Lego is the undisputed king of toymakers

Move over, Barbie, and tell Monopoly's Uncle Pennybags the news. Mattel and Hasbro have a tough new kid to deal with.

By Jonathan Berr Mar 15, 2013 9:45AM
Sorry, Barbie, Lego has taken your crown
 
The maker of the iconic plastic building bricks beloved by generations of children worldwide isn't just beating its rivals in the toy industry -- it's pulverizing them.

The closely held Danish company has posted double-digit sales gains in the U.S. for eight straight years -- a remarkable feat, given the precarious state of the economy. The company's gains are coming at the expense of U.S. rivals Mattel (MAT) and Hasbro (HAS).

Mattel, whose products include Barbie, has a market value of about $14.4 billion, while Hasbro's is about $5.4 billion. If investors valued Lego using the same measures as they do for its publicly held rivals, it would be worth about $17 billion, BMO analyst Gerrick Johnson told Bloomberg. He estimates that Lego is the world’s biggest toymaker in terms of net income, operating income and earnings before interest taxes depreciation and amortization.

In 2012, Lego's U.S. sales surged 26% to $1.32 billion. Globally, sales jumped 25% to $4.04 billion, thanks to the popularity of a new set of building blocks for girls. During that time, Mattel sales rose just 2% to $6.42 billion and Hasbro's revenue fell 2% to $4.19 billion.

Much of the credit for Lego's success goes to Joergen Vig Knudstorp, a former McKinsey consultant, who took over the business in 2004. The toymaker was then in such a precarious financial state that its primary bank stopped lending it money. Knudstorp quickly realized that Lego had spread itself too thin. He sold businesses that weren't essential, and sales have been steadily improving ever since.

"To survive, the company needed to halt a sales decline, reduce debt, and focus on cash flow. It was a classic turnaround, and it required tight fiscal control and top-down management," he told Harvard Business Review in 2009.

Lego has benefited from sales of sets involving characters from TV shows and movies, including "Star Wars." Some of them have attracted the attention of collectors. Its new products are doing well, too. Knudstorp also began involving Lego fans in the toy design process.

"While we have 120 staff designers, we potentially have probably 120,000 volunteer designers we can access outside the company to help us invent," the CEO said, adding that the company can't use all their ideas but noted that these passionate users provide "an avenue to the truth."

Here's one: A hotel that looks like it was built with Lego bricks is set to open next month at the Legoland resort in California (Legoland is run separately from Lego).

Today’s kids want to play with their parents' smartphone or tablet computer, more than traditional toys. But one area that continues to grow is construction sets. Market researcher NPD Group noted that sales in that category rose 20% last year, the best performer in the industry, while overall toy sales fell 0.6%. That trend should continue for a while, which is great news for Lego.

It also highlights the challenges facing Mattel and Hasbro, and is a good reason to avoid both stocks. It looks like Lego's hold on the toymaking crown isn't going to be challenged anytime soon.

Follow Jonathan Berr on Twitter @jdberr. 
54Comments
Mar 15, 2013 11:55AM
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Lego’s are fun and you can be creative.  Lego have been around a long time and will continue to be.

Mar 15, 2013 12:03PM
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Toys are outrageously overpriced. 50 bucks for a tin of tinkertoys, or 100 for a lego xwing fighter. Insane for plastic or wood.
Mar 15, 2013 3:23PM
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Lego's are great...however...have you ever stepped on one of them in the middle of the night...OOOOUUUUCCCHHHH!
Mar 15, 2013 1:30PM
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I loved lego's when I was a kid, and I think they are still cool, I agree Lego has always been expensive and the more mold sets the more $$$$.

 

These days to many mold sets, not enough regular pieces.

Mar 15, 2013 3:30PM
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What do you mean "kids" yes my son has played with legos since he was very young {daughters loved them too...legos always under the ChristmasTree} but at almost 40 he still loves them.  All gifts from him to children in the family...yep legos.  Plus he gives great building lesions.  Christmas is very lego at his house, old christmas village legos, great nativity scene legos.  On and on.  Yes we are a lego family and feel the high quality of the product makes them very worth the price.Lego buying Memaw
Mar 15, 2013 3:43PM
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I introduced my grandson to LEGOS when he was 4. He wants to get a degree in both architecture and engineering so he can work for them.

These are the best buy for the dollar when giving to kids. IMHO.

Mar 15, 2013 2:07PM
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My son loves legos it was such a great invention.

Mar 15, 2013 3:08PM
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greatest toy i ever had, i thnk some of the design sets are way over priced, i never had these types of legos, just the regualr sets to create whatever i wanted. do your children a favor and buy them a good set of the plain old bricks and let them get creative.
Mar 15, 2013 6:42PM
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Talk to anyone in mechanical engineering, structural or architectural engineering, etc. All started with a Lego set as a child. I cared about three things as a kid, Legos, Knex and Erector sets. 90% Legos though. I am where I am today in my career because Legos helped me understand assemblies, sub assemblies and simple construction methodology that I use daily in my line of work (Project Management for a production facility)

The biggest thing IMO though is they need to come down in price. I recall some of the more expensive space sets of my day (Blacktron, Exploriens) cost $100-125 from Toys R Us. As a 10yr old that was alot of weekend lawn mowings and saving up to afford.


Mar 15, 2013 7:13PM
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I had kids just so I had a reason to buy lego sets.  :)
Mar 15, 2013 4:42PM
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When there are no competitors left, what will they charge then?

Mar 15, 2013 3:08PM
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Legos are a great investment.   I have been buying and selling for the past 10 years and they have outperformed any other market.   The trains are the best from an appreciation standpoint.   I buy as many as I can, because they will eventually stop production and that is when the price really  zooms on the secondary market.  Keep them coming Legos.
Mar 15, 2013 4:59PM
Mar 18, 2013 4:54AM
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I am an AFOL [adult fan of Lego]. Addressing some comments. I have 30 year old parts that work just fine, work with the new parts and never stop being an inspiration. LEGO [lethally edged gouging object]. Yes, costly. But high quality. And keep the box and instructions nice and you can play with the Star Wars or Hobbit set for 20 years and then sell it for more than you paid for it.... It's never out of fashion. Keep building.
Mar 17, 2013 1:13AM
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Simple Lego bocks are relatively inexpensive, and the most fun and endlessly re-usable part of the system. The media inspired items are just regular toys in Lego clothing.
Mar 18, 2013 12:04PM
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I'm a grandmother almost 70 years old and I got a winter post office set for Christmas. My 75 year old husband and I both had a great time.  We finished it within 3 days and are planning to buy more.  If you like crossword puzzles or jigsaw puzzles, you'll like Legos.


Mar 18, 2013 7:41AM
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The best toy ever, for kids and adults!
Mar 18, 2013 4:20AM
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I've got so much lego that it isn't even funny. Most of it bought used though because new lego is becoming way too expensive! There's a lego house on my desk as I type this.
Mar 18, 2013 1:16PM
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The Lego Company understands value.  I so appreciate that they have not drastically reduced the quality of their product.  Barbie and G.I. Joe are not what they used to be, but the Lego bricks I'm buying today seem to be the same high quality as my 40 year old bricks (which are still playing hard).  If you think Lego sets are too expensive, please re-evaluate your priorities.  What you pay for one round of golf could purchase enough Lego bricks for a lifetime of creative fun.
Mar 18, 2013 11:56AM
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Never had LEGO's, I was into other things when they came out. Does anyone remember American Plastic Bricks? I had a large set, with windows and doors, garage doors (all worked BTW) roofs and many other parts. I built houses, towers, amusement rides (at least they amused me) and what ever I could dream up. They were stimulating and enjoyed them a lot. Probably like LEGO's do now.

Wish I still had them. Don't know where they went.

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