New Heritage Doll Company Case Study

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REVISED: 11/05/10

O NL IN E SI MU LA TIO N F OR EG R OU ND R E A D IN G

Finance: Capital Budgeting
Company and Industry Overview
The New Heritage Doll Company, based in Sacramento, California, was a privately held company
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Competition among doll producers was vigorous, as a small number of large producers targeted similar demographics and marketed their dolls through the same media. Lasting franchise value for a branded line of dolls was rare; the enormous success of Barbie® dolls was an obvious exception.
More recently and on a much smaller scale, New Heritage also had created a durable franchise for its line of heirloom dolls. However, the popularity of most doll lines waned after a few years.
New Heritage’s Production Division
New Heritage Doll Co. had three operating divisions: a doll and doll‐accessory production division, a retailing division, and a licensing division. New Heritage’s doll production division designed and assembled dolls, doll accessories, and children’s accessories into finished product and then packaged them for shipment. The production division generated $125 million in revenue and
$7.5 million in operating profit a year.1 Seventy‐five percent of its sales were internal, to
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To achieve this goal, the CEO encouraged expansive and innovative ideas and was very protective of the creative process.
However, she was also very clear that businesses were expected to meet financial objectives.
The product division’s long‐term strategy involved building on its core expertise in doll and accessory design and development in order to expand and deepen its offerings to two key demographic customer segments—toddlers/young girls and tweens—each of which offered various opportunities for growth. New Heritage’s retail division strategy was to expand geographically within the United States across all three channels. In the United States, the company planned to continue to invest in its “retail as entertainment” concept through store expansion. However, Asia and Europe were also considered strategic markets as the company sought to grow its international revenue. The strategy of the licensing division was to continue to grow revenue derived from New
Heritage’s core branded assets, but to do so in a reasonable way. The company recognized that as

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