Lego Defies Toy Maker Struggles By Embracing Technology

Lego Defies Toy Maker Struggles By Embracing Technology

Lego, the sets of interlocking plastic building blocks and other elements, have been around since the 1930s. Most of those reading this will have grown up with Lego as a staple of childhood entertainment. But unlike other most other toys popular with earlier generations, Lego has stood the test of time. In fact, its popularity has grown from generation to generation. So much so that the company behind Lego sets, also called Lego and still family-owned and based in the small central Danish town of Billund where it was founded, population just over 6000, is now the biggest toy company in the world – by both sales and profits.

Lego is in the somewhat unique position among toys of being loved by both youngsters and their parents. Mums, dads and other family members often retain their own childhood nostalgia for the brand as well as considering it as stimulating of creativity and problem solving skills. The result is they tend to be comfortable with their own children spending significant amounts of time engrossed in Lego play when they would be uneasy with the same time being devoted to other games – especially those of a digital variety.

And there are also even no small number of adults who continue to amuse themselves with Lego, albeit on an often grander scale, and don’t even have kids. Or if they do, their own Lego hobby is entirely independent to their offspring’s. Despite the rise of digital forms of entertainment and electronics-infused toys that have done for or reduced the popularity of many other more traditional brands, Lego’s popularity has remained not only intact but continuing to grow.

The company’s first dip in profits in a decade, in 2017, might have been seen as a sign that even the Danes are not impervious to the rising tide of higher tech toys featuring flashing lights, noises and often software. But it proved to be nothing more than a blip. In late August of this year, Lego’s chief executive Niels Christiansen announced 4% growth in profits over the first six months of the year. He also unveiled Lego’s grand plan to open a stunning 160 new stores before the end of this year. That will increase the bricks and mortar footprint of Lego’s own brand retail chain by 40% – within just a few months.

The move is of particular note in the context of the woes of other bricks and mortar toy retailers. Toys “R” Us and Top-Toy, another Nordic chain of toy stores and the region’s biggest, collapsed both collapsed in 2018. Their demise was put down to a combination of the companies losing out to e-commerce competition and physical toys simply not being as popular anymore as children’s ‘screen time’ inexorably increases. But Lego is growing its physical retail presence by 40% in one fell swoop. The investment is being funded by Lego choosing to take a 16% reduction in its operating profits. But as a private company sitting on a huge pile of cash, there are no obstacles to Lego taking such strategic decisions.

Lego’s reduced operating profit of $400 million compares with $164m in the first half for Hasbro, maker of My Little Pony and Transformers, and a loss of $182m at Mattel, owner of Barbie and Hot Wheels.

What Is Lego Doing Differently?

Is Lego’s seemingly ageless success simply a fortunate product of the ageless appeal of its product – Lego sets which either provide the pieces for a user to follow a design of anything from a car to castle or space station or general sets that users use their imagination to build whatever they decide from? With the former often subsequently being added to a general Lego pile which turns into the latter.

That’s obviously a factor. Lego undeniably hit upon a winning formula, the company managed to copyright, back in the 1930s. But it would be far too simplistic to say that is the most important factor behind why Lego is the biggest toy company in the world not far off a century later.

Commercial Nous In Moving With The Times

It might not be obvious in 2019 but it isn’t so long ago that Lego was going through something of a crisis as a company. In 2003, the company suffered its third loss in five years and sales were down by 30%. A major part of the company’s turnaround was expanding its range of licensed theme sets, which now account for a majority of revenue, even if classic sets also remain popular. Star Wars was one of the first hit licenses for the company and the company has been very successful in adding the licenses that are hot in popular culture at any given moment in time – from Lord of the Rings to Marvel.

Competing Against Technology While Embracing It

As successful as Lego’s approach to licensing has been in keeping it current with new generations of children, the company’s recent strategy of embracing technology is equally important. And will become ever more crucial in future years.

In an interview with licensing industry media License Global, executive chairman Jorgen Vig Knudstorp explained the crucial balance Lego is creating between the brand’s traditional, non-digital character and the realities of the digital world in which today’s children spend so much of their time:

“When we survey families that buy a lot of LEGO, one of the striking things we find is that the child’s other favourite toy is a computer game. So children really like both types of play. Typically, the families of LEGO fans will have some kind of rules about how the child spends its time. They won’t be allowed to sit on the couch watching five hours of TV each day, for example.

We have a two-pronged approach. In the same way that kids will always play soccer and run after a ball, they’ll always play with LEGO. Books, I believe, will never go away despite modern technology, and neither will LEGO. That’s a core belief in our strategy.

But we are aware that kids use mobile phones like never before and that ten years from now children’s bedrooms will be massively penetrated by wireless broadband. So we are making plans to improve our presence in the virtual space”. 

So how is Lego approaching its strategy of straddling the traditional and virtual games spaces? It is doing so in a number of different ways. One is by building online Lego communities such as legofactory.com. The portal allows Lego enthusiasts to design their own projects online then order the pieces required to build them. A ‘social’ community aspect has also been incorporated and users can post designs in a gallery or build their own pages through the website. The company even launches 4 new products a year based on the designs submitted by fans – winners get 1% of sales plus a licensing fee.

But even more significant than building online engagement between fans, particularly in light of the fact most young Lego fans list computer games alongside the plastic bricks as their favourite toy, are attempts to blend physical and digital play experiences. There are several popular Lego-licensed video games. And the company recently launched its Hidden Side series, which combines both physical sets with an augmented reality app. Each set connects with the app, adding a digital element of play like battling ghosts and helping to stop them taking over the town or one of a number of other narratives that come with different sets.

It is likely that Lego will make the odd misstep along the way as it transitions into a new age of bridging its traditional core with new, digital technology. And initial reviews of Hidden Side have been mixed. But few will bet against it hitting on a successful formula(s). It’s already survived almost a century of competition and come out of it as the biggest toy company in the world.

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