles, accumulating intelligence or being upcycled[iii] (Appendix 1).

Mattel, a global producer of popular children’s toys, is increasingly facing the need to ‘circularise’ its operations and reduce its footprint in light of climate change. Plastic, an oil based product, is one of the most common component materials in Mattel’s products. In Europe, it was identified that less than 25% of collected plastic waste is recycled and 50% goes to landfill. Given this, the EU has made plastics a priority in its Action Plan for the Circular Economy[iv], and Scotland has mandated that no more than 5% of waste can go to landfill[v]. Mattel additionally faces pressures outside the regulatory environment. Greenpeace attacked Mattel in a high profile video media campaign (click link for video) for its participation in rainforest deforestation[vi]. Mattel must respond to this call for action and look for ways to increase its circularity, which will have significant effects on its operating model.

To respond, Mattel must focus on three priority areas:

  1. Improve the environmental performance of its production and distribution operations (increased efficiency, increased use of renewable energy, reduced waste);
  2. Increase use of sustainable materials as inputs and reduce volume of materials in products;
  3. Identify opportunities to increase end of life recycling, and encourage re-use or up-cycling

By pro-actively addressing these priorities, Mattel will benefit from the cost savings of sustainable investments. It will be positioned to shape future plastics regulations for toy producers. Finally, Mattel will have a new way to engage with its consumers, new product lines may develop, and its reputation will be preserved. These opportunities reverse to become risks if Mattel does not respond to the call for action. Perhaps most importantly, Mattel could lose its ‘license to operate’ as a business if it delays action and later cannot innovate in time to find sustainable alternatives to plastics to respond to regulations.

Mattel is taking some steps in the right direction. Three supply chain SPIs (Sustainable Performance Indicators) have been introduced and investment made in new manufacturing equipment, better managerial practices and maintenance such that since 2008, energy consumption per unit of sales has reduced 44%, water usage has reduced by 59% and waste generation by 36%[vii].

In addition, Mattel has directly begun to address the sustainability of their products. Between 2011-14, Mattel increased the efficiency of its packaging by ~16%, and increased sales of products that incorporate environmental enhancement through innovation to $32mn between 2012-14, thereby meeting their 2015 goals[viii]. In response to the Greenpeace campaign, Mattel has also introduced sustainable sourcing principles.

Whilst Mattel has made some progress against priorities (1) and (2) outlined, it has failed to address (3), and its goals across the board are insubstantial. Mattel’s sustainability charts (see Exhibit 1) clearly indicate that using normalised measures is insufficient, as carbon emissions, energy usage and waste have all increased over time. Similarly, the achievement of $32mn of products incorporating environmental enhancement is in the context of $5.7bn in annual sales[ix]. Mattel must do more.

Exhibit 1: Outcomes of Mattel’s existing sustainability initiatives

Exhibit 1

First, Mattel needs to increase the amount of renewable energy used in their production and distribution. Next and critically, Mattel must explore ways to replace the plastic in their products with sustainable materials. This presents a challenge as toy-makers face a double bind: they have to comply with more stringent materials regulations for children, and resolve the issue that most bio-based alternatives do not possess the exact properties desirable for toy production (e.g. colouring, durability). However, as evidenced by Coca-Cola’s 100% PET based bottle[x], it is possible to identify working alternatives. This belief is echoed by LEGO, Mattel’s primary competitor, through their investment in a Sustainable Materials Centre to research and develop alternatives to petroleum-based materials[xi]. Finally, Mattel must explore ways to increase re-use at the end of life of their products, as well as collection mechanisms to increase recycling.

These actions will have effects on Mattel’s operating model. However, by making this investment, Mattel will upholding its role as a corporate citizen, it will be playing by the rules of a new sustainable world.

Appendix 1: Model of a Circular Economy

Circular Economy Model

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[i] European Commission, (2015), Closing the Loop – An EU action plan for the Circular Economy, <http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0614>

[ii] Bourguignon, D. (2016), European Parliament Briefing: Closing the Loop – New Circular Economy Package, Members Research Service, <http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/573899/EPRS_BRI(2016)573899_EN.pdf>

[iii] Ellen MacArthur Foundation, (2012), Efficiency vs Effectiveness, <https://www.ellenmacarthurfoundation.org/circular-economy/interactive-diagram/efficiency-vs-effectiveness>

[iv] European Commission, (2015), Closing the Loop – An EU action plan for the Circular Economy, <http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0614>

[v] Scottish Government, Making Things Last – A Circular Economy Strategy for Scotland, <http://www.gov.scot/Publications/2016/02/1761/17>

[vi] Greenpeace, Stop Destroying Rainforests for Toy Packaging – Ken leaving Barbie, <http://www.greenpeace.org/international/en/campaigns/forests/asia-pacific/barbie/>

[vii] Mattel, Citizenship – Responsible Supply Chain, <http://citizenship.mattel.com/responsible-supply-chain/>

[viii] Mattel, Citizenship – Progress Report, <http://citizenship.mattel.com/progress-report/>

[ix] Mattel, Annual Report – 2015, <http://files.shareholder.com/downloads/MAT/3154270846x0x884386/BB030C82-FB73-48B8-AFF7-42D39E9E66C6/Mattel_2015_AR_Bookmarked_PDF.PDF>

[x] Coca-Cola Company, (2012), PlantBottle: Frequently Asked Questions, <http://www.coca-colacompany.com/stories/plantbottle-frequently-asked-questions>

[xi] LEGO Group, (2015), Lego Group to Invest 1 Bn DKK Boosting Search for Sustainable Materials, <https://www.lego.com/en-us/aboutus/news-room/2015/june/sustainable-materials-centre>

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9 thoughts on “IT’S TIME TO PLAY BY THE RULES

  1. Thanks for this interesting take on an industry leader who seems to be falling behind in sustainability goals. What strikes me most about the opportunities for Mattel is the relatively easy opportunity for it to “sell” sustainable practices to the consumer in the form of higher prices. This is partly a function of their products: for many people in the U.S., at least, the Barbie doll is practically the definition of toys for young girls. Therefore, I can only assume that the demand for Barbie dolls is fairly price inelastic.

    But customer demand aside, Mattel has such an easy marketing win if it works to promote sustainable practices now. As we have seen in Marketing, the easiest wins that galvanize even really diverse groups of people behind your product are those that emphasize building a better future for children (think Dove, or the Hillary Clinton commercial “Role Models”). Mattel could so easily market slightly more expensive, sustainably manufactured products as not only being good for your children now, but also good for their future. They are especially in danger if Lego, who as you note is ahead in adopting circular economy practices, starts to do this first. Combining the marketshare imperative with the economic regulatory environment that is mandating adoption of circular economy models, it seems like many incentives are aligning to have Mattel update their practices. What do you think has held them back so far? What would it take to get them to address this in a proactive manner?

  2. It seems as though Mattel can learn a few marketing lessons from that Greenpeace video! I like the idea of thinking about Mattel’s opportunities through the circular economy lens. I think that it presents an opportunity for both parents and children to get behind the sustainability movement. Parents want a safe, environmentally stable, world for their children, while children outgrow their toys very quickly when they are young. I believe Mattel is therefore perfectly positioned to be a market leader with a consumer-driven recycling campaign for toys. In addition, if they make this investment in managing a recycled toy program, it would likely pay off in profit as well as they could lower their raw materials cost by essentially asking for them for free (i.e. customers donating toys back to the company). I do wonder if Mattel is too late here though, and if parents have begun to shift their limited dollars to other companies.

  3. Thank you for the very insightful post. The circular economy concept is a great way for businesses to evaluate how they may reduce their environmental footprint. I agree that Mattel must take on the responsibility of finding a more a sustainable solution to the large quantities of plastic used in their toys. I also recently learnt that Mattel is considered to be one of the largest apparel manufacturers in the world. Close to 95 million Barbies are sold per year and over 105 million yards of fabric have been used to make Barbie’s clothing! There is potential for Mattel to reduce their ecological impact in the near term by shifting to 100% organic cotton and procuring sustainably on this front as well.

  4. Well done, Shaun! I think this is a really creative and thoughtful topic. I agree with another classmate’s comment that if done correctly, Mattel will likely see a huge marketing win because of the way it’s consumers (parents making purchases) value the end user (their own children). It also seems as though brands that take on this challenge of going all-natural, chemical-free etc. (using foods that remove artificial dyes as an example) face the initial concern that product quality or perception will suffer. I wonder if Mattel could combat this by building stronger brand awareness around the environmentally friendly nature of its new toys? Also, using the Barbie image as an example, I would be interested to see whether character Barbies that care about the environment or larger social / global issues would see market success that would encourage Mattel to continue advancing in this space?

  5. What a disappointment!! The facts and information at the beginning of the blog were very hopeful, but it looks as though Mattel has not executed in actually improving its sustainability. Why have emissions and waste gone up instead of down? I wonder if Mattel has disclosed the reasons behind these charts.

    Additionally, I question why Mattel has not addressed the third goal. From a PR perspective, the third goal would be highly beneficial to the company’s reputation. It also provides an avenue for Mattel to connect with customers and get the dialogue going. Like some other posters here, I would encourage them to pursue this third avenue more aggressively.

  6. Given that Mattel is already falling behind on achieving its sustainability goal I see a bleak future for the company. Sustainability might not be a major concern for most parents in their purchasing (relative to Barbie’s enormous brand value) I believe that further government legislation through landfill quotas or even a “plastic” tax will impact Mattel’s bottom line in the future.

    European competitors (e.g. Lego) facing stricter government regulation may build up a core competency outside of their core space that may come to benefit them hugely in the medium to long run. Mattel, facing fewer regulatory pressures, may seemingly be better off in the short run but might risk missing this trend altogether. Once negative PR and consumer consciousness will impact the top line it may be too late to shift with competition having pulled ahead. So the key question is how Mattel can portrait the required urgency in this matter without facing the same regulatory pressures.

  7. Are there any alternative materials in dolls like Barbie that have proven effective and consumer friendly? In other words is there a set of materials that Mattel could conceivably replace plastics with or are they going to have to invent this new material? If it’s the latter, the prospects don’t look too good, especially as material science is likely outside of Mattel’s wheelhouse…

  8. Interesting article. I wonder Mattel has considered offering discounts on future purchases with the return of used toy. Moving forward I think it is the responsibility of the companies that create consumer products to promote product recycling through discount programs. There is a path to implement such a program that would net value for both the supplier and the consumer, rather than having the product end up in a landfill. This principle is worth further study since it can be applied to a wide variety of industries with varying levels of waste and recycling opportunity.

  9. Excellent post, Shaun. Very thorough and insightful discussion. It is interesting to see how heavily Mattel is being pushed by regulatory requirements and activist pressure in comparison to businesses in other industries that have been evaluated in this challenge.

    Beyond their (seemingly mostly involuntary) sustainability efforts, I would also be interested in evaluating the challenges that will be posed to Mattel’s operations by climate change in the long term future, potentially such as:
    – Increasing raw material costs. It sounds as if their primarily inputs are petroleum-derived products. How do you expect the supply chain and raw material costs may be impacted due climate change?
    – Potential future regulations. Imposed requirements on packaging materials or greenhouse gas emissions may further impact Mattel’s manufacturing, packaging, and distribution processes (particularly costs). Where do you see this headed?

    Thanks for the great post!

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