LEGO in Asia

THE BACKGROUND

Derived from Danish phrase leg godt, which means “play well”, LEGO has been a fundamental companion to children and adults with its trademark interlocking bricks.

Founded in 1932, the toy company learned an important lesson of staying true to your brand the hard way.

When the company posted a loss in 1998 for the first time in its history, an internal audit found that no significant innovation had been made in the company for a decade.

It caused the company to hastily diversify its portfolio to include sectors it had no experience in.

This resulted in the company launching electronic toys, dabbling in video games, launches its own clothing lines and watches, and even building theme parks.

LEGO in Asia

Although eventually successful, LEGOland was a financial burden during its first creation and was sold to Merlin Entertainments.

Their attempts at disruption only succeeded at alienating fans and driving the privately-held company almost to the brink of bankruptcy.

With $800 million in unpaid debt in 2003, LEGO’s then CEO Jørgen Vig Knudstorp was convinced that the company was on a path to crash and burn.

“We’re running out of cash.. [and] likely won’t survive.”

The path to LEGO’s revival started in 2004 when Knudstorp began enforcing cost-cutting decisions and selling any LEGO’s business subsidiaries unrelated to the core product.

These actions steered the company back to its ‘brick’ business and the company began listening to the needs of its customers once again.

LEGO in Asia

Lego figure of Jørgen Vig Knudstorp, LEGO CEO who led the company out of the rut

13 years later, revenue increased five-fold and returned to profit. LEGO was named the most powerful brand in the world earlier this year and posted the highest revenue ($5.7 billion) in its 85 years history.

Now they’re looking at Asia.

THE CHALLENGE

Despite record-breaking results, the company’s sales grew only 6% this year after experiencing five years of double-digit growth. In LEGO’s biggest market, the US, sales fell flat despite a significant increase in marketing spend. The company also had to increase prices in the UK after the weakening of the pound following Brexit.

With an already high profile and static demand in mature markets where two third of its revenues come from, the company is hard-pressed to expand – enter Asia.

Although the toy company has been present in the region for the last three decades, LEGO believes that it still hasn’t unlocked Asia’s untapped potential where almost 60% of the world’s children reside.

Conquering Asia isn’t easy as the company faces several issues that are unique to this marker, namely having to price items for higher due to import duties and lack of an expansive retail footprint — causing LEGO to have to work with small distributors to reach audiences across single markets.

There is also a big difference of culture, where ‘play’ is defined differently and not considered as important for young children.

THE INNOVATION

In November 2016, the company opened its first factory in Asia (its fifth globally), located in China’s eastern Zhejiang province and an R&D hub in Singapore.

The decision to open the factory in China was motivated by the company’s 50% increase in sales from 2013 to 2015 in the country.

The 40-acre factory is expected to cut distribution costs and lower the price for customers in Asia. It’s also expected to produce 80% of the demand coming from mainly Japan, Korea, and Southeast Asia.

LEGO also opened its largest retail store in Shanghai on a mainstreet outside of Disneyland, as testament of its confidence in its belief that China will be its third biggest market after the US and Germany.

LEGO in Asia

The opening of the LEGO Store in Shanghai

In terms of digital marketing, it seems the company is tailoring their efforts to target certain demographic groups.

The company is not only popular with children but also appeals to adult fans, particularly in Asia where over 80,000 of them are.

When the company launched its limited edition Architecture series – the first product line made for adults – they featured Seoul’s Sungnyemun Gate and Tokyo’s Imperial Hotel to appeal to Koreans and the Japanese.

LEGO in AsiaLEGO also granted tech-savvy Japan early access to Cuusoo, an online tool that allowed users to design their own LEGO designs in hopes of creating local buzz around its products.

In more recent news, a year-long ‘Build Amazing’ campaign was launched in April in Singapore – a highly family oriented country-state – to encourage parents to think differently about the definition of success and emphasize LEGO’s role in in children’s development.

LEGO in Asia

“The picture of success can be anything, it all depends on what that child wants to envision for their own life. This generation [of parents] are starting to think differently, as in there is an element of creativity and imagination that can help foster that, it’s not a one way route anymore,” said LEGO Senior Regional Brand Manager, Kevin Hagino.

To further its position in the market, LEGO expands its reach through online channels, by selling through e-marketplaces including the Lazada and Central.

LEGO in Asia

LEGO official store in Lazada

THE STRATEGY

Earlier this year, the widely applauded Jørgen Vig Knudstorp stepped down from CEO to head LEGO Brand Group. The division focuses on building long-term brand potential as the parent company expands overseas.

“Our long-term ambition is to provide the opportunity for millions more children around the world to benefit from LEGO play experiences, especially in emerging markets,” said Bali Padda, LEGO’s current CEO.

By building on its presence in Asia, LEGO is trying to become what it calls a “third leg on the stool” to complement its traditional markets, Europe and the US.

“What we’re trying to achieve is to have a major presence in all three regions so we can have a natural hedge on currency flows,” revealed Knudstorp.

THE FUTURE

As the toy industry is poised to grow bigger and new-gen parents in emerging markets can afford to be more open and attentive to the needs of their children, LEGO is in a good position to win the market, even in the emerging ones.

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