The Bratz Designer Counterpunches Mattel

Toymaker Isaac Larian lost control of the Bratz dolls after a high-profile court battle last year. But the feisty 55-year-old entrepreneur is back with two new dolls. Once again he's taking on his archrival, Mattel (MAT).

In August, Larian's company, MGA Entertainment, launched Moxie Girlz, a line of fashion-focused dolls that let girls design clothes, style hair, and jam on little plastic guitars. They are aimed squarely at Mattel's Barbie business. In mid-September, Larian also launched Best Friends Club, a line of 18-inch-tall dolls that are designed to take share from Mattel's American Girl line of historically themed dolls. "Mattel thought it would kill MGA and have a doll monopoly," Larian says. "MGA came back with not one but two."

The competitive threat is significant enough that Gerrick Johnson, a toy-industry analyst at BMO Capital Markets, titled a recent report "Catfight in the Doll Aisle" and said Moxie Girlz and Liv, a new line from toymaker Spin Master, "put Barbie in a difficult catch-up situation that could have an adverse impact on MAT's sales and earnings." Mattel reported in July that its worldwide Barbie sales are down 15% for the second quarter due to the global recession and reduced inventories by toy retailers. The company says it has been gaining market share, though, in part because of a wave of special events tied to Barbie's 50th anniversary.

Recession pricingLarian designed the new dolls with the weaker economy in mind. While the Bratz dolls went to pretend discos in pricey plastic limos, Moxie Girlz ride in a $29 electric car. The Best Friends Club dolls have a suggested retail price of $39, a big difference from Mattel's American Girl line, where doll prices start at $95. Larian says he'll soon be running ads in magazines such as Parenting with the tagline "Your daughter's best friend shouldn't cost a fortune."

Much about doll marketing is different since the Bratz line hit the scene in 2001. The lobby of MGA's Van Nuys (Calif.), headquarters is decorated with photos of celebrities such as Paris Hilton and Jessica Alba posing at fancy parties with Bratz dolls. These days celeb-filled soirées are out. Instead, Larian is spending a significant amount of his marketing budget online at sites such as, a Web site where girls design virtual dolls. "It's a changing world," he says.

Retailers seem to be embracing the new lines. Toys 'R' Us has featured both Moxie and Best Friends in its circulars. On Oct. 3 the chain held in-store events where girls could win Moxie prizes. Jana O'Leary, a spokeswoman for Target (TGT), says Moxie is "absolutely meeting sales expectations" and that the business has increased since MGA began advertising the dolls on television in early September.

devastating verdictThe Larian/Mattel warfare dates to the Bratz launch. The dolls, which featured multi-ethnic looks, skimpy clothes, and urban attitude, sent Mattel's considerably more clean-cut Barbie reeling. After discovering that the Bratz dolls were created by a Mattel designer, the company sued and won rights to the line, plus $100 million in damages in a 2008 jury award. A key piece of evidence: a contract the designer signed that gave Mattel the rights to anything he created while working for the company. MGA is appealing the decision.

The verdict was devastating for Larian's privately held company. Bratz sales have collapsed as retailers have shunned the brand in anticipation of Mattel's takeover, expected next year. Larian had to lay off more than 200 employees—about a quarter of his staff. He says MGA now staggers under the weight of $300 million in debt, and he's fighting with insurance companies to get some coverage of both the $100 million he says he's spent in legal bills as well as the damages award. Larian is able to launch new dolls, he says, only because MGA still has positive cash flow.

The ordeal has taken a personal toll, too. Larian says he recently finished the Ayn Rand classic Atlas Shrugged, about a successful class of businesspeople oppressed by a socialist state. "I feel like I'm back in Iran," says Larian, who immigrated to the U.S. at age 17, washing dishes at a diner to put himself through engineering school. "I really want to settle this and get on with my life. It's negative energy," he says.

Still, Larian has learned a thing or two from his larger, litigious rival. Visitors to MGA's offices are now asked to sign a confidentiality agreement requiring that they get permission from MGA before discussing any trade secrets they may come across in their visit. "I borrowed a couple of paragraphs from Mattel," Larian says with a smile.

Before it's here, it's on the Bloomberg Terminal.