Kids who like digital, combining the physical with the virtual, and open source innovation were three of the unlikely strategies that turned around a brand that is all about physical play. These, together with one magic word, were the secrets behind stellar financial results reported by Lego last week.
“It is about focus,” the legendary toy group’s CEO Neils B. Christiansen told us in an exclusive interview last week. “It was really about rallying an entire organisation behind a new direction.
“We had actually lost direction in where we were investing. We are now focused on not being more bureaucratic than we need to be. In the world of today, collaborating left and right, there’s always a risk that there are too many layers or too many meetings and we are trying to try to keep things as simple as we can.”
Although it is a family-owned business, Lego reports its financials every year, providing a deep insight into trends in the educational toy industry. Two years ago, those results spelled doom and gloom when the company reported its first revenue and profit decline in more than a decade.
Christiansen was brought in as CEO to reverse the decline, and by 2018 the company had rebounded with revenue and profit growth. Last week, he announced continued growth for 2019, with revenue for the year up 6% to 38.5-billion Danish Krone (R88-billion) and net profit up 3% to 8.3-billion DKK (R19-billion).
He told us after the release of the 2019 financial results: “That focus helps because, if it’s clear for everybody what the direction is and what we focus on and where we invest, then there’s a much bigger chance that we get everyone behind us. That’s powerful, if you can get an organisation with 18,000 people all pulling in the same direction.”
The strategy behind the revived Lego, said Christiansen, was built around the three most important megatrends in the industry: “How digitalisation plays a role in products and play; how we engage with consumers and how they connect to us on our digital channels; and utilising the growth of ecommerce to our advantage – while improving how people fall in love with the brand by getting their hands on the bricks.”
The key to the third megatrend was global expansion, which included South Africa. The main thrust was rapid expansion in China, establishing Dubai as a hub for the Middle East and North Africa, and establishing a presence in India. South Africa was included in the global strategy, with the opening of the first Lego certified store in Sandton City in 2018. Since then, three more have opened, in Cape Town, Durban and Pretoria.
Read more on the next page about how Lego remains relevant for kids, and for South Africa.
According to Kristian Imhof, country manager for the Lego Group in South Africa, while the company’s products had been available here for some time, it wanted to make a stronger effort to connect with kids and adults locally.
“It has been done on many levels,” he said. “From the retail perspective, opening the first-ever Lego certified stores in Africa; from a communication perspective, developing tailor-made campaigns to local consumers; but also, through the work of The Lego Foundation. Lego is a family company and the owner family has a strong belief in every child’s right to play – and this is the major driving factor for the broad scope of activities of the Lego Group in South Africa.”
Last week, coincidentally, Lego was also named the world’s most reputable company, in an annual survey run by the New York-based Reputation Institute. The Global RepTrak study surveyed more than 80,000 people in 15 countries. Lego has featured in the top 10 since the survey began in 2011, and this year was cited alongside runner-up The Walt Disney Company for “strong perceptions for their products and services and for leading with innovation”, as well as “higher purpose and positive relationship with shareholders”.
The award aligned closely with the vision of the CEO as well as the company’s owners.
“We’re family-owned,” Christiansen said. “There is great consistency in that. We live our values and in many people’s opinion, we do what is right. We take the total society’s good into consideration.”
Lego also produces an annual sustainability report, which covers children, the environment and human rights.
From a business strategy point of view, said Christiansen, the most important progress had been in making the product line more “relevant, exciting and cool for kids”.
“Either it’s physical play combined with coding or robotics, or augmented reality, or you can remote control something from your iPhone, for example. This has helped make sure that kids that like digital can find really exciting play experiences.
“We did have a very strong operating model in 2017, but we needed to manage the complexity that’s inherent in the Lego play system. We have taken advantage of the modularity of that system and introduced new play while making sure the starting point is always in the brick. That’s the super strength of the building system, that allows us to do this while staying within our operating model.”
The Lego Ideas range is a perfect example of this strategy. It is a sub-brand driven by the ideas of fans, spanning concepts as diverse as the boat from the first Micky Mouse animation, Steamboat Willie, through to a model of the International Space Station.
“This is open-source innovation done in one of the best ways I’ve seen,” said Christensen. “I’m not sure we could have come up with similar ideas internally. Given that we have a fan base like this, given that we allow open innovation and given that they are built on the same system, it’s not any more complicated for us to do a space station than to build a wind turbine or a Chinese festival scene, because it’s off the same system, utilising the same machines and the same manufacturing and supply chain. That’s the beauty. That’s where the focus needs to be.”
Read more on the next page about Lego’s growth in South Africa.
Since the first Lego certified stores opened in South Africa in 2018, the brand has flourished here, according to Kristian Imhof, country manager for the Lego Group in South Africa.
“The reception of Lego certified stores in South Africa was overwhelmingly positive both at the time of opening and in the aftermath,” he said this week. “There is a massive and dedicated base of Lego fans in the country, and the store openings presented an opportunity for both loyal Lego fans – of all ages – and first-time users to enjoy authentic Lego Play experiences in official Lego store environments.”
While the South African Lego experience is no different to anywhere else in the world, there are subtle differences in preferences.
“Children from around the world, no matter which nation they were born in, are naturally creative and generally fall in love with the endless possibilities of Lego Play. However, some toy trends are more represented in the country than others, such as a love for certain iconic properties like Spiderman or a high affinity to car toys.
“Any launch of a super car in South Africa tends to be met with an overwhelmingly positive response from the market, like the recent Lego Technic Land Rover Defender or Lego Speed Champions Ferrari or Porsche launches. While the Lego brand’s portfolio is global, there are certain Lego products that are preferred and more easily recognised by South African children, such as the recently-launched Lego City Safari Off-Roader.”
The Lego certified stores in South Africa are operated by Great Yellow Brick Ltd, which has struck an exclusive deal with the Lego Group and has made a multimillion-rand investment in store roll-outs.
“Some of the Lego products were introduced for the first time to South Africa through Lego stores, such as Lego Ideas Central Perk,” said Imhof. “They had a great reception from the broad fan community.”