Still building after all these years: sales of Lego soar
Star Wars sets boost turnover but traditional Lego sells well too
Friday 05 March 2010
Not every child in the world is obsessed with hi-tech games consoles to the exclusion of more traditional toys. Lego yesterday revealed soaring profits for last year, driven by a combination of the old and the new: its more modern Star Wars range and its classic products.
Although Star Wars itself was released in 1977, more recent prequels have captured the imagination once more, and Lego has been cashing in. Marko Ilincic, the managing director of Lego UK and Ireland, said: "What is really fuelling the interest in Star Wars is the Clone Wars series on Sky." He also attributes a 28 per cent surge in UK sales to strong sales of its classic Lego City products.
"The two key themes were Star Wars and Lego City, which is a classic range such as police stations and fire engines," Mr Ilincic said.
Lego has delivered blistering growth over the past two years of the downturn, as consumers have reverted back to trusted brands.
"It's still a tough time for the market but the current trend for nostalgic toys and public demand for brands they know has meant that we've fared well," added Mr Ilincic. "Our classic product lines continue to drive sales, whilst the introduction of Lego board games has helped fuel growth further."
For 2009 as a whole, Lego's pre-tax profits were up by 56 per cent to £350.2m. Group sales jumped by 22 per cent to £1.4bn.
Mr Ilincic said that Lego had kept up the pressure on rivals by ramping up its UK advertising spend last year. "We increased our TV advertising by 36 per cent and yet total toy advertising spend decreased by 30 per cent."
One of its most popular was the animated "kipper" advertisement, which last aired in 1982. "It is as relevant today as it was then. We reran the adult advertisement, as part of our nostalgia campaign, and the response from adults was great," said Mr Ilincic.
He added that UK sales in 2010 are already ahead of the same period last year. "We are seeing confidence returning, which we are hearing from our retailers. The words they are using are 'cautious optimism' this year. What we are seeing from Lego, even though Christmas has passed, is that people are still buying the big Lego sets, and they don't seem to be as concerned about spending on their children in the first quarter as they were this time last year."
Based on the strong start to the year, Mr Ilincic forecast double-digit sales growth for Lego UK and Ireland in 2010.
In 2009, Lego grew its market share from 3.3 per cent to 4.6 per cent, making it the UK's third-largest toy manufacturer, behind Mattel and market leader Hasbro.
While Lego has forecast further sales growth, it expects "continued stagnation" in the global toy market.
Last year, Lego introduced board games for the first time in Britain and German-speaking countries, but after sales beat expectations it will release them in North America and across Europe in 2010. The toy manufacturer said it had completed the "in-sourcing of production" and now produces the majority of products in its own factories in Denmark, the Czech Republic, Hungary and Mexico.
Mr Ilincic said it was too early to confirm whether Lego would put up prices this year. "It is not something we want to do."
Brick by brick: How Lego took over the world
A humble carpenter, Ole Kirk Christiansen, laid the first brick of the Lego story in 1932, when he began making wooden toys in his workshop in Billund, Denmark. Two years later, he named his company Lego, from the Danish phrase "leg godt", which means "play well" – and the rest is history. Billund is still the headquarters for Lego, which delivered sales of £1.4bn in more than 130 countries in 2009.
More than 400 million children and adults will play with its bricks this year, but the construction of its global empire has not always been a smooth operation.
The darkest days for Lego came at the start of 2004, when it posted a record deficit of £144m, and, by the admission of its current UK managing director, "the company had lost its way – we nearly went bankrupt".
A rescue plan, new lines and cost cutting saved the company and today, Lego makes about 17.5 billion bricks each year, but most of the toy maker's production is now overseas, in Europe and Mexico.
However, parents don't buy Lego just for their kids. There are a host of internet forums for Lego adult enthusiasts. Partly with one eye on this market, Lego launched a range of new board games last year in the UK and German-speaking countries.
While the company still owns a 30 per cent stake in Legoland Windsor, the park is now controlled by the private equity giant Blackstone.
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