Source: The Wall Street Journal ©
Lego A/S reported a sharp drop in half-year profit as it plowed money into new stores and rolling out products and digital initiatives in a bid to stay ahead of fast-changing consumer behavior.
The world’s No. 1 toy maker by sales said it is investing to ensure continued growth as it competes for children’s attention against videogames, YouTube and other digital distractions. Lego Chief Executive Niels Christiansen described kids as increasingly squeezed for time.
“The biggest challenge is innovation,” Mr. Christiansen said in an interview. “The good thing is physical play remains relevant, but it’s really a fight for children’s time.”
The Danish toy-brick maker said Tuesday its net profit for the six months to June 30 slumped 12% to 2.7 billion Danish kroner ($396 million), while operating profit fell 16%. Revenue climbed 4% to 14.8 billion kroner, up 2% excluding foreign-exchange fluctuations.
Expenses rose to 11.28 billion kroner from 10.07 billion kroner a year earlier.
Lego for years enjoyed double-digit gains in developed markets like the U.S. and Western Europe, but growth there has slowed. The closely held company is now focused on expanding in markets like China, where it has been opening dozens of new stores.
In the first half, Lego’s sales to consumers in the Americas and Western Europe grew by a single digit percentage, while in China they notched double-digit growth.
Lego is also looking to tap India. It currently sells through a distributor in India but plans to open its first office there next year with an eye to making direct sales. Lego says a growing middle class and focus on children’s education in India and China provides a big opportunity.
“Within the next 10 years there will be more than 100 million kids in India living in middle class families,” Mr. Christiansen said. “So it’s a spot where Lego should be.”
Mr. Christiansen took the helm in 2017 after the company reported its first sales decline in more than a decade. Under his leadership, Lego has slashed jobs, tried to launch products more quickly, increased digital offerings and expanded distribution.
Lego lines that did well in the first half include Lego City, Marvel Avengers and Star Wars.
Lego said it is focused on expanding in markets like China where it has been opening dozens of new stores, such as its first store in the northwest Shaanxi province. PHOTO: PENG HUA/ZUMA PRESS
Mr. Christiansen said its sales to consumers in the U. S.—its biggest market—grew by 5%, in line with growth globally. In response to the bankruptcy of retailer Toys “R” Us, Lego has been distributing through department stores like Kohl’s Corp., arts-and-crafts retailers like Michaels Cos. Inc. and discount stores like Dollar General Corp., in addition to online and its own stores.
The company has been opening dozens of new branded stores, mainly in emerging markets as Mr. Christiansen looks to build brand awareness. This year it will add 170 stores, 80 of which are in China, bringing its total store count to over 590 globally.
“A lot of Chinese children have never played with Lego and neither have their parents, and it’s really important for us to get them into the universe,” Mr. Christiansen said.
Despite remaining committed to its physical brick sets, Lego is creating more products that incorporate technology. In February, it launched building sets that become haunted versions of themselves when used with an augmented reality smartphone app. In April, it hired a chief digital officer who is focused on accelerating Lego’s use of technology for its bricks.
Source: The Wall Street Journal, Saabira Chaudhuri, September 4, 2019