Commentary

Lego Likes What It's Building

Profits may be down, but Lego’s plans to rebuild for the future are taking shape, with global sales rising and expansion in China and elsewhere taking hold.

The toy maker reported yesterday that its “revenue rose 4% in the first half of 2019 but significant investments to grow its business in China and India led to a 12% drop in net profit. The privately held company reported first-half revenue of 14.8 billion kroner ($2.2 billion), while net profit dropped to 2.7 billion kroner ($400 million),” according to  the Associated Press.

“Lego was forced into a rethink in 2017 after it suffered a rare slump in sales and profits, and had to axe 1,400 jobs. The toy industry is battling the rise of digital devices that contributed to last year’s collapse of Toys R Us and resulted in Hasbro, the owner of My Little Pony and Play-Doh, buying the company behind Peppa Pig for [$4 billion] last month,” The Guardian’s Zoe Wood reminds us.

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“Models of superheroes and villains from Marvel’s ‘Avengers’ movies helped lift first-half sales at Lego, as the Danish toymaker continued its turnaround drive with investments in China, India, the internet and new stores. Lego said it gained share in its largest markets, with double-digit growth in China and single-digit growth in the United States and western Europe,” Reuters’ Jacob Gronholt-Pedersen and Nikolaj Skydsgaard write.

Reflecting on reality as malls become ghost towns and retailers declare bankruptcy, the headline in International Business Times reads: “Lego To Open 210 Stores Amid Retail Apocalypse.” 

But “‘you cannot say the physical experience is not necessary, just because more is bought online,’ [CEO Niels] Christiansen said, underlining the importance of ‘try-vertising,’ where kids test out new products in stores,” Reuters’ Gronholt-Pedersen and Skydsgaard report.

“It is really important in a country like China, where you have to build the brand. It’s a physical product,” Christiansen maintains.

Lego’s retail “expansion includes a flagship store it’s planning to open in Amsterdam this December, along with about 80 new stores in China. The plan puts Lego on track to have more than 140 stores across 35 cities in China by the end of this year. It’s also set to open in Mumbai, India, early next year. The openings will bring Lego’s store tally to nearly 600 locations globally,” writes CNBC’s Lauren Thomas.

“In the U.S., Lego has 91 stores, according to its website. The company didn’t break out how many of the 70 new stores outside of China planned for 2019 will be in North America. It’s been opening a handful in the U.S. each year, even before Toys R Us’ bankruptcy, in 2017,” Thomas continues.

Christiansen described kids as increasingly squeezed for time in an interview with The Wall Street Journal’s Saabira Chaudhuri.

“The biggest challenge is innovation. The good thing is physical play remains relevant, but it’s really a fight for children’s time,” Christiansen maintains.

“Despite remaining committed to its physical brick sets, Lego is creating more products that incorporate technology. In February, it launched building sets that become haunted versions of themselves when used with an augmented reality smartphone app. In April, it hired a chief digital officer who is focused on accelerating Lego’s use of technology for its bricks,” Chaudhuri writes.

Most interesting, perhaps, is Christiansen’s contention that Gen Alpha’s future success in the workplace depends on how well they do with their building blocks today.

“Play is more important than ever. When children play they learn skills that will be critical to their future success. The World Economic Forum estimates that 65% of kindergarten children today will have jobs that don’t yet exist. The only way children will succeed in this uncertain future is to have universal skills such as creativity, problem solving, resilience and collaboration -- skills developed from the earliest age through Lego play,” he states in the release announcing the interim results.

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