Lego aims for digital but 2022 growth based on strong fundamentals

Lego is by far the world’s largest toymaker and as it looks to grow its digital interests, the building blocks of its rapid 2022 growth go back to basics.

Why it matters

The privately owned Danish company no longer owns a patent over its interlocking brick design – though it owns many others. Yet its competitors are not other brick-based companies but major American firms such as Hasbro and Mattel, both of which it dwarfs. 

While Lego has generated a lot of interest from its digital engagements, the core of its growth has come from a strong and consistent brand, smart brand extensions, and range choices, often in the shape of stores, theme parks, and a long-standing interest in games.

By the numbers

The company reports serious growth, even as inflation weighs on profits:

• Revenues are up 17% year on year to $9.3bn (DKr65bn)
• Profits are up 4% to $2bn (DKr13.8bn)

Lego now dwarfs its US rivals Mattel (revenue $5.4bn) and Hasbro (revenue $5.9bn), by managing to continue a 17% growth trend that began in H1, largely driven by new demand rather than price increases.

In 2023, growth is expected to “normalise” to single digits, CEO Niels Christiansen tells the FT.

The digital edge

There is significant focus on Lego’s Epic Games collaboration, which has been talked about since the announcement last April. The partners are expected to release more details of the deal soon.

It’s useful to think about this as a bet, not only in eventual digital revenues (which by virtue of lower marginal costs mean more profit), but as an onboarding strategy similar to the company’s stores.

Explaining why the firm is “upping” its digital investment, Christiansen adds: “We’re working very hard to create that feeling of getting into the Lego brand universe also digitally”.

Since the 1990s, Lego has been involved in video games, both as licensing tie-ins and straight games. These have performed well, with Lego Star Wars games and builder apps designed to be an entry point for digitally native kids to engage with physical bricks.

Down to earth

Christiansen is known for growing the brand through well-wrought but more fundamental moves:

• New product lines have been particularly successful, with new ranges such as Icons (from flowers to famous buildings) and City accounting for 48% of 2022 sales.
• Lego has also pushed hard into expanding its owned channels, namely its immersive physical stores: 155 new sites were added in 2022, to drive the global total to 904.

Key quote

“We achieved double-digit top-line growth and landed the year beyond expectations on the back of exceptional growth last year and despite challenging market conditions. This was due to our relevant brand, a fantastic, diverse portfolio, inspiring shopping experiences and outstanding execution from our teams” – Niels Christiansen, CEO, Lego Group.

Sourced from Lego, WARC, FT, Epic Games