I was watching one of those internet trending videos of two toddlers having a jolly good time playing together in the kitchen. They appear to be twins not more than two years old, and they are standing near each other in front of a cabinet with two doors. A rubber band has been placed on adjacent cabinet door handles. One watches curiously as the other stretches his rubber band. They touch it. They tug at it. After releasing the rubber band, they watch as it contracts back into place. If it pops off the handle and falls to the floor – all so-o-o quickly – the two burst into giggles and squeals. One of the toddlers is so ecstatic that he falls down on the floor laughing. This gives a new definition to ROTF – rolling on the floor!
I start laughing because they are having so much fun with this simple, home-made toy. This gives way to my next thought: I wonder how many more sophisticated and expensive toys each has in his room or other places that is collecting dust as they play with a simple rubber band? These more expensive toys may have a memory chip, make music or other sounds, and have a viewing screen.
Those in the investment community who follow retail earnings are asking the same question. About a week ago, Denmark-based LEGO Group reported an 11 percent growth in sales revenue for 2013. The company’s sales have quadrupled in less than 10 years. [Ref 1]
I’ve never worked for a toy company, but know a few people who have or still do. It’s a challenging business with a field of many competitors. Each year the race is on to see which company will create the next big product in the world of toys. The desire is to have one or more of their products on every child’s birthday and Christmas wish list. Past favorites include Cabbage Patch Dolls (remember those?), Teddy Ruxpin, Tamagotchi, Teletubbies, etc.
The reality, however, is that every toy company wants its newest product to be the next Barbie. Barbie is a doll that has endured since she went on sale in 1959. Not only is she a best seller, she has reinvented herself at least 20 times, expanded her product line, has countless play sets, books, videos, outfits, etc., and is sold in just about every country in the world. She is over 50, eligible to join American Association for Retired People (AARP), but doesn’t look a day older since her debut. Toy companies are forever searching for the next Barbie – a product that captivates generations of children and adults. It appears that the LEGO Group has some bragging rights in this category.
Early History: The LEGO Group has been around for 82 years, and was founded by Ole Kirk Kristiansen, a master carpenter and joiner. Some of the early company history is detailed in this section. [Ref 2]
Carpenter Kristiansen’s initially produces stepladders, ironing boards, stools and wooden toys in his workshop. The name, LEGO, was adopted by the company two years later. LEGO is an abbreviation of two Danish words LEg GOdt that is interpreted play well. Later, the company would discover that the Latin interpretation of this short phrase is “I put together“.
The Danish company survived the German occupation of Denmark in 1940, and a fire that almost burnt the factory to the ground in 1942. Production quickly resumed and the LEGO Group is the first in the country to buy a plastic injection-molding machine for toy production. A game changer in the toy’s design is implemented in 1957 with the invention of the LEGO Brick’s interlocking principle. The company also celebrated its 25th anniversary in business. The brick in its present form was launched in 1958. The interlocking principle with its tubes makes it unique, and offers unlimited building possibilities. It is noteworthy to point out that a LEGO brick produced in 1958 interlocks or fits with a LEGO brick made today. Like a rubber band on the door knob of a kitchen counter, the basic LEGO brick has delighted countless children and adults for almost three generations.
Following a fire that destroyed the wooden toy warehouse in 1960, the company halted production of these items. Product sales started in the U.S. and Canada in 1961. In addition to the fabled brick, the 1960s brought wheels, trains, and the first LEGOLand film in 1969.
The LEGO brick is the company’s most important product, and has been named twice the Toy of the Century. The last 50 years would witness sales expansion to many countries, and expansion of the product line beyond the basic brick.
Other LEGO Group products and ventures include [Ref 2]:
LEGOLAND Parks: The first LEGOLAND park was established in Billund, Denmark in 1968. The U.S. has two: Carlsbad, California (opened in 1999), and near Orlando, FL (opened in 2011). There are three others in Germany, England, and Malaysia. These are family parks where children enter an exciting world of adventure built of LEGO bricks.
Education: LEGO Education resources span the continuum from preschool through university and provide valuable lessons in all curriculum subjects from STEM (Science, Technology, Engineering and Mathematics) to humanities, language and literacy. Placing an emphasis on STEM, the FIRST LEGO League is an annual science and technology competition for children and youth aged nine to 16 years. The competition was established in 1998 in collaboration between the American non-profit organization, FIRST (For Inspiration and Recognition of Science and Technology), and the LEGO Group to increase children’s and youth’s interest in science and mathematical/technical subjects.
LEGO Mindstorms: Mindstorms were launched in 1998. In 2013, the LEGO Mindstorms EV3 were introduced. The EV3 allows the user to create and program robots that walk, talk, think and just about anything else that one can imagine. The robots can be controlled using smart devices or remote control.
The LEGO Movie: The first ever Lego Movie is playing now in a theater near you. The movie was released in the U.S. on February 7, 2014. The animated film is based on the LEGO line of construction toys and tells the story of an ordinary LEGO mini-figure prophesied to save the LEGO universe from an evil tyrant. Interestingly, Warner Brothers, the distributor, has already announced plans for a sequel for 2017.
Digital offerings: The LEGO Group delivers digital play experiences that embody core LEGO values in new ways with interactive technology in video games, apps and online activities that integrate physical and digital LEGO play. LEGO video games can be played on consoles, computers, tablets and smart-phones.
Social Media: Like many domestic and global companies, LEGO Group uses social media to sell its products and to connect to its customers. The company believes that staying close to its customers is one of the key factors behind its success. The official company website is www.lego.com. In addition to their website, the company can be found on the internet via FaceBook and there is a LEGO Group on LinkedIn. Other social sites include Twitter, Google+, Instagram, Pinterest and You Tube.
Lego Club is designed for children ages four to 11. Through the LEGO Club, members receive an exclusive magazine, emails and have access to a special LEGO Club website in selected markets.
Adult LEGO User Communities (LUGs): A growing number of adult LEGO enthusiasts have been setting up LUGs to share their hobby. They call themselves AFOLs (Adult Fans of LEGO). The LEGO Group has actively developed relations with approximately 200 LUGs with a total of more than 200,000 registered members. The groups have their own websites, blogs and discussion forums. The most popular LEGO fan blogs have more than 300,000 unique visitors each month.
The LEGO Foundation: Founded in 1986, the LEGO Foundation is dedicated to build a future where learning through play empowers children to become creative, engaged, lifelong learners. In collaboration with thought leaders, influencers, educators and parents, the LEGO Foundation aims to equip, inspire and activate champions for play. All activities are based on the belief that all children should have access to quality play and learning experiences.
Recent Earnings Report
As I noted at the beginning of this post, LEGO Group’s report of their 2013 earnings had a lot of folks on Wall Street and other investment communities buzzing. I can’t help but wonder if the buzz was just from the earnings themselves, or received a boost from adults who played with the toys as a child, or still do as AFOLs.
The Los Angeles Times [Ref 4] reports that the LEGO Group’s net profit rose 10% over last year’s even as the global toy market suffered a slight revenue slide. Revenues jumped from $4 billion in 2012 to $4.5 billion in 2013. It is also noted that these earnings do not include box office sales from The Lego Movie that opened in the U.S. last month.
And speaking of Barbie, Mattel, Inc., the U.S. toy maker of many iconic brands reported that their 2013 earnings rose only 1% to $6.5 billion. LEGO Group’s chairman reported in their 2013 Annual Results Press Conference, their growth is not a result of acquisition but organic growth led by market expansion and product innovation.
Lego Group’s Chief Executive Jorgen Vig Knudstorp reports that the company has boosted its head count 13% to 11,755 full-time employees, and has also almost $500 million in production capabilities that includes factory expansions in Mexico and the Czech Republic, and construction of new facilities in Hungary and China.
Brand name and image are important and a major contributing factor to the longevity of many domestic and global companies. Over the past 50 years, there have been many changes within the LEGO Group. They are challenged each year to reinvent their core business. They are also challenged to rethink their business model and how they do business to stay on top of their competition. The company knows that there will always be a market for the physical products and models that they sell, however, they see a growing market in digital technology and plan to leverage digitalization as a forward moving strategy.
The company’s products are sold in 130 countries, and 60 to 70 % of their products are new. The big launch in 2013 was a series of talking animals called Legends of Chima. At the heart of every decision is the voice of the children. The designers know a lot about children’s play patterns, how children develop and the interests of children at different ages. However, they continue to ask children what they think about new potential product ideas. Every year, they listen to the children’s voices, and a lot of new ideas and products are tested. Only the products that receive a stamp of approval by children make it to final production.
Watch the LEGO Group’s 2013 Annual Result Press Conference on video: http://aboutus.lego.com/en-us/news-room/2014/february/annual-result-2013-od-video. My biggest take-away from this 20 minute press conference was the desire on the part of the company to create the organization of the future.
From a small carpenter’s workshop to a modern, global enterprise that is now, in terms of sales, the world’s third-largest manufacturer of toys. Yet, the LEGO Group remains a family owned company, and at the heart of the company is their philosophy that good quality play enriches a child’s life – and lays the foundation for later adult life. Whether you are a little kid, or like most adults, have a big kid inside of you, the variety of products offered by the LEGO Group are tailored to satisfy your needs.
1. Denmark-Based Lego Releases 2013 Results, by Sidsel Overgaard, National Public Radio, http://www.npr.org/2014/02/27/283307882/lego-to-issue-earning-results, last viewed on March 5, 2014
2. About Us: The LEGO History, http://aboutus.lego.com/en-us/lego-group/the_lego_history/1970
3. 11 Awesome Lego Facts That Will Make You Want To Break Out The Bricks Again, Renee Jacques, The Huffington Post, http://www.huffingtonpost.com/2014/02/28/lego-facts_n_4862088.html, last viewed on March 3, 2014
4. Retail Roundup: Lego earnings are awesome, J.C. Penney sees profit, by Tiffany Tsu, http://www.latimes.com/business/money/la-fi-mo-lego-best-buy-jcp-sears-20140227,0,7878168.story#ixzz2vCLQk7gO, last viewed on March 5, 2014