- 12 years ago
Lego saw a 15% rise in profits in 2014, with sales up partly thanks to the success of the Lego movie. Markus Karlsson speaks to the CEO of the Danish toy maker. Jorgen Vig Knudstorp says he is not worried about weak currency or global growth as long as his company keeps reinventing itself. "The brick is not a new invention", he says. However, "our ability to constantly innovate and renew ourselves is the key driver of our top line development", he explains.
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NewsTranscript
00:04Welcome to the Business Interview. I'm Markus Carlsen.
00:07Everything was awesome for Danish toymaker LEGO in 2014.
00:11Sales and profits grew by double digits at the plastic brick maker.
00:15Part of the success stemmed from the box office.
00:18The LEGO movie may have been snubbed at the Oscars recently, but it was a commercial hit.
00:23And on top of that, LEGO was recently named the world's most powerful brand by the consultancy Brand Finance.
00:29To talk about where the company goes next, we can turn to Chief Executive Jørgen Wig Knutztopp.
00:35He's with us from LEGO's headquarters in Billund, Denmark.
00:39Thank you very much indeed for being with us, first of all.
00:41Thank you. I appreciate the opportunity.
00:44Now, how much of your success last year in 2014 stemmed from the LEGO movie,
00:49both in terms of ticket sales and also in terms of merchandising?
00:53Right. So, the LEGO movie itself was developed by Warner Brothers.
00:57It's really their project, so they earn all the revenues from the movie.
01:01We are not part of that. We earn a small licensing income.
01:05But for us, the main excitement and attraction of the movie is that it's such a wonderful experience
01:10and such a great expression of what the LEGO product and LEGO idea is all about.
01:15And that surely has had an impact on our business.
01:18But having said that, I would say that our growth in 2014 was very broad-based.
01:24You know, our biggest themes remain things like LEGO City, LEGO Duplo, LEGO Star Wars, LEGO Friends,
01:30which is a theme in particular for girls.
01:32So, our revenue is all based on the LEGO break that you'll probably be very familiar with.
01:37And it is the growth of such core offerings that is fueling our top line in 2014.
01:44And it's also a geographically very broad-based growth.
01:47So, we've seen a very nice growth in Russia, in the UK, in US, in China in particular.
01:53We've seen very strong growth.
01:55So, these sorts of things, to me, suggest that the LEGO movie had a part in it,
02:00but it isn't the entire explanation.
02:02You say that the LEGO movie was a Warner Brothers project.
02:06Still, though, I'm guessing that you've made a buck or two
02:09when it comes to the merchandising surrounding the film.
02:12Do you think that you will be able to do a repeat performance, so to speak,
02:15in terms of growth in 2015, as the effect of the LEGO movie tapers off?
02:20Yes, I think we are.
02:22Because I think, also, the last part of the growth we saw in 2014
02:27was based on other things than our LEGO movie products.
02:30So, certainly, I think the growth is set to continue
02:34as we continue to expand our presence in a number of markets worldwide.
02:38Plus, you know, I believe this overall effect of raising awareness
02:42to the LEGO brand and explaining what the LEGO experience is all about
02:46that comes from the movie will stay with us for quite some time
02:50in that the LEGO movie has also, I think, in a certain way educated
02:55a new group of consumers, whether it's children who are growing up to get to know LEGO
03:00or being present in countries where they were maybe not so familiar with LEGO
03:03until they saw the movie.
03:05Now, your home country, Denmark, is not in the Eurozone itself,
03:09but the Danish Krona is still pegged to the Euro.
03:12What's the impact on you as the Euro and the Krona lose value?
03:18Obviously, we're seeing an impact over time from the current appreciation of the US dollar.
03:23It's not a major influence on our 2014 results for a number of reasons.
03:28One being that we actually manufacture a lot of what we sell in the US inside NAFTA in Mexico,
03:37but also because the impact was, for us, somewhat delayed in 2014.
03:43In terms of the Russian ruble, of course, which is an extreme case,
03:47and also to a much less, in a more moderate way, the Japanese yen, we're seeing a currency impact.
03:52But it is something that I think a company like ours, which really has a global consumer basis,
03:58we are able to sort of balance out these currency effects, and it has not been a major factor.
04:05In 2014, we had a top-line growth in local currencies of 15%, translated back to Danish Krona,
04:12that became 13% growth.
04:14So that gives you an idea of the type of impact we're talking about.
04:17Now, as I said, as you just said there, 2014 was a pretty stellar year for you.
04:22Still, though, looking ahead, what are the risks to LEGO's business?
04:26We've talked about the currencies, but what other risks are there on your horizon?
04:34Yes, so I think, you know, interestingly, over time, it's not that the LEGO business is counter-cyclical or anything
04:39like that,
04:40but I think over time I've seen the LEGO business being fairly resistant to short-term macroeconomic or geopolitical changes,
04:47or even turmoil.
04:48So we seem to be more on a long-term trend correlated to the growth in average income in households
04:54across the world.
04:55And so I think if there's a belief continuing to face a lot of great growth opportunities,
05:01but it relies on what I feel is the biggest risk to the company is our ability to continue to
05:08renew ourselves,
05:09to renew our offering.
05:10Because, you know, you've got to remember, the brick is no new invention.
05:13It's been with us for some almost 55 years.
05:16And so our job is really to constantly develop something that's incredibly attractive to children.
05:23And we are succeeding.
05:24But I think for me, that is what I worry about most,
05:27is our ability to constantly innovate and renew ourselves,
05:30because it is the key driver of our top-line development.
05:34What's your plan when it comes to innovation?
05:36Now, your biggest rival, Mattel, of course, has taken a hit as Barbie sales have slipped.
05:41How big is that risk for you that tastes change and you go out of style, essentially?
05:47And what can you do about that risk?
05:49Well, I think it is certainly a risk.
05:53And we've seen it happen over, you know, more than 80 years of existence.
05:56The LEGO Group has had its share of up and downturn.
05:59So that is definitely a risk that you fall out of favor, if you like.
06:02But what we're doing about it is, of course, a number of things.
06:06We're staying very close to our core consumer base.
06:09We're seeing literally thousands of children across different geographies every year.
06:14We have a design team, which is over 200 people reflecting their different 25 nationalities.
06:22So, you know, for us, it's really about staying very close to the retailer,
06:26using all the knowledge, all the data, all the analytics that retailers today offer through e-commerce.
06:32Using the insights we generate by living with children and their families by bringing them inside our company.
06:38So it's sort of to be, if you like, remain humble and open to input.
06:41So you catch underlying trends soon enough to be able to react to them.
06:46And that, of course, is not an exact science.
06:49We can get it wrong.
06:50We can be too slow to react.
06:52But so far, our history proves that we have been fairly agile to react and continue to be successful.
06:58Now, you have received criticism in recent years for marketing toys differently to boys and girls or marketing toys essentially
07:08separately to boys and girls.
07:10Will you continue doing that?
07:12Yes, it's true that the criticism was raised, but it was also raised by a group of people who had
07:17not seen the products we were bringing to market.
07:19They had a concern that the products we were bringing to market would be too stereotypical in depicting a girl's
07:25aspirations or the future life of a girl as a grown up woman.
07:29And when they actually saw the product, they really saw that this was based on the Lego brick, just like
07:34a Lego City product.
07:35And they actually redrew the criticism.
07:37And they also, when reviewing our marketing material, could see that we were actually one of the companies that had
07:42through generations, literally going back to the early 1970s and even 1950s,
07:48been promoting that creative play is equally relevant for boys and for girls.
07:52Then it's true that there are certain themes we do where we primarily see a girl or a boy as
08:00the key consumer of that product.
08:04And for instance, to be a little bit in the stereotypical language, sometimes when there's a conflict involved,
08:09well, then sometimes it's more attractive to boys.
08:12Sometimes when it's more about socially connecting, building friendships, it's more appealing to girls.
08:17But we are making the campaign, making the product such that it can be used by both boys and girls.
08:24And we are indeed seeing a big part of our portfolio being consumed both by boys and girls.
08:29In fact, Lego City, which is among our very biggest and most successful product lines, is one that is very
08:35much used by both boys and girls.
08:37I want to turn to your story as a corporate leader for just a moment, because Lego was almost bankrupt
08:42essentially a decade ago.
08:45What is the main contributor to Lego's turnaround story in your view and from your perspective?
08:55Well, I think family ownership and being very patient from a shareholders perspective was very important during the crisis.
09:00It allowed us to fix the fundamentals of the business instead of focusing on growing the top line.
09:05And that really allowed us to restructure and build a much more healthy business model and much more healthy business
09:11came out of that.
09:12And then we were really embarking on the growth and working very hard on innovation, not only innovation in product,
09:19but innovation in delivery models and business models and supply chain, which has allowed us, you know,
09:24in what is essentially a highly seasonal business where almost 50 percent of sales happen, you know, in the last
09:30six weeks before Christmas.
09:31So, you know, operational excellence in this type of business is critical to both your sales success, but definitely also
09:39to your bottom line development.
09:41And we've been able to have this kind of dual focus on innovation and it has really served us fantastically
09:46well.
09:46Now you're building a new factory in China. Is that where the future is looking ahead?
09:52Yes, we have a factory in Mexico that served the America's marketplace.
09:56We have a couple of factories in Europe serving primarily Europe, Middle East and in the future also Africa.
10:01But we need a factory in Asia not to target low cost, as some people have asked us.
10:07But no, in fact, it is to be able to supply fast to the Chinese, Japanese, South Korean, Taiwanese, those
10:15sorts of marketplaces within a couple of weeks,
10:17instead of the usual eight to ten weeks when you manufacture in Europe and ship to those markets.
10:22And it is necessary for us with this kind of response time, because, of course, we are finding e-commerce
10:27being very important in China with fast response time.
10:30We're finding retailers in Japan and South Korea to be amongst the most sophisticated retailers in the world,
10:36and they deserve a very fast service out of a super modern factory that we are currently building in China.
10:42Let me just finish up with a question on behalf of parents everywhere, essentially.
10:47What should parents get their children in 2015? What are the latest trends when it comes to toys?
10:53Well, I think, you know, constructing and making things is a huge trend.
10:58Coding is also a huge trend. So programming and that can be robotics is a huge trend.
11:05And I think what's really great about that is, to me, it's a bit like learning how to play the
11:09piano.
11:10You know, it requires focus, attention. You can make something that's completely your own, but you can also follow a
11:15script.
11:15And by following the script, you do learn something about how to put the various elements together to create beautiful
11:21constructions or beautiful music.
11:23That's where I would take children if I were to advise those parents.
11:28All right. Parents everywhere. You have been told by the man himself, the chief executive of Lego.
11:34Joergen Witt Knutztop, I want to thank you very much indeed for speaking to France 24.
11:38And with that, we're going to be wrapping up this edition of the Business Interview.
11:42Thanks for watching.