Lego has had a strong run this year—so strong, in fact, its supply chain has been overwhelmed. Thanks in part to licensing partnerships with powerhouse entertainment franchises as Star Wars, Angry Birds, Harry Potter, DC Comics, Indiana Jones, Pirates of the Caribbean and the Disney Princess collection, the company saw its annual revenue increase 25 percent in 2015 for its “best year ever.” According to its 2015 annual report, last year the Lego Group made $1.4 billion in net profit, more than double what it made four years earlier. Its “sales growth was driven by innovation in well-established lines like LEGO City and LEGO Ninjago, as well as in the new LEGO Nexo Knights” line. Its series of pricey Creator kits based on architectural icons such as the Sydney Opera House also boosted the company’s bottom line either (and have even spurred a side business in rentals). Revenue has grown 15 percent annually on average for the last dozen years, while global Lego sales grew 1o percent in the first half of 2016.
Commenting on its first half 2016 financial results, Lego Group President and CEO Jørgen Vig Knudstorp stated: “It is our ambition to reach many more children all over the world with fun and creative Lego experiences and it is exciting for all of us to see that our products are loved and cherished by children globally. Maintaining double-digit growth year on year through more than a decade is a testament to the never ending possibilities that children find in Lego play, and the result of the hard work of more than 18,000 Lego colleagues around the world.” As for where that growth was coming from in the first half of 2016, the Lego Group said it was seeing double-digit growth in Europe and Asia, while the Americas were flat year over year. “It is particularly impressive that we continue our high growth in Europe where we have our most mature markets,” EVP and CFO John Goodwin told analysts. “At the same time, we are very satisfied to see high growth rates for Asia where we are making considerable investments in capacity and capabilities.
In the US, we acknowledge that we have not provided the initiatives and support needed to keep the same high level of growth. As a result, we have worked closely with our customers and dialed up our initiatives in the American market, in order to regain momentum.” In fact, the world’s biggest toy-maker said its North American sales were down from the previous year’s double-digit growth because it was tampering demand while expanding production. The brick-maker has been quietly pumping the brakes in North America, including reducing its marketing, so it could hold back demand—at least temporarily—while it built up its production capacity and hired 3,500 more workers, the Wall Street Journal reports. “Lego simply could not keep up with demand in North America, the world’s biggest toy market in 2015, so it reduced its marketing activities, which led to the slowdown in the first half of 2016,” Chief Financial Officer, John Goodwin told Reuters. It’s also building a plant in China and expanding production in Mexico, Hungary and Denmark, hiring workers in advance of the holiday uptick.
“We feel we need to invest, to build some breathing space,” he added to Reuters. Despite the adjustment in North America, the company has been growing its annual sales by 21 percent, and annual profit by 36 percent, on average in the last eight years. The well-regarded company is still dominant in Europe and Asia with double-digit growth, and the LEGO brand is outselling competitor Mattel, which reported $1.83 billion in revenue in the first half of 2016. The company is hiring hundreds of retail associates to keep up with end-of-year holiday demand. “We are working very closely with our retail partners to ensure that as we go into the important holiday season, the back half of 2016, that we’ve got all of the levers pulled to get back on the growth trajectory,” Goodwin told investors. “These investments in people and infrastructure will obviously have an impact on our short-term profit growth. But they are part of our long-term plan to sustain the development and delivery of fun,” Goodwin added.
He’s hoping that all those levers being pulled in the right direction will add up to the company finally beating Mattel in US sales for a solid 365-day period. Perhaps this is the year. Mattel’s sales dropped 4.4% (to $1.83 billion) in the first half of 2016. According to David Robertson, a professor of innovation and product development at Wharton business school who wrote a book on Lego, Brick by Brick, its continuing success is assured because it’s a platform for storytelling, pure and simple. “Lego is really good at telling stories around the brick,” Robertson told the Christian Science Monitor in explaining its success. “It learned that you can’t just have a box of bricks.” That belief is reinforced by Julia Goldin, the Lego Group’s global chief marketing officer. “Lego starts with a very clear mission – to inspire and develop the builders of tomorrow,” she commented at a recent conference. “We’re very clear about this mission, and everything starts there.
So when we innovate, we start with that core experience. The key thing is to be very focused on the experiences you want to deliver and make sure you’re not becoming a slave to the platform.” It’s not just kids who are bringing Lego to life with their own short films and user-generated content on YouTube and beyond, she added. The “AFOL” (adult fans of Lego) community are often the first to buy major sets, such as movie tie-ins for Star Wars films. But this meant the business adopted a very collaborative creative process. She said: “When we have a product and a core idea, the whole team comes together – we are not linear. We bring everyone together, product developers, content developers, advertising partners.” Bringing more girls into Lego will continue to be a major focus, Goldin added. “We have a big belief that Lego is for everybody,” she said. “We have huge opportunities to bring more and more girls into Lego. They might come in and get engaged with something more targeted, but then they start getting interested in Star Wars and Minecraft.”