Lego’s growth strategy: how the toy brand innovated to expand

Lego may be the building blocks of the toy industry, but it hasn't always had a smooth ride. Learn the details of Lego's growth strategy, and discover how they continue to expand in a saturated market.

Lego has been delighting kids (and bringing pain to grownups’ feet) for close to 90 years. It’s always been a towering giant in the toy industry – but in the last couple of years, the company has had to radically rethink its campaign planning and brand growth strategies to compete with challengers in the space and digital offerings. It’s a great example of market research used correctly.

The cash had stopped stacking up

Lego reported its first drop in sales and profits in more than a decade in 2017. The problem, said the family-owned Danish company, was weaker demand in established markets such as the US and parts of Europe, where a saturation point had been reached. 

In the five years leading up to this point, Lego had invested in massive growth. They tripled their workforce and tripled the number of lines they offered, and this had left the company over-extended.

Stock was piling up in warehouses because Lego had too many product lines, and there just wasn’t enough room on the shelves in toy stores. The toy trade is all about what’s new, so the only way to shift the stock was by slashing the price – devaluing the brand in the process. 

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The toymaker recognised the need to expand into markets that were still growing, such as China, but was struggling to do so, said chairman of the group Jørgen Vig Knudstorp, in a press statement. “We have added complexity into the organisation, which now makes it harder for us to grow further. As a result, we have pressed the reset-button for the entire group.” 

Unfortunately for Lego’s employees, this meant cutting 1,400 jobs – about 8% of its 18,200 global workforce. Knudstorp said this pruning back would prepare the company to grow back stronger: “We will build a smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children. It will also impact our costs. Finally, in some markets the reset entails addressing a clean-up of inventories across the entire value chain.”

Legos growth strategy

The building blocks of Lego’s new growth strategy

When establishing a new growth strategy, Lego decided to set its sights on China, having already seen double-digit growth there. It would put money into opening stores, while shipping less product to retailers in the US and Europe. 

Chief Executive Niels Christiansen said Lego had taken “the active choice” to bring down operating profits by 16% in order to invest more. “We have the ambition of getting to as many kids as we can around the world, and getting to that means we have to keep gaining market share. We would rather do the investments upfront to be leading that change.” 

Opening its third-largest global factory (in the city of Jiaxing) positioned Lego to supply products not only for the Chinese market, but other Asian markets too, including Japan and South Korea. 

Research showed that Chinese kids play with Lego in much the same way as children of any nationality, and so the toymaker would not be developing product lines specifically for Chinese or Asian markets. It would, though, seek to combine physical and digital play to adapt to China’s advanced digitisation. 

“The fact that hundreds of millions of Chinese consumers will form an increasingly affluent middle class in the coming years is a huge opportunity for us,” said Lego spokesperson Roar Rude Trangbaek. “Lego products – the whole idea of creative play experiences – is something that resonates strongly with Chinese consumers.”

Lego’s growth plans included adding stores to less central cities in China. “We began with shops in the major cities and are now looking to reach more children by establishing stores in more cities as we see increasing interest and demand for our products,” said Trangbaek.

Everything is awesome (again)

Lego’s new brand growth strategy paid off – they returned to growth again in 2018, with profits and sales both increasing by 4%. CEO Niels Christiansen announced that 80 new stores would be launched in China during 2019, adding to the existing 60, and giving it a presence in 35 cities. Although, he added that the company would not be aiming for the “supranatural” growth rates of the past.

Lego's Brand Growth Strategy Infographic

Just released figures for the first half of 2019 show steady progress with a 5% increase in global sales, including double-digit growth in China. The success comes despite issues with counterfeiting, where other manufacturers have tried to rip off Lego’s colourful blocks and branding. The Chinese authorities have been supportive in helping to uphold the firm’s intellectual property – Lego has won cases against six copy-cat companies.

The Financial Times believes the LEGO Group now has a “robust growth model” and that expanding its footprint in China is a smart move. “Store expansion should help secure sales growth. Shops create experiences, promoting the brand in un-Legoed parts of the world, including China,” it said in a comment piece.

And it’s not just the analysts who are praising the brand – for the second year in a row, UK consumers have named Lego as their favourite brand. And with a new flagship store in Beijing, featuring attractions like Lego replicas of the Great Wall of China and Forbidden City, it looks like the toy brand will soon be equally loved by Chinese consumers. As Head of LEGO Retail, Claus Flyger Pejstrup, said: “Our LEGO stores are a great tool for building brand awareness and emotional connection with our fans.” 

Building a bright future with a winning growth strategy

So what’s next for Lego? The company’s long term growth strategy includes a push into India and it has announced plans to open an office in Mumbai. 

“Within 10 years, there will be 100 million kids in India living in middle-class families,” Christiansen told the FT. “They are strong into education and products like Lego are very high on the wish list. The idea would be to get on some kind of journey like we are on in China.”

“The growing middle class, importance of education, and growing economy make India a logical next step in our efforts to reach many more children around the world,” he added.

The company also plans to open more than 70 Lego brand stores outside of China this year, including its fifth flagship store in Amsterdam, The Netherlands.

“We are making these investments from a sound financial base to capture the opportunities being created by mega-trends, such as digitalisation and global demographic and economic shifts which are reshaping the industry. Being ahead of these trends will allow us to inspire future generations of children,” Christiansen told Retail Insight Network.

Meanwhile, Lego will “invest heavily in e-commerce”, ensuring it won’t lose sales to online rivals like Amazon, which was blamed for last year’s collapse of Toys R Us. Lego is also thinking about other aspects of the company’s sustainability – it’s pledged to use sustainable materials in its products and packaging by 2030.

Lego's Growth Strategy

Staying agile

One lesson the Lego’s growth strategy teaches us is how important it is to stay agile. Become a lumbering beast, and it’s not easy to change course when you see the landscape changing. Equally, when opportunities present themselves, you need to be able to react quickly to take advantage of them. 

Another way Lego has restructured to be more agile is by bringing its creative agency in-house. According to CMO Julia Goldin, it’s been key to improving efficiency and effectiveness, not just in marketing but across the business as a whole. 

“It provides complete integration – same goals, same agenda, the ability to solve problems very quickly and much greater learning across the organisation,” she told Marketing Week. “And most importantly what that leads to is they are more agile and responsive to the marketplace.” 

Goldin and her team are now working to position Lego as one brand globally, and are preparing for future growth by creating a “holistic, immersive experience for consumers”. That means Goldin’s role encompasses both product and marketing, which she describes as a “really big shift” for the company. 

“We have to innovate across the whole experience from product to marketing, the whole value chain,” she said. “We’ve experienced supranatural growth, but when you are experiencing that it is sometimes difficult to see what is going to be the next wave.

“We have now come to a point where we are really active to the new wave of growth. It doesn’t have to be supranatural, we just want to make sure we are reaching more kids and we stay relevant and engaging. That creates a lot of hunger in the organisation,” she concludes.

Learning with Lego’s growth strategy

If you’re looking for brand growth strategy examples and brand messaging templates that you can borrow and adapt, Lego’s shows you how scaling back can sometimes be beneficial. It also underlines how vital it is to go after international expansion to secure long-term growth (alongside research to back up your plans). Of course, the above also demonstrates the potential benefits of brand tracking.

Reaching saturation point can come as a surprise, like it did for Lego, and then you may be faced with suddenly having to start from scratch in a new market to secure sales.

It makes sense for brands to start exploring potential new markets early on and begin forming partnerships that let you test the water without overstretching yourself. You can minimise risk and maximize brand awareness ROI with thorough consumer research and brand tracking, especially gathering consumer insights that let you gauge both interest in your brand among native shoppers and any cultural differences you’d need to adapt to. That’s how Lego established a sound growth strategy and pushed forwards with confidence.

Already thinking about how to grow your brand? Check out 6 ways to break through the barriers to international expansion.

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Bel Booker

Senior Content Writer 

Bel has a background in newspaper and magazine journalism but loves to geek-out with Attest consumer data to write in-depth reports. Inherently nosy, she's endlessly excited to pose questions to Attest's audience of 125 million global consumers. She also likes cake.

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