|
Lego tries to put it together
|
 |
April 23, 1999: 3:05 p.m. ET
Danish toymaker's goal of being top brand includes software, theme park
|
NEW YORK (CNNfn) - Block by block, Lego Group wants parents and children, both boys and girls, to associate its name with quality and creativity -- and it's willing to sacrifice the riches available in the world's equity markets to do that.
The privately held Danish company is in the midst of an expansion aimed at raising its profile among families with young children, particularly those in the world's largest toy market: the United States.
That expansion includes the first Lego theme park in the U.S., an increased presence in children's software, an attempt to be perceived as a company for girls as well as boys, and the first licensing deals with such characters as Winnie the Pooh and Luke Skywalker.
"We want to be the premier brand among families," said Charles McLeish, Lego Group's U.S. director of marketing services. "We have a very strong position right now. Being the undisputed leader would be the goal."
That's a tall order -- particularly when you're pitting construction kits against a ubiquitous fashion model doll. But maybe not for Lego, known best for the interlocking blocks preschoolers use to create objects from their imagination.
"They're certainly on the list of the top five brands in the toy industry, up in the ranks with a Barbie or Monopoly," said Hayley Kissel, an analyst who follows the toy industry for Merrill Lynch Global Securities.
Some financial worries
But there may be a few chips on the blocks as well. Lego, which is expected to report its 1998 results later this month, is coming off sharply reduced profits in 1997. While U.S. sales are expected to have risen by about 20 percent, there are indications that economic weakness in the rest of the world and excessive administrative costs could result in a loss for 1998.
The weakness is not unusual in the toy industry. Mattel, (MAT) the company that makes Barbie, recently announced a loss for the first quarter, due primarily to unfavorable comparisons to the torrid plush toy sales of early 1998.
There's also a directive out from Billund, the company's home, that the work force needs to be cut by 10 percent in 1999 -- an action similar to one announced by Mattel.
"The Lego Group is not in crisis. We have time for the discussion necessary for the right decisions to be made," company president Kjell Kirk Christiansen said in a January memo to employees. "But action is needed. We will not deviate from our goal of being the world's strongest brand among families with children. Nor will we adjust our long-term growth and earnings targets for the years up to 2005."
Company officials in the U.S. say the shakeup shouldn't affect the company's expansion.
"I wouldn't expect it to have much effect on our product development plans," said McLeish. "We expect to remain focused on new products."
California dreamin'
Lego's most prominent recent move was the opening of the Legoland California theme park north of San Diego last month. The park is the company's third, to go with facilities in Denmark and Britain. With more than 40 rides and attractions, the new Legoland is positioned as an attraction geared to young children and their families.
As a result, the park doesn't have the high-tech attractions of the year's other major new theme park opening, Universal Studios' Islands of Adventure in Orlando, Fla.
"It is a park for younger children -- it's not a wild amusement park," said Reint Reinders, president of the San Diego Convention and Visitors Bureau. "In this day and age, it appeals to young families who are in need of a nice place to spend some of their precious quality time together."
Reinders sees Legoland drawing about 1.5 million-2 million visits a year. That's well below the approximately 9 million visits to Disneyland, about two hours to the north -- but still, according to Reinders, "another notch in our belts that adds to San Diego as a family destination."
Blocks on the PC
Lego is also making the inevitable trek to the desktop. Lego-branded programs were introduced by Mindscape in 1997, and the company's 1998 products netted three of the Software & Information Industry Association's Codie awards for outstanding achievement.
Lego's computer programs include a chess game with interactive characters
This year, the company is putting out four different programs, with two of them being their first entries into the dedicated video game market -- the realm of Nintendo 64 and Sony PlayStation.
And while Lego doesn't see itself as a software powerhouse, the director of Lego Media International said he wants the company to have a reputation for being on the cutting edge.
"We want to produce programs that go above and beyond other products for children," said Greg Sauter. "We want kids to say, when they use other programs, that this thing is really dull compared to the vibrant 3D and very graphic products that are put out by Lego."
Going for girls, too
One of the programs is part of Lego's effort to erase the perception that it's a company exclusively geared to boys. Lego Friends allows preteen girls to create a musical revue and cast it using characters within the software.
The company has also launched its Scala doll family whose focal points, Emma, aren't so different from Barbie's -- dressing up and hanging out with friends. But Scala is only available in Europe, with Lego shying away from taking on Barbie on her home turf.
"Of course, we've never had the perception that Lego is a boy's toy," said McLeish, who added that the company is trying to strengthen its position among girls.
"Certain types of products succeed with girls, and we want to make sure any product reflects the Lego values and also takes into account the other types of things girls are looking for -- including creativity and collectability."
The Force is strong with it
But perhaps the biggest boon to Lego's sales in 1999 will come from its first venture in licensed characters. In particular, it will be in line to benefit May 3 when the toys from the new ""Star Wars" sequel are officially available for sale.
Besides LucasFilms, Lego has tied in Disney to market a Winnie the Pooh set of Duplo blocks to preschoolers. The two licenses represent the kind of companies Lego says it wants to associate.
"They're evergreens," said McLeish, "We're looking to maximize our relationship with those two partners."
"Lego has done some intelligent things with licensing in the past year," said Merrill Lynch's Kissel. "But they're just catching up."
All in the family
Lego has been held from its onset solely by the Kirk Kristiansen family. The president, 51-year-old Kjeld, is the company's largest shareholder and the grandson of company founder Ole Kirk Christiansen.
The company began building wooden toys in 1932, during the heart of the Depression in Europe. Up until World War II, Lego -- which combines the Danish words for "play" and "well" -- the company made vehicles, animals and yo-yos for sale throughout the Scandinavian nation.
After the war, the company began experimenting with plastics. In 1950, the function began experimenting with the snapping function that allows anything built with the blocks to last longer than gravity normally allows.
The Lego blocks that are the main product of the international toy company
Lego began exporting its toys in the early 1950s, coming to America about a decade later. As of last year, the company said its products were sold in 130 countries and have been used by more than 300 million children throughout the world.
Lego will try to do all this brand-building without the benefit of the capital they could obtain in equity markets. Despite the attraction that an initial offering would be, either in the U.S. or in Europe, McLeish said there's no plan to take the company public.
"The fact that the company is privately held is a strategic advantage," said McLeish. "We've put short-term considerations in their place, and focused instead on the long term. We're not focused on quarter to quarter."
But Merrill Lynch's Kissel sees the money that could be raised in the equity markets as a way for the company to achieve its brand recognition goal.
"It would help them if they want to make an acquisition," she said. "It would them on the brand equity because you're more in the public sector." 
-- by staff writer Mark M. Meinero
|
|
|
|
|
|
Lego
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
