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LEGO Bets on ‘Prince of Persia’ for U.S. Growth as Euro Drops
May 24, 2010
By Christian Wienberg
(Bloomberg) -- LEGO A/S, Europe’s biggest toymaker, wants to double its U.S.
market share in the next five years with board games and building bricks based
on Walt Disney Co.’s “Prince of Persia: The Sands of Time” and “Toy Story 3”
movies.
“The American consumer has returned,” Chief Executive Officer Joergen Vig
Knudstorp said in an interview at LEGO Billund, Denmark-based headquarters. “The
U.S. market will be increasingly important for us, it’s the priority.”
Knudstorp introduced board games in the U.S. this month, while he predicts the
European toy market will shrink this year amid the sovereign debt crisis. Two
months ago, he expected both markets to be “virtually flat.” Closely held LEGO
generates a third of its sales in the U.S., its biggest market, and will
increase that to about 40 percent by 2015, he projected.
LEGO, which signed its first Disney license in the 1950s, will boost its U.S.
market share to 7 percent or 8 percent by 2015 from the 4 percent it has at the
moment, the CEO said. The company won’t be able to duplicate the 15 percent
share it has in some parts of northern Europe, as it has difficulties gaining a
foothold in the U.S. south and rural areas, Knudstorp said.
U.S. consumer confidence rose this month for the tenth time since the Thomson
Reuters/University of Michigan index hit a 28-year low in November 2008. Retail
sales increased 0.4 percent in April, the seventh consecutive monthly advance in
the U.S., where LEGO sells products including $599 “Star Wars” Death Star kits
and $3.99 Santa Claus figurines on Amazon.com.
Darth Vader Statue
“We’re concerned with the macroeconomic development in Europe,” said the
executive, 41, who has a three-foot LEGO statue of Darth Vader in his office.
“Southern Europe had actually been growing quite nicely for the toy industry and
I think we’ll see a stop to that with the financial crisis that’s evolving.”
The euro last week dropped to a four-year low against the dollar as Europe’s
sovereign debt crisis prompted investors to sell the region’s currency and
bonds. Denmark has tied its currency, the krone, to the euro.
The currency’s decline “will have a very positive impact on European toy
manufacturers” that sell in the U.S., said Knudstorp, a father of four who
builds LEGO models with his kids. All of LEGO’s multicolored blocks are produced
in Europe and Mexico.
LEGO annual profit will get a boost of as much as 200 million kroner ($33
million) from the drop as revenue generated in the U.S. will be worth more in
kroner, if currencies stay at current levels, he said. The company generates
U.S. cash flow of some $400 million annually.
Five Billion Hours
LEGO, which estimates children spend five billion hours every year playing with
its multicolored bricks, sells about 160 million boxes of LEGO annually. LEGO
most direct competitor in the building-block market, Montreal-based Mega Brands
Inc., filed for bankruptcy protection in the U.S. in February, citing
fluctuating raw material prices, negative publicity after product recalls and
declining sales for toymakers.
Knudstorp, a former consultant at McKinsey & Co., took over as LEGO CEO at the
end of 2004 when the toymaker was about to record a second consecutive annual
loss for the first time. In the period from 2005 to 2009, LEGO has reported a
net profit every year and sales advanced 66 percent to 11.7 billion kroner over
the period. Profit was 2.2 billion kroner in 2009.
LEGO, which started selling board games in Germany and the U.K. last year,
introduced them this month to the U.S. market, where they will take on products
by Mattel Inc. and Hasbro Inc., the world’s two largest toymakers.
‘Dipping Our Toes’
“We’re dipping our toes into a huge market here,” said Knudstorp, who estimates
the retail market value of board games is as much as $10 billion. “We can add
some innovation to this toy category.”
The Danish company’s board games consist of more than 200 LEGO building pieces
and a suggested set-up. Players are then invited to reconstruct the board to
their own taste and make their own rules as they progress in playing.
LEGO was founded in 1932 and sells its products in more than 130 markets. The
company is owned by Kjeld Kirk Kristiansen, a grandson of its founder. He is the
world’s 258th- richest man, worth about $3.5 billion, according to Forbes.com.
Editors: Celeste Perri, Paul Jarvis
To contact the reporter on this story: Christian Wienberg in Copenhagen.
To contact the editor responsible for this story: Tim Quinson at bloomberg.net
Businessweek.com
-end of report-
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