Innovation
Global Investor Focus, 02/2007 Credit Suisse
Global Investor Focus, 02/2007
Credit Suisse
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GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 40<br />
Education<br />
Toys<br />
Bright Horizons Family Solutions<br />
BFAM US<br />
A leading provider of day-care and educational services delivered in partnership with employers and<br />
located on corporate campuses.<br />
BUY<br />
Nike<br />
NKE US<br />
BUY<br />
The Nike brand is synonymous with quality,<br />
performance and innovation. Broad-based<br />
growth initiatives position it well for the future.<br />
Mattel<br />
MAT US<br />
HOLD<br />
Dominant toy maker Mattel has a strong new<br />
product cycle, excellent brand awareness and<br />
a key licensing/marketing tie-in with Disney.<br />
New Oriental Education<br />
EDU US<br />
Well positioned to grow in an emerging<br />
industry.<br />
HOLD<br />
Pearson<br />
PSON LN<br />
HOLD<br />
Pearson is able to deliver strong results thanks<br />
to the improved competitive positioning of its<br />
portfolio of operations, especially in education.<br />
Marvel Entertainment<br />
MVL US<br />
BUY<br />
Marvel should benefit from exciting new<br />
media content over both the near and long<br />
term, plus a tie-in with Hasbro.<br />
Hasbro<br />
HAS US<br />
HOLD<br />
Hasbro results strengthen on the back of its<br />
Spider-Man and Transformer franchises, as<br />
well as on innovation and interactive learning.<br />
Build-A-Bear<br />
BBW US<br />
Build-A-Bear is a leader in toy customization, offering customers the ability to make their own<br />
stuffed animals in an interactive environment.<br />
BUY<br />
The move toward a knowledge-based economy, shifting demographic<br />
trends and the opening up of global markets are the cornerstones<br />
of a changing landscape for education providers. According<br />
to UNESCO and the OECD, the number of students in<br />
middle-income countries seeking higher education is skyrocketing,<br />
with enrollments jumping by 77% over the past decade, compared<br />
to 43% in high-income countries.<br />
As emerging markets develop, so demand from the service<br />
sector for highly educated workers increases, often at a faster<br />
rate than the existing education system can absorb. One solution<br />
to this shortfall is for companies to build their own education infrastructure,<br />
a measure that has been employed in India – one of<br />
the first big emerging markets to face this challenge.<br />
In fact, India possesses some of the world’s most renowned<br />
universities and higher education is not its largest problem. The<br />
country has even bigger challenges at the primary education level,<br />
and here too, the private sector is starting to play a large role,<br />
complementing rising government investment.<br />
Meanwhile, China’s dynamic and fast-growing economy is<br />
emerging as the world’s most challenging and potentially lucrative<br />
education market. According to some estimates, the sector could<br />
be valued at more than USD 70 billion. The country has a huge<br />
unmet demand for post-secondary education, and while the private<br />
education market is still very small, there is sizable potential<br />
for further growth.<br />
The big US education market also continues to offer investment<br />
opportunities. Here, shifting demographic trends will play an<br />
important role in shaping the development of post-secondary education<br />
companies. Steven Soranno<br />
The world’s largest toy manufacturers have made dramatic<br />
changes to their business plans to meet the demands of Generation<br />
X and Y consumers for more personal service and customized<br />
offerings. While innovation has forever been the credo<br />
of the toy industry, individual customization is a trend that has<br />
really gained significant momentum in the last five years.<br />
Mattel, the world’s largest toy maker, has revolutionized the<br />
doll category through its American Girl division (acquired in<br />
1998 and with 2006 revenues of USD 440 million). Every girl<br />
can now find and design a Just Like You doll that matches her<br />
own spirit and appearance through customization of hair and<br />
eye color and skin tone, as well as outfits and accessories<br />
(both girl and doll sizes to match). Mattel plans to open several<br />
American Girl boutique units in select US cities in 2007/2008,<br />
adding to three destination stores in Los Angeles, Chicago and<br />
New York. In 2006, Mattel developed a Hot Wheels custom<br />
car factory at the famous FAO Schwarz toy store in New York<br />
City, where a child can design a car and have it manufactured<br />
within ten minutes. Also, Mattel’s Radica unit changed the landscape<br />
of the electronic toy industry in 1999 with a line of breakthrough<br />
products for girls, some using voice recognition and<br />
others offering customization of design and outcomes. Perhaps<br />
one of the most striking examples of customization in the toy<br />
industry has been by Lego (a privately held company) with its<br />
www.LEGOFactory.com website launched in 2005. Here, one<br />
can design a unique 3-D Lego model, name it, create the<br />
graphics for the packaging, and have the entire model built and<br />
shipped to their home. Other users can also modify someone<br />
else’s design, and Lego reserves the right to mass-produce an<br />
original model designed by a consumer.<br />
Build-A-Bear, founded in 1997, has grown to 300 stores<br />
with USD 500 million in sales worldwide, and has followed Mattel’s<br />
lead in dolls by dominating the customized plush animal<br />
segment, while Hasbro has teamed up with Marvel Entertainment<br />
in the customizable action-figure category geared toward<br />
boys. In a related leisure industry, Nike consumers have been<br />
able to design their own athletic shoes via the Internet since late<br />
2005. David A. Williamson<br />
Source: Credit Suisse