Business has been so brisk at the world's most profitable toymaker that Lego last year did something unusual: It began looking for ways to discourage customers from buying its products.The Danish company scaled back its advertising efforts amid a 25 percent rise in annual sales, according to Reuters. It simply couldn't make enough toys to satiate demand in North America, and needed a break while it boosted capacity at its factories and increased its workforce by nearly 25 percent. "We feel we need to invest, to build some breathing space," John Goodwin, Lego's chief financial officer, told Reuters. Lego, a family-owned company founded in 1932, has enjoyed booming growth for decades. The company has released thousands of sets of its eponymous blocks, forging licensing deals with popular brands including Star Wars, Angry Birds and Disney Princesses. It has also taken on iconic architecture: A model of the U.S. Capitol building is for sale on Lego's site for $99.99, while a White House set sells for $49.99.
A replica of the Ghostbusters firehouse, meanwhile, is listed for $349.99. The company's dominance also has extended into the company's six Legoland theme parks, 125 retail stores and dozens of video games. "The Lego Movie," a full-length movie released in 2014, brought in $468.1 million at the box office.The company's revenue has increased by an average of 15 percent a year in the past 12 years, according to Reuters. The efforts to quell demand seem to have worked — at least temporarily. Sales in the Americas remained flat during the first half of 2016, according to Reuters. (Revenue in Asia and Europe, meanwhile, continued to grow by double digits.) Overall, Lego's revenue rose 11 percent to roughly $2.35 billion in the first half of the year, ahead of the $1.83 billion reported by Mattel, the maker of Barbie.But executives at Lego are hoping to ramp up production in time for this year's holiday season, Goodwin said: "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."
The company is building its first factory in China, and is expanding existing plants in Mexico, Hungary and Denmark. Lego also hired 3,500 employees in the first half of the year, increasing its workforce to 18,500, according to The Wall Street Journal."In the past decade we have seen LEGO sales growth in the double digits year after year," Goodwin said in a statement in October. "We are of course very excited about this development. (But) the high demand also puts a strain on our factories around the world."If you click a merchant link and buy a product or service on their website, we may be paid a fee by the merchant.COPENHAGEN LEGO A/S reported a decline in revenue growth and profits for the first half of 2016, but only because the Danish toymaker needed time to add production capacity to meet increased demand for its colorful building bricks in North America, the company said on Tuesday.The group, which has become the world's most profitable toy maker ahead of Barbie Doll maker Mattel (MAT.
O), saw revenue grow 11 percent in the six months to 15.69 billion Danish crowns ($2.35 billion), while operating profit was up 1 percent at 4.66 billion. Net profit fell nearly 2 percent to 3.49 billion Danish crowns ($524 million).LEGO has increased sales by an average of more than 15 percent per year in the last 12 years, with a 25 percent growth rate in 2015. But while sales in Asia and Europe, its most mature market, grew by double digits in the first half of 2016 there was no growth in the Americas.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."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," he said. As part of a global investment plan, the company has invested in a new factory in China, expanded production capacity in Mexico and plans to double the capacity of the group's plant in Hungary.
As a result the company recruited over 3,500 new employees in the first half of 2016, an increase of 24 percent. "We feel we need to invest, to build some breathing space," Goodwin said. "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 said. ($1 = 6.6633 Danish crowns) (Reporting by Nikolaj Skydsgaard; Editing by Greg Mahlich)As highlighted in our recent global company profile, LEGO, the world’s third biggest manufacturer of traditional toys and games, continues its dynamic expansion bolstered by the success of 2014’s The LEGO Movie. The world’s leading construction toys manufacturer was among the most dynamic toymakers in the world over 2009-2013, more than doubling its sales. LEGO’s global strength is founded on its dominance of the construction toys category, in which it held a 65% value share in 2013.
Construction toys accounted for 94% of the company’s global toys and games value sales during the year, with games and puzzles responsible for most of the remainder. However, LEGO decided to phase out its LEGO Games board game product line in 2013, judging that it did represent a sustainable fit with the company’s core long-term operations. LEGO has used its dominance of construction toys as the platform for dynamic expansion in recent years. The company significantly increased its global construction toys value share every year throughout 2008-2013. Its strong product innovation has played an important part in driving growth, with the company launching 60-70 products per year, and both revitalising the core brand and expanding its consumer base through the introduction of new lines such as LEGO Friends (2012) and LEGO Chima (2013). LEGO has also made astute use of licensing, with its relationship with brands such as Batman and Star Wars taking on an existence with a certain independence from the parent entities.
This has facilitated the LEGO brand’s continuing expansion beyond construction toys into video games; 2014 saw the introduction of the video game, LEGO Batman 3: Beyond Gotham, for example. Such moves have in turn had a positive impact on the company’s core category sales. 2014 saw LEGO add a new dimension to its media presence with the release of The LEGO Movie. Movie releases have a marked impact on sales in toys and games across a number of categories, and the success of The LEGO Movie maintained the brand’s strong momentum especially in the first half of 2014. Moreover, it paved the way for new movies, including spin-offs, such as Ninjago and LEGO Batman movies, and a sequel to The LEGO Movie, which is scheduled for 2018. The company’s established lines such as LEGO City, LEGO Creator, LEGO Technic and LEGO Star Wars also made significant contributions to its growth over 2014. In geographic terms, LEGO has established a global reach, leading construction toys sales in every region.
Nonetheless, its operations remain biased towards the developed markets of Western Europe and North America, which jointly accounted for 68% of its sales in 2013. In 2014, the toymaker underlined its commitment to expansion in China with the official ground-breaking of the company’s first factory in China, located in Jiaxing, and the inauguration of a new office, one of the company’s five main offices globally, in Shanghai. While LEGO’s concentration on a single category has been a notable strength, providing a strong focus and enabling the development of a highly recognisable, coherent brand, it makes the company sensitive to a potential wane in demand for construction toys. The company should consider ways to diversify its offer that fit with its core brand values, particularly its emphasis on free-play, and, preferably, provide cross-over play opportunities with its core products. Movie releases play an important part in boosting growth across a number of toys and games categories.
LEGO should work to maintain the momentum resulting from the success of The LEGO Movie through the development of movie sequels and spin-offs, and related products in both construction toys and video games. While it has successfully extended its core brand into video games, LEGO is notably weak in digital gaming. The company needs to address this issue as digital gaming is set to be the most dynamic toys and games category over 2013-2018, and has a potentially key role to play in LEGO’s expansion in Asia Pacific. LEGO would also benefit from developing games with a greater emphasis on free-play, as embodied by its core construction toys products. LEGO is working to expand its presence in emerging markets, particularly in Asia Pacific. This needs to be a priority, especially given that the company is set to experience intensifying competition from the likes of Spin Master and, particularly, Mattel in construction toys. While LEGO is the dominant force in the category in its core markets, it has a significantly more vulnerable position in key emerging markets such as China.