With record sales and a hit movie expected to propel it further, the Lego Group could be expected to bask in its remarkable turnaround, but the Danish maker of colorful toy blocks is pressing ahead to face the challenges of globalization.
Last month, the world’s second-largest toymaker reported a 9 percent rise in annual net profit to 6.12 billion kroner (US$1.12 billion). It also saw sales rise 10 percent to 25.38 billion kroner last year, marking a quadrupling in just 10 years.
By contrast, the traditional toy market is expected to grow either marginally or not at all, as it loses sales to video games.
Lego’s performance is even more remarkable since a decade ago, it was posting massive losses and laying off thousands.
When chief executive Joergen Vig Knudstorp took the helm in 2004, vulture capitalists were circling the ailing company, into which Lego heir Kjeld Kirk Kristiansen had just injected 800 million kroner of his own money.
“There was an emphasis on stretching the brand and moving into adjacent businesses. Apparel, theme parks, a lot of consumer electronics and so on,” Knudstorp told reporters in an interview.
The ideas were not necessarily bad, as sales did rise, but the businesses were not a good match with Lego, which failed to make them profitable. It also lost focus on the original toy operation, where revenue plunged.
In addition to spreading itself too thin, Lego failed to adapt to consumers’ shift away from local “mom-and-pop” stores to big-box retailers like Wal-Mart Stores Inc and Toys”R”Us Inc.
The first CEO from outside the founding Kirk Christiansen family overhauled the supply chain and withdrew from high-cost manufacturing locations such as Switzerland in favor of “mid-cost” countries like Hungary and the Czech Republic.
The Legoland theme parks were spun off and merged with Merlin Entertainments PLC.
“We decided to only do the core business and leave these adjacent businesses to other operators and earn a licensing income,” Knudstorp said.
The Lego Movie, a smash-hit animated film, is a case in point of how the group is profiting from letting other companies use its brand.
A Warner Brothers Entertainment Co team spent five years immersing itself in Lego’s culture before the movie hit the screens.
Many Lego fans still build “freestyle” and post clips of their creations on YouTube, where the group boasts 7.5 billion views, 99 percent of which are user-generated and which it says put Lego in the top three brands on the site.
Lego has gone from being a purveyor of plastic bricks, to selling toys that come with pre-written storylines, such as the Harry Potter-themed range released in 2001 and last year’s megahit Legends of Chima. The new product ranges now account for 60 percent of the company’s sales.
“If you look at who is successful in this not-so-successful traditional toy industry, it is those [with] big stories,” Knudstorp said.
Lego recognizes the significant cultural differences between how children react to theme collections.
This makes attracting the right marketing talent crucial, but Lego has trouble recruiting given the remoteness of its hometown of Billund, three hours from Copenhagen with a population of 6,200.
While the company is not abandoning its hometown, it plans to set up new management hubs in London, Singapore and Shanghai, as well as at a Connecticut facility.
Lego hopes this will help it tap greater talent pools and bring it closer to emerging markets where future growth will come from.
While many in the industry say the future of toys is digital, Lego is confident it can continue to see off the challenge. The firm has let partners develop video games for various consoles for its toys.
Traditional Lego toys and digital applications “can coexist, that’s my strong belief,” Knudstorp said.
Polytronics Technology Corp (聚鼎科技) yesterday announced that it is buying Henkel AG’s thermal clad dielectric material (TCLAD) business division for US$26 million as the Taiwanese firm aims to improve its technology, product portfolio and revenue performance. Polytronics, headquartered in the Hsinchu Science Park (新竹科學園區), is a supplier of protection components and heat dissipation materials. The firm entered the metallic heat-dissipation substrate market in 2007 and developed a unique solventless production process. Its board of directors approved signing an agreement with Henkel to acquire the German chemical firm’s TCLAD division in the US. The purchase includes all assets and business interests, including equipment,
SIZE MATTERS: Medium-sized hotels that do not have the support of parent groups are more vulnerable and are forced to take action, a REPro Knight Frank researcher said About 50 hotels across Taiwan are seeking to exit the market as they succumb to the bleak business outlook amid international travel restrictions imposed to combat the COVID-19 pandemic. Yomi Hotel (優美飯店) on Minsheng E Road, Sec 1, in Taipei is seeking to transfer ownership with an asking price of NT$950 million (US$32.15 million) and a pledge for a lease contract that guarantees a 3 percent return. The budget hotel, with room rates that start from NT$1,400 per night, maintains normal operations, but has been struggling since March, when the government placed restrictions on inbound and outbound travel. Occupancy rates for hotels in
‘SENSITIVE MARKETS’: The previously unannounced project would involve the company handing over control of data to a third party to sidestep privacy concerns Google has abandoned plans to offer a major new cloud service in China and other politically sensitive countries due in part to concerns over geopolitical tensions and the COVID-19 pandemic, two employees familiar with the matter said, revealing the challenges for US tech giants to secure business in those markets. In May, the search giant shut down the initiative, known as “Isolated Region” and which sought to address nations’ desires to control data within their borders, the employees said. The action was considered a “massive strategy shift,” said one of the employees, who added that Isolated Region had involved hundreds of employees
GOGOROS TO GO: The scooter maker’s CEO said that the electric vehicles ‘are the perfect complement to a program designed to stimulate the Taiwanese economy’ Minister of Economic Affairs Wang Mei-hua (王美花) yesterday announced a draw to encourage people to claim their Triple Stimulus Vouchers digitally. The prizes include movie tickets and 25 electric scooters donated by Gogoro Inc (睿能創意), Wang said. The Ministry of Economic Affairs said that it would hold a scooter draw every day for the next 10 days, beginning yesterday, after which there would be a draw every week for 15 weeks. The first winner was a Taiwan Cooperative Bank (合庫銀行) credit card user, the ministry said. The benefits of claiming the vouchers digitally extend beyond the draws, with many businesses offering special deals for