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.
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.
Lego’s are fun and you can be creative. Lego have been around a long time and will continue to be.
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.
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.
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.
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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