Whether you played with a set when you were younger, built a computer with them, saw the movie about the “ordinary” lego-man, Emmet (voiced by Chris Pratt), or severely wounded your foot’s sole on one, you know about Legos.
Time and billions of bricks have laid the foundation for the Lego Group’s toy empire. But to call the toy-block company’s progress in 89 years “simple” or “an overnight success” would be just naive. It is only recently that the masses have begun to recognize the massive impression these toys can offer on children’s potential.
A Brief Background
The Lego Group began in 1932 in a small carpenter’s workshop in a town known as Billund, Denmark. The name for the interlocking plastic bricks abbreviates the two Danish words “leg godt,” meaning to “play well.” Currently, the seemingly simple design of the bricks you know and love today originated in 1958 and offered endless building opportunities, unlike the premium wooden toys consumers were used to. Meaning those 63-year-old bricks can still be used to connect with ones manufactured today.
Between the 1960s and 1980s, the Lego Group developed several strategies and principles that make up the modern Lego ecosystem. A few of those principles from that period have made their mark on the consumer’s perception of Legos, particularly Lego’s unreplicable quality and safety of their bricks.
Revolutionary to the Lego Group was the “Lego System of Play.” Every set would be composed of the same basic bricks, allowing them to be combined to produce something even grander. This ecosystem provided the Lego Group the ability to develop a brand. Plus, every set bought meant that a family was investing in the Lego ecosystem. Once a child buys one set, they now live in a “Lego household,” meaning that every new set purchased adds more value to the one purchased before it and, therefore, the consumer.
At the end of the 1980s, the Lego Group began to feel the effects of two long-term problems when the last of its core patents for interlocking toy bricks expired. The 80s had been the first real-time the Lego Group was tested as a company and not merely its product. By 1998, the Lego Group was suffering, eventually laying off 1,000 employees.
Notwithstanding Google’s Larry Page using the bricks to build the Original GOOGLE Computer Storage, the Lego Group continued to struggle through the 00s to understand its customers and its own systems. When the Lego Group started to feel the economic effects of its expired patents, the company tried retaliating against upcoming competitors by suing them, i.e., Mega Blocks and Oxford Bricks. When these lawsuits failed terribly, the Lego Group took a different approach: throw every theme, set, and character out there and see what endured. Between 1994 and 1998, the Lego Group tripled the number of toys it produced, introducing at least five new themes a year.]
The one new addition that succeeded, LEGO BIONICLES, had very little in common with its counterparts. Based on a story of warring robots, visually dark and had completely different parts. But kids loved them. A few years later, 85% of American boys aged 6–12 knew about Legos, and 45% owned at least one of them. Over 70 books, 50 comics and graphic novels, four films, a television show, a trading card game, and countless Lego toys were produced based on the characters. Bionocles almost single-handedly kept the company afloat.
But it was just one success, atop a mountain of failures. An example, Jack Stone, was a more complex character based on a series of cartoons. And a live-action sci-fi series that cost Lego millions, and almost nobody watched. But by 2003, it had become abundantly clear that something needed to change with over $800 million in debt and a 30% decline in sales. The company was at a daily loss of $337,000. Even worse, the company did not understand why. These challenges became the task of its then newly hired CEO in 2004; to figure out why the company was losing so much money.
Lego’s original theory was that kids had turned towards modern alternatives, like video games and electronic toys. This prediction turned out to be wrong. The real problem the Lego Group discovered originated from within the company.
The economics of Lego is incredibly straightforward. Legos are a compelling toy because every set comprises the same essential pieces, creatively rearrangeable and capable of being built upon another. These economics are what also makes it a phenomenal business.
A single, modular, universal part that can be manufactured and later assembled into whatever final product is in demand at that time is a supply chain manager’s dream.
Producing a given Lego piece requires a $50 — $200,000 plastic injection mold that, once finished, assures Legos can withstand up to 950 pounds of force. A typical brick may be manufactured 60 million times — driving that mold cost down to essentially zero. However, in Lego’s decade of aimless experimentation of new sets and themes, the number of unique pieces doubled — from 6,000 to over 12,000.
The company’s designers, ignorant of the financial costs of their decisions, had been allowed to go wild with new, exciting themes. For example, one set even included eight different pirates with ten different styles of legs. Each of those unique pieces required its own mold, and thus, rapidly increased production costs.
A Masterbuilder Takes Over
In 2004, Lego’s new CEO began consolidating, eliminating unprofitable sets, and doubling down on those that worked. He found that successful sets generally had one thing in common: they centered around a narrative, especially a branded series, like a movie. Although partnering with existing brands like Star Wars was initially controversial, they were worried it would dilute its “family-friendly,” squeaky-clean image — the sets proved to be immensely popular.
Only Star Wars and Bionicles sets made a profit in the same year, while 94% of the sets lost money. But only banking on two sets had created a significant issue for Lego. Star Wars sets only sold strongly after the release of a new movie, making Lego sales highly dependent on the cinematic schedule of its partners.
These circumstances coupled together, forming the modern era of Lego. To differentiate itself and diversify, it strikes licensing deals with many brands and increasingly seeks to create its own. Specifically, the Lego Movie’s success has allowed the company to control its branding and keep ownership of a part of the Lego story in children’s minds.
Still, these decisions have been seen as controversial by the public. Lego primarily attracted a significant adult following, some of whom say the company has lost its creative beginnings in favor of Hollywood storytelling.
No one can say that the company has not remained focused on quality. 89 years ago, Lego began as a creator of premium toys, and today that is no less true. With or without a patent, customers choose Lego simply because they’re better. Many superfans fear the plastics used in knockoffs might be toxic. If anything, the premium feel of the humble Lego brick has only grown — as fans discover the toys from their childhood still evenly, satisfyingly, click-into-place after decades of waiting.
The Lego Group has outlined a plan when it comes to growing its business. First, the company is planning hundreds of retail stores because they have only just begun reaching their core audience. Between 2020–2022, Lego will continue to execute plans to more than double the number of stores it has in China, to a total of 300 in 85 different cities.
Double-digit growth in sales in China and hitting overall global sales growth records have bolstered this decision. Now, more than two-thirds of the world’s 2 billion children are expected to be living in East Asia by 2032. Overall, the company’s global sales last year rose 6%, to a record $6.3 billion.
Few Chinese parents played with the bricks as children. Stores give families a chance to experience Legos directly, building a connection with the brand. This year the company has introduced web initiatives such as extra discounts, a membership program, and special promotions for holidays.
In May, the live-streamed launch of a Lego set based on the classic tale, Journey to the West, featuring the mythical Monkey King, drew more than 10 million viewers. The company will add a third leg to its strategy in three years when a Legoland theme park opens in Sichuan province in southwestern China.
Today, decades into making its bricks 100% out of fossil fuels, Lego is making small steps towards the greener future of the company. Currently, the company is working on both friendlier-packaging and sustainable building bricks of the same quality.
This article was reprinted with permission from Hayden Barnes’ Medium page.