Article, Business Week, 1976
dev...@acf1.nyu.edu
From BUSINESS WEEK
Sept. 6, '76 pp80, 83
Reprinted without permission
A Danish toymaker puts it together in the U.S.
Lego plans a $2 million TV campaign to boost U.S. sales by about
50%
Soon after Labor Day toy manufacturers will unleash a barrage of
television commercials aimed at moving their products off
retailers' shelves and getting them beneath Christmas trees. One
of the heaviest campaigns will be a $2 million effort by a
company called Lego, headquartered in Denmark, and its U.S.
subsidiary, Lego Systems Inc., of Enfield, Conn.
If Lego's new TV commercials work as well as others have in
recent years, millions of parents will rush to stores to ask for
Lego-building-block sets that consist of seemingly unlimitted
numbers of tiny, colorful, interlocking plastic bricks. With the
bricks, youngsters can build miniature homes, office towers and
other structures and become part of a worldwide market that this
year will buy Lego sets worth about $300 million at retail.
Since the Danish company launched its U.S. operation, the
name has become as well known to toy buyers as Barbie Doll or
G.I. Joe. The name itself derives from _leg godt_, Danish for
"play well."
RAPID SUCCESS. In three years the Lego blocks have put new life
in the formerly stable market for what the trade calls
"conmstruction" toys. This rapid success was achieved in the
face of a poor record in earlier years. Lego was first
introduced to the U.S. more than a decade ago, but it languished
under a North American production and marketting license obtained
by giant Samsonite Corp. The product began to move fast only
after Samsonite, which never sold more than $5 million worth of
Lego sets annually, gave up its license in 1973.
"Samsonite had told us that American kids were different
from kids in Europe," complains an official at Lego's Danish
headquarters in Billund. "But when we took over ourselves, we
found that they were just the same. All we had to do was give
directions to construct the types of buildings they recognize."
Under president John Sullivan's direction, Lego Systems
undertook a strong advertising and merchandising effort. It
budgetted $1 million for ads immediately, setting an advertising-
to-sales ratio of about 20%, exceeding anything previously seen
in the toy industry. Sullivan's team has moved Lego into toy
departments virtually everywhere. "We can prove that if the line
is stocked in depth and properly merchandised, Lego will return
an average profit of $156 per ft. of shelf space," he asserts.
_Chain Store Age_ magazine, he notes, estimates the average at
$30 to $60 for toys.
A READY MARKET. Lego claims to have 75% of the construction toy
business in the U.S. and Western Europe. In the U.S. its
competitors include Erector, Lincoln Logs, Girder 'n Panel, and a
dozen others. The U.S. is thought to account for one-third of
Lego's sales, or almost $100 million worth at retail, and this
year should pass West Germany as the company's largest single
market. But Sullivan boasts, "We're still in the basic stages
here."
Lego's European line has more than 120 items, but the
younger U.S. line has only 33. Each year, the company weeds out
slower selling items and adds new ones. From the basic building-
block concept for three- to eight-year-olds, Lego has added such
things as doors and windows that open and close, along with an
inexpensive motor that raises bridges and performs other tasks.
These features expanded the possibilities of the system for older
children, and the company also introduced sets for toddlers, in
which the tiny plastic bricks are larger and easier for small
hands to use. The step-by-step expansion of the market, says
Sullivan, is part of a precise system of growth that Lego tries
to follow everywhere.
A 'RICH UNCLE.' The Lego parent figures that it will have to
curb its growth in Europe to less than 10% annually while it
diverts production to accomodate a projected 50% increase in
sales to U.S. customers. The heavy U.S. thrust was held off,
says Chairman Godtfred Kirk Christiansen, "until we had built up
the necessary ballast in Western Europe to keep from getting
swept off our feet." Now in addition to increasing its TV
spending-- more than doubling last year's budget-- the U.S.
subsidiary is expanding to go from what was an import warehousing
and distribution facility a few years ago to a complete
manufacturing and packing plant.
This kind of planning, Sullivan indicates, is possible only
when a company has a "rich uncle" to bankroll it. "If we had
shareholders," he says, "it's virtually impossible that they
would have been willing to risk holding down market share in
Europe while we tried to build up in the U.S."
Lego, a privately held operation, is owned by Kirk
Christiansen, son of the founder, and his family. Through two
holding companies-- one in Denmark, one in Switzerland-- the
family owns all of the toy system's patents, plans and other
assets, including 30 different companies that handle production,
sales, research and development, and other functions.
EASING OUT. The Danish company was seeking a U.S. licensee in
the early 1960s when a Samsonite executive, in Europe on a
business trip, bid for the U.S. rights. Samsonite, banking on
its experience in plastics and retailing, opened plants in
Stratford, Ont., and Loveland, Colo., to make the product and a
separate sales force to handle it. The company quickly found
that the world of toys was a jungle of special deals. "Our
managerial experience was better suited to consumer durables than
to toys," a Samsonite executive notes, "so we eased out of the
toy business."
Sullivan eased right in. He had become familiar with Lego's
marketting strategy as an account executive at the company's U.S.
advertising agency, Darcy-MacManus & Massius, Inc. After he
joined the Loews Corp. to work as a general product manager in
its Lorillard division, Lego officials pursued him and offered
him the presidency of their new U.S. subsidiary.
As Lego moves into the year's final quarter, when toy sales
soar, it is preparing its largest U.S. advertising campaign. In
response, Lego's competitors will fire some advertising
broadsides of their own. "We have not spent ad money on Erector
in the past," says Alfred N. Nordstrom Jr., senior vice-president
of Gabriel Industries Inc., which acquired the famed Erector name
form A.C. Gilbert Co. a decade ago. Now the company will use
print and TV adevertising in a few markets. Milton Bradley Co.'s
Playskool Div., which makes Lincoln Logs and Bristle Blocks, is
budgetting about $2 million to advertise its construction toys.
JAPANESE COPY. Sullivan professes to be unworried about inroads
that rivals might make on Lego's business. "There are more than
20 companies in Europe that knock off Lego in one form or
another," he says scornfully. But in the U.S., Entex Corp., a
California sompany, has been gaining ground by distributing a
Japanese copy of Lego. Called Loc Blocks, the kits retail at
about half the price of Lego. Sears, Roebuck & Co. and Zayre
Corp. are among the retailers handling them. A Lego suit
charging patent infringement against Entex and its Japanese
manufacturer was recently turned aside in court, and Nicholas B.
Underhill, vice-president and director of marketting for Entex,
says the company will go ahead with a TV campaign for its sets in
30 markets that is starting on Oct. 1.
Although Underhill cites Loc Blocs sales as "phenomenal,"
the toy industry knows that it and other competitors have a long
way to go before anyone catches up with lego. Says Gerald
Garfinkle, merchandising vice-president at Child World Inc., a
chain of 36 retail toy stores headquarterted in Avon, Mass.,
"Lego is the one name that customers demand."
Ernest A. Cline
product accompanied by a switch in the logo?
I have some older Legos that instead of the current Lego logo have LEGO in a
larger plain sans-serif typestyle on them.
Or did the change just occur at about the same time for unrelated reasons?
--
Ernest Cline cl...@cs.scarolina.edu Professional Grad Student
"I intend to stop procrastinating tomorrow."
dev...@acf1.nyu.edu
>Was the switch from Samsonite's licence to Lego's direct handling of the
>product accompanied by a switch in the logo?
That's interesting...
Does anyone know if these 2 events were simultaneous?
>I have some older Legos that instead of the current Lego logo have LEGO in a
>larger plain sans-serif typestyle on them.
I inheritted my old-logo-Legos from my older brothers and sisters,
but they also had ones with the current logo, and this was before
Samsonite surrendered its license I think.
>Or did the change just occur at about the same time for unrelated reasons?
Does anyone know what year Lego changed the logo that appears on the
brick?