An ‘aspirational brand’: Legos jostling toy chest

By Gregory Schmidt, New York Times News Service

Friday, Nov. 20, 2015 | 11:15 p.m.

When Paul Hollingsworth tried to re-create “Jurassic Park” in a video using Lego bricks, he ran into a roadblock. Lego offers plenty of T. rexes, velociraptors and other dinosaurs, but not Richard Attenborough or Jeff Goldblum, who played characters in the movie.

Fortunately, Hollingsworth had been collecting Legos since he was a child and had amassed $40,000 worth of bricks, so he combed through older Lego sets like Harry Potter and Indiana Jones until he found the pieces he needed to re-create those characters.

“They have so many different themes and bricks, you can build anything you want,” said Hollingsworth, the founder of Digital Wizards Studios, a production company in Sherman Oaks, California, that makes stop-motion animation shorts using Lego bricks. The company grew out of his hobby of making videos with his daughter, Hailee, 9, who reviews Lego sets on YouTube.

For others, the task of simply building a Lego set is worthy of a video. Emily Lakdawalla, a senior editor for the Planetary Society, a nonprofit organization run by Bill Nye, was undaunted when she set out to build a replica of the Taj Mahal, which, at 5,922 pieces, is Lego’s largest set.

A longtime Lego collector, she has sets that date to the 1980s. “I obsessively organize them,” she said. “Everything is separated by type and color. I have file folders I use to organize all the instructions.” So with help from her two daughters, she completed the Taj Mahal in five days and posted a time-lapse video on YouTube.

Videos like these are one reason sales of construction toys have surged. They can mix and match multiple entertainment properties — such as a “Simpsons” character using a castle from Disney’s “Frozen” or “Star Wars” and “Halo” characters engaged in a battle — and they encourage fans to show off their creativity and building skills.

“User-generated content has drawn a lot of attention to the brands,” said Jim Silver, the editor of TTPM, a toy review website. “You could have a Scooby Doo set and find Darth Vader inside.”

Lego, the undisputed construction toy king, has more than doubled its profits in the last five years and many of its sets are top sellers during the holiday season. Its success and the fact that it lost a long-running trademark battle over the interlocking brick in 2010 have encouraged competition.

Big toy makers like Hasbro, Mattel and Spin Master have also turned to construction toys to help bolster their sales. And smaller companies like the Bridge Direct, Cobi and OYO Sports have entered the field, putting more pressure on Lego. Interest in construction toys has even led to a secondary market of brick rentals.

Lego’s competitors say they want to distinguish themselves from their biggest rival. MEGA Brands, a subsidiary of Mattel and Lego’s closest rival, goes “above and beyond the squares and rectangles,” said Andrew Sparkes, vice president for global brand marketing at MEGA Brands.

“We are creating some of the most realistic sets out there,” he said, including sets based on the “Halo” video games and the movie “Terminator Genisys.” MEGA recently signed licensing deals for the classic “Star Trek” TV series and Teenage Mutant Ninja Turtles.

MEGA Brands was acquired by Mattel in 2014 in a deal that increased MEGA Brands’ worldwide distribution, said Gerrick Johnson, analyst for BMO Capital Markets. That global reach may have helped MEGA Brands secure licenses for brands like SpongeBob SquarePants and Teenage Mutant Ninja Turtles, because with a smaller company like MEGA Brands, “you might get more attention and innovation,” Johnson said.

Other companies are exploring themed sets that do not fit with Lego’s more wholesome brand.

“We have values in place that the brand is known for that we focus on,” said Michael McNally, brand relations director for Lego. “We don’t do military themes or anything overly violent or grotesque.”

Todd McFarlane was happy to pick up the mantle. He started McFarlane Toys in 1994 with a focus on sophisticated action figures, but he recently began to apply his attention to detail to construction toys. He wanted a theme untouched by Lego, so he started with sets based on the immensely popular television show “The Walking Dead,” which was soon followed by “Game of Thrones” sets.

With the “Walking Dead” sets, he sought to copy the grim and graphic details shown on the television series. He said the zombie sets sold well, in part because of the realistic design, which his target consumers sought.

“My company sells to consumers 14 and older,” he said. “That’s the biggest difference: They sell to moms and 7-year-olds; I stick to what I know best.”

Cobi, a privately held Polish toy company, follows a similar business strategy, making construction toys that Lego passes over. Its military-themed collection has been its best-selling toy since 1999.

“From the very beginning, this line has been the key product in our lineup,” Aleksandra Niewierkiewicz, Cobi’s executive export manager, said by email. “We try and develop categories that don’t compete directly with our competition, which is why this continues to be such a strong category.”

Niewierkiewicz acknowledged the importance of licensed properties, which are part of the company’s plan to double its sales by 2020. The company recently added the Penguins of Madagascar to its portfolio of licenses that includes Ben 10, Jeep and Trash Pack.

“A good license, at the right time, in combination with an excellent product gives outstanding results,” she said.

Despite the growing competition, Lego continues its command in the category with a 65 percent market share, according to Euromonitor International, a market research provider, which predicts that the worldwide market for construction toys will expand to $14.5 billion in 2019 from $9.3 billion in 2014.

A closely held Danish company, Lego reported in September that its net profit in the first half of 2015 rose to 3.55 billion Danish kroner, or $537.5 million, from 2.72 billion kroner in the same period a year earlier. Revenue rose 23 percent to 14.14 billion kroner.

In recent years, Lego jettisoned noncore businesses and expanded its brick toys, adding in-house brands like Ninjago and its recently announced Nexo Knights. And the company capitalized on its other licensing agreements to offer themed play sets for new brands like “Minecraft” and the Simpsons, as well as stalwarts like “Star Wars,” Batman and the Avengers.

It also joined with big media and production companies to create a diverse portfolio of video games, television shows and movies. “The Lego Movie,” which was released in February 2014, made $469 million worldwide, according to Box Office Mojo, and reignited affinity among children and adults for the Lego brand. The movie’s success led the company to plan a sequel and a Batman-related spinoff.

That good fortune meant that Lego did not have to look over its shoulder, said Jaime Katz, an analyst for Morningstar. “Everybody else is just a bit player in the industry,” she said. Lego was an “aspirational brand” that its rivals hoped to become.

All this attention on construction toys has helped spur a secondary market around selling and renting bricks. Pley, a Silicon Valley startup founded in 2013, rents Lego sets by mail via a subscription service. “We are the Netflix of Lego,” said Ranan Lachman, the chief executive and co-founder of Pley.

Pley cleans and sanitizes each set after it is returned, and missing pieces are replaced at no charge. According to Lachman, Pley saves parents 70 percent on Lego sets, which can run from $20 to $200, and eliminates clutter from their homes.

Those benefits are drawing customers and investors. Lachman said the company had 50,000 monthly subscribers and had raised $17 million from venture capital firms. But he said the real lure was the Lego brand.

“The answer lies within the brand’s name and the quality that Lego has built over the years,” Lachman said. “It’s a brand that spans generations.”