How Hasbro Stays Relevant

There was a time when the word "game" invoked the image of children playing cards quietly around a table, or perhaps fetching a dusty chess set from under the stairs. Nowadays, it refers to high-octane digital epics with budgets (and revenues) to rival, or indeed surpass, Hollywood blockbusters. The new gaming landscape is dominated by cool and glamorous companies such as Take-Two Interactive (NASDAQ: TTWO) and Activision Blizzard (NASDAQ: ATVI). While the older industry of toys and board games may not be as obviously exciting, it has shown remarkable resilience in the face of these highly-addictive new technologies. No company demonstrates this ability to remain relevant despite the odds better than Hasbro (NASDAQ: HAS).

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A couple of weeks ago, Hasbro made headlines when it purchased Entertainment One in a $4 billion all-cash deal. The deal gives the company access to a number of valuable brands, most notably the children's character Peppa Pig and, funnily enough, Death Row Records. It was the latest episode in the toymaker's long history of partnering with the most iconic brands in the entertainment industry, which now includes Star Wars, Frozen, the Marvel universe, and Fortnite. More interesting, though, is the company's exceptional ability to keep its older, more traditional lineup of products relevant in a world of virtual reality and billion-dollar franchises.

Founded in 1923, Hasbro has been manufacturing some of the world's best-loved children's toys for almost a century. The company's first hit product was the classic Mr. Potato Head, which incidentally became the first toy to be advertised on television. Far from a passing fad, Mr. Potato Head went on to run for the mayoralty of Boise, Idaho, to star in his own short-lived TV series, and, of course, to feature in Pixar's 'Toy Story' series. The character takes his place alongside other timeless Hasbro favorites such as Jenga, Monopoly, and Play-Doh as a toy that seems to renew itself for each successive generation.

Play-Doh is a particularly interesting case here. First manufactured as a domestic wallpaper cleaner in the 1930s, and eventually launched as a plaything in 1956, the putty-like modeling substance seemed an unlikely candidate for the toy of the century. But in many ways, it has proven to be so. By the time Hasbro acquired the brand from the (now defunct) toymaker Kenner Products in 1991, Play-Doh was one of the best-known toys on the planet. The company declined to tinker with the product's winning formula, and by Play-Doh's sixtieth anniversary in 2016, it was revealed that 3 billion cans had been sold to date. On that occasion, company executive Greg Lombardo said that the success of Play-Doh lay in its ability to evolve "to meet kids' ever-changing play styles while continuing to deliver imaginative and open-ended play experiences which we know are very important to parents."

One of the ways Hasbro has evolved is through the use of what we might call "meta-branding," which is the process of building new brand power through the mischievous use of pre-existing brand power.

Since the company is old enough to have seen its underage consumers grow into parents themselves -- and indeed, into grandparents -- a potent resource it exploits is the nostalgia which its products inspire. Play-Doh is firmly ingrained in popular culture, which allows it to make use of its own ubiquity by appealing to the childhoods of adult buyers. It was for this reason that the company launched a humorous "eau de Play-Doh" fragrance in 2006, a stunt it took even further last year when it actually patented the product's distinctive smell. Another example of this meta-branding in action came with the 2018 launch of a "Cheater's Edition" of Monopoly, apparently in response to a study revealing that more than half of Monopoly players had admitted to cheating at the game.

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A major setback for Hasbro was last year's closure of Toys'R'Us. Deprived of a massive customer, the company saw its sales plunge by 12%, while it was forced to stomach $60 million in bad-debt expenses. Hasbro's eOne deal, as well as its recent alliance with Netflix (NASDAQ: NFLX) to produce an animated series based on trading card game 'Magic: The Gathering', demonstrate the creative ways the company is leveraging its brand power as it recovers from the Toys'R'Us calamity.

"Our consumers have grown up with our brands," says Victor Lee, Hasbro's Senior Vice President of Digital Marketing. "The power of storytelling has to provide a strong emotional connection which not only reminds them of the fun we've given them when they were kids but also encourages them to share that fun with their kids."

With its mixture of nostalgia, innovation, and playfulness, Hasbro's marketing genius has kept its simplest products alive for each generation, even as it pushes its boat into unknown new waters. This almost century-old company may lack the wow-factor of its tech-savvy successors, but investors should always pay attention to a company that manages to remain at the top of its industry for so long. After all, it might just stay there.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold no positions in Hasbro. Read our full disclosure policy here.