Lego thrives even as peers struggle

BLOCKBUSTER: Lego overtook Mattel in the first half of the year, partly thanks to The Lego Movie's (above) success.


    Oct 09, 2014

    Lego thrives even as peers struggle


    LEGO is making global domination look like child's play, as the world's biggest toy-maker puts the building blocks in place to lead rivals in Asia and buck an industry-wide revenue dip.

    The Danish toy juggernaut overtook Mattel in the first half of the year.

    That was partly thanks to the runaway success of The Lego Movie, which sent children scrambling for the coloured bricks, and partly because parents fell out of love with Mattel's Barbie, seen by some as promoting an unhealthy body image and outdated gender roles.

    "It has done something similar to what Apple has, which is known as transcending a category," said Niels Lunde, author of The Miracle At Lego, a Danish book about the company.

    "It doesn't just make toys, it also makes the stuff toys are made of. A Lego brick is not just a toy, it's also an educational material that stimulates children's creativity," he said.

    The children's market isn't always an easy game.

    More traditional-toy sales face competition from an onslaught of video games and smartphone apps - many of which are free - leaving industry giants such as Hasbro and Mattel scrambling to come up with a digital strategy.

    Lego, arguably, has gone the other way.

    In the 1990s, "it feared this primitive brick of plastic couldn't withstand the competition from the digital world", Mr Lunde said.

    It tried branching out into everything from video games to children's fashion, but this brought the group to the brink of bankruptcy. In 2004, Lego heir Kjeld Kirk Kristiansen was forced to inject 800 million kroner of his own money.

    Incoming chief executive Joergen Vig Knudstorp brought the company back to basics - bricks - but with the twist of earning licensing fees on things like Legoland theme parks.

    By the first half of this year, revenue had more than tripled since 2008.

    But at Mattel, sales continued to fall - by 9.1 per cent in the second quarter this year. Barbie sales have seen double-digit losses in four of the five past quarters, and the California-based group has been unable to compensate for the shortfall through other dolls.

    Perhaps the old adage of "if you can't beat them, join them" applies to Mattel's US$366 million (S$468 million) purchase in February of Canadian Lego clone Mega Bloks. That may have been a wise choice, as it prepares to face off against its Danish rival in the booming Chinese market.

    "In China, you have a nation of 'only' children and parents are willing to spend a lot," said James Button, consumer markets director at Shanghai-based consultancy SmithStreet.

    One difference from Western markets, however, is that Chinese parents are very focused on education, meaning toy-makers also compete for the time and money that families spend on schools and extracurricular classes.

    "Lego is going to play better with consumers because it does have some educational value," Mr Button said.

    Lego sales in China rose by more than 50 per cent in the first half of this year and the company began building its first factory in the country. It also opened a Shanghai office as part of plans to make its management more international.