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THE YEAR OF THE LEGO
From: New Yorker
Nov. 11, 2013
By Ted Trautman
Earlier this year, LEGO overtook Hasbro to become the world’s second-largest
toymaker, after Mattel. It was more than just one company outperforming another
it was LEGO one brand generating more revenue than Hasbro’s sixty-eight brands,
which include G.I. Joe, Transformers, and Mr. Potato Head. While Hasbro and
Mattel have grown by creating and acquiring a diverse array of toys, LEGO has
adopted the opposite strategy: focus on the one, iconic product, but get more
kids to play with it. There is little room left for LEGO to grow in the United
States, where it already controls eighty-five per cent of the construction-toy
sector, besting imitators like Mattel, Mega Bloks and has beens such as Lincoln
Logs and Erector sets. LEGO revenue of nearly two billion dollars in the first
half of 2013 compared with $1.43 billion for Hasbro was boosted in large part by
its growth of seventy per cent in China. That country, where parents are
increasingly seeking out educational toys, has become the world’s second largest
toy market. The Asia-Pacific region will likely overtake North America as the
largest regional toy market sometime next year.
LEGO success in Asia wasn’t inevitable. In the nineteen nineties, the company
tried to follow the lead of its rivals by rampantly diversifying: the products
that came out of that included apparel, video games, and theme parks—all since
spun off. The strategy failed, and in 2004 the company nearly went bankrupt.
Afterward, though, LEGO made significant changes to its design staff, as David
Robertson and Bill Breen recount in “Brick by Brick: How LEGO Rewrote the Rules
of Innovation and Conquered the Global Toy Industry.” LEGO put a manager named
Per Hjuler in charge of the Concept Lab, where workers think up LEGO new
products; Hjuler found that the Lab’s staff “consisted solely of designers, most
of them Danish men, who were deft at conjuring clever concepts. But … they
didn’t understand the competitive environments that shaped the many markets LEGO
targeted,” Robertson and Breen write. Hjuler created a marketing team within the
Concept Lab, and deliberately hired a number of non-Danish designers, including
several from India and Japan. Since then, the company has painstakingly climbed
back to the top by expanding not its product line but its geographic reach.
Like most toys, LEGO facilitate what David Whitebread, a Cambridge University
psychologist, calls “pretense play” the invention of original narratives such as
sending Barbie to rescue Batman from under a soccer ball. But LEGO also promotes
“construction play” not found in dolls or board games, which calls upon the
child to be creative in a very literal sense: she must create the toy with which
she wants to play. Whereas a Transformer changes only from humanoid to vehicle
and back again, a pile of LEGO bricks can transform into anything a child
imagines. The combination of construction play and pretense play represent, in
Whitebread’s view, a “powerful context supporting the development of thinking
skills, problem-solving and creativity” all the way into young adulthood;
Cambridge’s engineering department, for example, makes “extensive use” of LEGO
as a teaching tool.
LEGO acknowledges the educational value of its marquee products, but is careful
not to let it overshadow Lego’s appeal as a source of diversion. “Of course we
believe in the educational values that are inherent in any LEGO product,” said
Roar Rude Trangbæk, a LEGO spokesman. But “if it’s educational, that’s a side
effect for the child. … It’s just as important that a child has fun.”
James Button, a senior manager at the Shanghai-based consultancy SmithStreet,
told me that many Chinese parents have been attracted to LEGO capacity to
develop children’s creativity and independence. “These areas of development are
increasingly important in China’s economy, but are not well addressed through
China’s education system,” he said. Parents have “lost faith in the ability of
the Chinese education system to develop these critical skills in their
children.”
Trends in the Asian toy market seem to support this. Sales of educational toys
in China have more than doubled in the past five years, compared with a thirty
eight percent drop in the United States over the same period, according to
Euromonitor International. In South Korea, the demand for educational and
construction toys is so strong that LEGO has accrued a greater market share
there than anywhere else, including its native Denmark.
Parents’ drive to see their children succeed is strong enough that, in Button’s
eyes, LEGO is competing not so much with other toymakers as with after-school
extracurricular activities. Fortunately for LEGO, it long ago made itself an
extracurricular activity in the form of a division called LEGO Education. The
program, more than thirty years old, adapts LEGO products to the classroom
encouraging children to use gears to learn about ratios, for example, or to
program LEGO robots, or to physically build the worlds they have written stories
about and it caters to students from preschool all the way through university.
The program is in seventy countries so far. “It’s attempting to teach parents
the value of playtime, and at the same time it’s building awareness of LEGO,”
Button said. Separately, the nonprofit LEGO Foundation has, in the past three
years, donated Lego sets to schools in China that serve more than a hundred
thousand children—a small number for China, but one that makes for a revealing
initiative nonetheless.
Here’s the thing: both LEGO Education and the LEGO Foundation promote learning,
but these efforts probably also help LEGO win over new customers. Spokespeople
for both LEGO Group and LEGO Education downplayed Education’s impact on retail
sales, and the LEGO Foundation didn’t respond to requests for comment, but
Jennifer Stein, the C.E.O. of the media-and-education consulting firm Always In
Entertainment, told me, “With all of these young children playing with LEGO in
school, there has to be sales. The teachers are basically putting their stamp of
approval on it.” Implicit recommendations from schools, along with explicit
recommendations from experienced parents, are invaluable for toy marketers in
China, since the one-child policy means that many parents may be shopping for
toys for the first time.
In theory, LEGO greatest weakness worldwide should be that the last of its core
patents expired in 1988, which has left it vulnerable for the past several years
to competitors selling nearly identical bricks at lower prices. Mattel has its
Mega Bloks, Hasbro has Kre-O, and China is home to at least a dozen imitators,
including the brazenly named Ligao. But SmithStreet’s Button believes that the
price and quality of LEGO products and those of its imitators are so far apart
that they are not competing for the same customers. If anything, Button said,
the more affordable knockoffs serve as an “entry point” to playing with LEGO
style bricks, from which a family might later upgrade to the real thing.
Indeed, authentic LEGO are an upgrade: manufactured with an extremely high
degree of precision, they can flex just a thousandth of a millimeter. The result
is that they hold together so a child can actually play with the things he
builds without them crumbling in his hands. Many LEGO imitators make their
bricks more cheaply, on the logic that lower prices will make up for looser
bricks; I recently tested a rival set of blocks, and the difference was
immediately noticeable.
LEGO has a second weakness in Asia: its high prices. Sets cost up to twice as
much in China as they do in the U.S., because of import and distribution costs.
The company recently said it will build a factory in Jiaxing, an industrial town
near Shanghai, which should be up and running by 2017. Button guessed that local
manufacturing could cut LEGO prices by as much as twenty per cent. In the
meantime, entrepreneurs in New York have been known to ship LEGO sets in bulk
from the U.S. to China, illegally not paying duties, so that they can sell them
in China and undercut LEGO own prices.
Despite its recent arrival in much of Asia, LEGO has managed to pick up more
than eighty thousand registered Adult Fans of LEGO in the region, and the
company has made some gestures to acknowledge them. Japanese LEGO fans had
access to Cuusoo, an online tool that allows users to design their own LEGO
sets, a full three years ahead of the service’s worldwide launch in 2011. And
LEGO new Architecture series, the first LEGO product line designed specifically
for adults, is sold on a limited basis in Asia and so far includes two Asian
landmarks: Seoul’s Sungnyemun gate and Tokyo’s Imperial Hotel. As for its
younger customers, LEGO designs products that it hopes will be attractive to
children everywhere, but this year it made a small exception when it adapted an
existing dinosaur set and repackaged it as a commemorative Year of the Snake
special edition. Tellingly, it was sold only in China.
NewYorker.com
-end of report-
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