Subject:
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LEGO® Ready to Build Profit
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Newsgroups:
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lugnet.general
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Date:
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Tue, 4 Nov 2003 00:17:37 GMT
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Viewed:
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962 times
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From Financial Times
LEGO® Hopes Pieces Are in Place to Build Profit
Even strong brands cannot stand still, and 2003 has been a significant year in
the 71-year history of LEGO® Company, the iconic Danish group.
Recent months have seen a new branding strategy, a girls’ line called Clikits™,
new retail outlets, a partly funded children’s program on BBC TV and release of
the first LEGO-themed film.
Now, in the brand’s busiest season — the 12-week run-up to Christmas generates
about 50% of annual toy sales — LEGO® faces a test of whether it is back on
course for long-term, double-digit earnings growth after over-diversification
led to its first loss, of about $44 million, in 1998.
“It’s always tempting to leverage a brand such as Lego into new areas,” said
Francesco Ciccolella, LEGO senior vice president for corporate development. “But
in the 1990s, we didn’t have the right expertise or know-how to do it. We lost
money. And we came too close to milking the brand.”
Computer games and the rise of entertainment merchandising targeting children
had left LEGO struggling to keep its traditional audience of small boys and to
find new customers.
The world’s fourth-largest toy manufacturer in terms of revenue took drastic
action. It withdrew many of its newest manufacturing lines, such as clothing,
bags and accessories, opting instead for licensing deals with third parties. And
in 1999 it began a new focus on intellectual property, striking its first
Hollywood alliances (with Walt Disney Co. and Lucasfilm Ltd.) for branded
products. In 2001, LEGO Media formed an alliance with video game firm Electronic
Arts Inc.
Perhaps most important, the brand began developing original characters to build
with LEGO products, landscapes for the characters to inhabit and background
stories. This led directly to Bionicle, now Lego’s best-selling line. Each
Bionicle kit allows children to create a robot character out of packaged
components. Last month, “Bionicle: Mask of Light,” an animated film by Miramax
Film Corp., was released on DVD. A second film is in development, and there is
talk of theatrical release for a third.
Profit recovered, last year rising 17%. But the new direction seems a long way
from LEGO founding philosophy and the humble plastic-studded building brick. So
is the business at risk of again overstretching the LEGO brand heritage?
“Not at all,” Ciccolella said. “This new brand architecture ensures we don’t
make the same mistakes again, and that we maintain the core product and
legitimate extensions of it. Of course, for many people the biggest part of the
brand equity is the brick — which is why we must ensure a significant proportion
of the business stays in the brick arena.”
Ciccolella pointed to the recent relaunch of LEGO classic products and to new
lines such as LEGP Sports, the fruits of alliances struck with the National
Basketball Assn. and the National Hockey League. For girls, the Clikits line
offers pastel-colored bricks for creating designs for bags and jewelry. And the
company is considering whether to market LEGO Serious Play, a management
training tool for adults, to a wider audience.
Moving further into the software arena while nurturing its core, brick-based
products will require a careful balancing act. So will staying true to the
company’s family values in sectors of the market where violent action games now
rule. The company’s name comes from the first letters of the Danish words leg
godt, meaning “play well.”
“There are certain things our rivals do that we never would, for ethical
reasons,” Ciccolella said.
-end of report-
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