Lego Creates Building Blocks for Growth
Danish toymaker Lego is building on its base of plastic bricks by expanding into children’s clothing, theme parks--even Christmas ornaments.
“We’re moving outside of toys,” said Michael Moore, Lego U.K. marketing manager. “That is where there will be a lot of growth in the future.”
In the U.S., the privately owned toymaker is considering adding wristwatches and computer software to its existing line of toys, bed linens and Christmas ornaments.
As the toy market becomes increasingly competitive and retail sales sag, even during the holiday season, Lego--a contraction for the Danish words meaning “let’s play”--has a blueprint for growth that stresses diversification.
“The market isn’t quite saturated but it’s becoming more difficult to gain [market] share,” said Anna Scott, a consultant at the marketing research company NPD Group Worldwide Inc. “Many companies are finding they need to diversify.”
Lego’s traditional 85% share of the construction-toy market is eroding slightly as more competitors introduce similar products, said Peter Brown, president of K’Nex International, a rival toymaker.
“We’re making inroads in an expanding market,” he said.
K’Nex, made by U.S. Connector Set Toy Co. and sold outside North America by Hasbro Inc., now has about a 14% share, Brown said. Remco Toy’s Steel Tec also is trying to carve out a niche.
Meanwhile, Lego is looking at other businesses for growth. Recently, it:
* Introduced Kids’ Wear clothing outside Scandinavia, starting in Holland and the United Kingdom. The clothes are made under license by the Danish clothing maker Kabooki.
* Licensed U.S. and U.K. companies to publish Duplo Playbooks. Duplo is Lego’s line of preschool blocks.
* Extended its toy line to include simpler stacking kits for infants and sophisticated electronic constructions sets for teenagers.
* Started building Legoland theme parks in England and California.
“We could envisage a time when we have expanded a number of areas so much that toys might not be the only really big product we have,” Moore said.
Lego has built a toy empire worth an estimated $1 billion out of boldly colored, plastic blocks and now more sophisticated electronic construction sets. Children use them to build houses, cars, rocket ships or whatever their imagination suggests. The company, family-owned since it was founded 63 years ago, doesn’t reveal its sales or profits.
Kabooki, under license, introduced Lego-themed Kids’ Wear clothes in Scandinavia last year. The children’s apparel line, already on sale in Britain, soon will be introduced to Austria and Germany.
The children’s clothes, primarily in Lego’s basic yellow, red, blue, white and black colors, are designed for infants to 10-year-olds.
“Being able to promote your logo has been proven a major crowd pleaser for such companies as Coca-Cola and Walt Disney,” said Burnham Securities analyst David Leibowitz. “When properly done, licensing certainly has a halo effect on the core brand.”
Little, Brown & Co. in the U.S. and Reed International Plc in Britain are jointly publishing new Lego Duplo Playbooks complete with plastic bricks and animal-shaped characters. Duplo is Lego’s preschool line of products.
Boston publisher Little, Brown, which printed 800,000 Duplo Playbooks, said the eight titles--including “Jack and the Beanstalk,” “If I Were Bigger” and “Lucy’s Birthday”--have sold well since being introduced in the United States in September. Two new books will be introduced this spring, Little, Brown said.
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Lego, which is headed by President and Chairman Kjeld Kirk Kristiansen, the grandson of founder Ole Kirk Kristiansen, may introduce books in other countries.
The toy company remains committed to adding Legolands.
“We hope to build a new one somewhere around the world every three years,” Moore said.
At the company’s original Legoland in Billund, Denmark, some 38 million plastic bricks were used to shape elephants and gorillas along with replicas of Mt. Rushmore, the Statue of Liberty and the Taj Mahal.
“Legoland is Denmark’s second-largest tourist attraction, after Tivoli Gardens in Copenhagen,” Leibowitz said. “The opportunity to clone that concept makes a lot of sense.”
Lego’s first theme park venture outside Denmark opens in April, down the road from the queen’s castle in Windsor, England, at the former site of Windsor Safari Park. Another is being built in Carlsbad, Calif., near San Diego.
The parks will also feature subdued rides, such as kid-size plastic cars, and supervised workshops where children can dig into millions of bricks to concoct their own personal creations.
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Adults can play too but the entertainment is primarily aimed at 2- to 16-year-olds. No roller coasters or scary grown-up amusements are planned, in contrast to Walt Disney Co.’s Disneyland and Boston Ventures’ Six Flags.
“Legolands don’t have to be as large as, or have the attendance figures of, Disneyland to be very successful,” Leibowitz said.
Lego is investing $100 million in its California theme park, much less than the $5 billion Disney has spent on its Disneyland Paris park and nearby hotels.
Because Legoland won’t provide financial details, it’s not known if this expansion is necessary to support declining toy sales. But toy stores aren’t complaining.
“Lego is one of our top three sellers again this Christmas,” said Eva Saltman, spokeswoman for Hamleys Plc, London’s leading toy store. “Lego remains popular because it keeps updating and improving the range.”
Mattel Inc.’s Barbie and Bandai’s Power Rangers are the other two biggest sellers at Hamleys, Britain’s largest toy store.
In the U.S., where it already makes Lego-shaped Christmas-tree ornaments with Hallmark Cards Inc., the Danish company is considering introducing watches. Some would match Duplo Playbook themes, said David Lafrennie, a spokesman at the company’s U.S. headquarters in Enfield, Conn.
Lafrennie also said computer software is under development, but he wouldn’t reveal specifics.
Last year, Lego shocked some loyal customers, who admired it for its unisex and politically correct toys, by introducing an all-pink, gender-specific Bellville construction set for girls.
For the most part, though, Lego is respected, even by its rivals.
“It’s the most professional company one could hope to compete against,” Brown said of K’Nex, which this week announced plans to build a 115,000-square-feet toy factory in southeast England, near the Channel Tunnel.
“Lego has this marvelous knack of putting more play value in the box time after time than almost any other toy company,” said Burnham Securities’ Leibowitz.
This year, Lego introduced its Duplo Primo stacking toys for children as young as six months. At the other end, it has added computer-chip-controlled Technic sets for 12- to 16-year-olds.
“Lego has the virtue of cutting across all age groups,” Leibowitz said. “Its brand new line for infants is one of the hotter-selling products this year and, at the other extreme, an MIT professor has used Lego as part of the classwork.”
