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Toymakers touch the lives of almost every consumer and build all our early memories, and there is none that has done it more successfully than the Danish Lego Group which celebrates its 80th anniversary this year.
Lego has achieved its status as the world’s largest toymaker since 2014 over global rivals such as Hasbro and Mattel despite having just a single product of plastic bricks. Even with pandemic challenges, he privately held company has managed to deliver a record performance in 2021 (revenue up 27% and net profit up 34% YoY).
The LEGO pieces were able to appeal across generations and corner a significant profitability moat and achieve an operating margin of 31% in 2021, vs. 12% in Hasbro the largest toymaker in the US and the maker of Transformers, Potato Head, and Play-Doh and 13% in Mattel the maker of Barbies. Its 2021 net profit of US$2.1bn equates to five times the net profit of Hasbro and twice that of Mattel.
The pandemic hasn’t slowed LEGO down. LEGO stood out amongst the pack by making a bold bet on the future of retail by increasing the number of stores by almost 50% from 2020 base of 665 stores, by adding 165 stores in 2021 and planning to add another 150 stores in 2022.
LEGO has made a significant push into China in the last three years, driving double digit revenue growth in offline stores as well as online channels such as Tmall and JD. Out of the 449 new retail stores LEGO opened in the past three years, almost three quarters have been in China. The company had developed tailored product theme such as “Monkie Kid” toy serie based on the popular folklore and is also developing China’s first Legoland theme park in Sichuan, scheduled to open in October 2023. Shanghai's Legoland theme park is expected to follow in 2024 and Beijing thereafter.
Digitally, LEGO is also ramping up its push and has recently announced a plan to triple its number of software engineers. In April, it officially opened its digital hub in Copenhagen, adding to existing software centres in London and Shanghai, aiming to employ 1,800 software workers by the end of 2023, with 400 based in Copenhagen.
While Lego outperforms its peers in its financial performance, would it also take the lead in sustainability measures? Toy makers after all, are just as affected from sustainability challenges as other industries. Here are some examples:
Diversity and inclusion： Mattel responded to criticisms of its Barbie doll’s historically white, busty and thin body by ramping up inclusivity efforts between 2015-19, releasing dolls with a wider variety of body sizes, skin tones, hair textures, and ability status.
Supply chain and cost pressure: Hasbro said that it would raise the prices of its toys in April, citing the losses from pausing its toy shipments to Russia upon the war in Ukraine and the disruption in production as COVID surges in some areas.
Climate change: LEGO is planning to build a new factory in Vietnam that will be operationally carbon neutral. The popular China-based rookie toymaker PopMart has revealed its target to make its greenhouse gas emissions peak by 2030, in alignment with China’s national goal.