The "clear leader in a declining toy industry," Lego has seemingly done the impossible. Despite the trademark on its one trick expiring, the brand has not only refused to die, but become the aforementioned leader in a slumping industry. If it doesn't already, Lego will have its own chapter in business school textbooks of the future.
Now, the brand is once again being a maverick by going to China—not for the cheap labor but to dominate the market. It's a block in the eye of the Chinese brand that's been knocking it off for years.
The iconic octogenarian brand has become the show pony of what a little innovation can accomplish for an organization that only had one trick. From simple blocks, Lego has built an empire of brand extensions, online games, fan collaboration portals and Legoland stores around the world that rival Apple and Disney's branded experiences. When Lego was told that its newer products largely only appeal to boys, what did it do? That's right, it said "We'll see about that."
It may surprise some to learn that Lego does not yet have a factory in China. Pumping out plastic bricks seems like a perfect fit with a nation that makes plastic everything else. But until now, Lego products have been made in Europe and Mexico, but never China. Though, some "components" of Lego playlets are made in China. (One Denmark Lego factory was even the subject of National Geographic's program "Ultimate Factories.")
The new factory will be a few hours drive outside Shanghai, employ over 2,000 people and plans to fulfill three quarters of all production for sales in Asia. The factory is targeted to begin production in 2014 and be at full speed by 2017, Reuters reported. The factory announcement comes just a couple months after Lego announced it would open Legoland retail centers in 14 more cities in the near future.
Lego opened its first flagship China store in 2007 in Beijing. At that time, Lego's sales in China made up just 1 percent of its global total. A year later, Lego introduced a branded content TV program called "The Lucky Town" (乐乐镇的故事 or "The story of Joy Joy Town") which featured story lines acted out with stop-animated Legos.
By 2012, there were Legolands in four cities. From 2009 to 2011, Lego saw China sales growth of 45 percent. In 2012, it estimated sales growth closer to 80 percent. That is well ahead of the still-excellent 50 percent or so sales growth across the Asia region. To celebrate 2013, Lego released a special Year of the Snake set.
Part of Lego's China strategy will be to go after second tier cities and lower income consumers. In China, Legos are comparatively expensive compared to similar building block-like toys.
One challenge for Lego will be its arch enemy, China's BanBao brand. Last year, the two brands announced a settlement to "seek a fair competition based on respect for each other's position." The settlement came after Lego sued BanBao for creating packaging that no reasonable person could dismiss as coincidentally similar. As part of the agreement, BanBao said its "products will now further show the BanBao logo, the packages are adapted to show a distinctive BanBao design and the product designs differ from LEGO products."
One reason Lego needs a greater differentiation is that, while more expensive, Lego is selling itself in China as "better." In China, one of Lego's greatest strengths is its stellar reputation. A 2011 China Toy Association Toy Consumption Survey found Lego to be in the top five highest regarded brands in the country.
Possibly the only danger facing Lego in its China move will be production quality control. Despite best intentions, China can be a difficult place to control a production chain, where even western brands with the best intentions can find themselves on the working end of tainted products. Legos go in a lot of kids' mouths, and Lego's global success could be jeopardized with news out of China about, say, lead-poisoned toys. Just ask Mattel.
At top, the 2008 Beijing Olympics in Legos.