Lego: Build­ing Blocks of Con­sump­tion

China’s ris­ing mid­dle- in­come group has made the coun­try par­tic­u­larly at­trac­tive to Lego Group.

China Pictorial (English) - - Contents - Text by Ru Yuan

In China to­day, the def­i­ni­tion of “toy” has changed tremen­dously com­pared to four decades ago when the coun­try just be­gan its re­form and open­ing up. Com­pan­ion ro­bots, model air­planes, and STEAM (short for “sci­ence, tech­nol­ogy, en­gi­neer­ing, art, math­e­mat­ics”) toys emerged one af­ter an­other to re­place tra­di­tional plush and plas­tic toys. In con­ver­sa­tions about pop­u­lar toys in the coun­try to­day, Lego is al­ways men­tioned. Founded in 1932, the Dan­ish toy­maker’s flag­ship prod­uct is col­or­ful in­ter­lock­ing plas­tic bricks. In re­cent years, the com­pany has been work­ing to ex­pand in the Chi­nese mar­ket. In early Novem­ber 2018, it par­tic­i­pated as an ex­hibitor in the first China In­ter­na­tional Im­port Expo held in Shang­hai.

“We are con­fi­dent about the Chi­nese mar­ket,” said Paul Huang, gen­eral man­ager of Lego China. “China is cur­rently go­ing through a con­sump­tion up­grade, and Chi­nese con­sumers are at­tach­ing greater im­por­tance to brand­ing and qual­ity. Lego has plans to ex­pand to more Chi­nese cities in the near fu­ture.”

Thriv­ing Non­tra­di­tional Busi­ness

In late au­tumn, it is al­ready pitch dark by 7 p.m. in Beijing. How­ever, Lego Town lo­cated in the Chaoyang Park neigh­bor­hood in eastern Beijing was still bustling with peo­ple and show­ered in lights. The first floor of the two-story Lego Town build­ing sells the brand’s var­i­ous prod­ucts and of­fers space for cus­tomers to test out the toys, while the sec­ond floor serves as the Lego Ed­u­ca­tion cen­ter. In the 10-plus class­rooms, kids were do­ing dif­fer­ent tasks un­der tu­tors’ in­struc­tions. While younger kids used Lego bricks to build cas­tles, palaces and zoos, those who are eight or nine years old were al­ready us­ing lap­tops to make their self-built Lego ro­bots move ac­cord­ing to in­struc­tions.

En­rolling in Lego cour­ses is costly. An­nual tu­ition can ex­ceed 15,000 yuan for only one class per week. Ac­cord­ing to fig­ures from Beijing Bureau of Statis­tics, the av­er­age monthly salary in Beijing stood at 8,467 yuan in 2017. How­ever, the ex­pen­sive price tags haven’t scared away many par­ents. “My boy started to study Lego cour­ses at five years old,” ex­plained Carol Zhou, mother of seven-yearold Yun Yun. “Now he can make ro­bots per­form tasks such as lift­ing and grab­bing a spe­cific ob­ject.” Yun Yun’s Lego ed­u­ca­tion started with power ma­chin­ery. Be­gin­ning with ap­pli­ca­tion of lev­els, axles and pul­leys, Yun Yun soon learned build­ing struc­tural mod­els and ba­sic me­chan­i­cal con­cepts such as in­ten­sity and sta­bil­ity be­fore he was ad­mit­ted to classes for de­sign­ing and con­struct­ing Lego ro­bots.

Lego Group’s global rev­enue in 2017 wasn’t good. How­ever, the same year, it re­al­ized dou­ble- digit rev­enue growth in China. This growth not only came from the sales of Lego toys, but even more from the group’s non- tra­di­tional busi­nesses such as Lego Ed­u­ca­tion. Against the back­drop of China’s con­sump­tion up­grade, the coun­try’s ris­ing mid­dle- in­come group has cre­ated great op­por­tu­ni­ties for

the com­pany to de­velop. Par­ents are en­thu­si­as­tic about in­vest­ing more in their kids’ ed­u­ca­tion. More­over, af­ter grow­ing up in the in­ter­net era, younger Chi­nese par­ents born in the 1980s and 1990s at­tach greater im­por­tance to well- rounded ed­u­ca­tion and make more di­verse choices. It is easy to un­der­stand how Lego-branded ed­u­ca­tion, which is closely linked to STEAM ed­u­ca­tion and in­no­va­tion, is at­trac­tive in their eyes. Lov­ing China

In 1993, six decades af­ter the com­pany’s es­tab­lish­ment, Lego be­gan to be sold on the Chi­nese main­land. At that time, Lego toys, priced from sev­eral dozen yuan to 1,000 yuan or more for one set, were cer­tainly lux­u­ries in China, where the av­er­age monthly in­come still mea­sured only sev­eral hun­dred yuan back then. Long af­ter Lego first en­tered the Chi­nese mar­ket, the toys could only be found in up­scale depart­ment stores in China’s first­tand sec­ond-tier cities.

In the 21st cen­tury, af­ter a marked im­prove­ment of both liv­ing stan­dards and in­come of the he Chi­nese peo­ple, Lego is in­vest­ing more in the Chi­nese mar­ket. It has grad­u­ally ac­cel­er­ated its pace of brand­ing and pro­mo­tion in China and added in­ter­ac­tive ac­tivvi­ties to at­tract a wider range of Chi­nese con­sumers. In 2007, Lego go opened its first flag­ship store on the Chi­nese main­land in Beijing. Only a year later, a Lego cer­ti­fied d store opened in Shang­hai. In 2012, 2, the Lego Town opened in Beijing, g, with two thirds of its space de­voted ted to cus­tomer in­ter­ac­tion. In 2013, Lego con­sumer in­ter­ac­tion ar­eas opened in Shang­hai stores. Dur­ing ng the process, Lego suc­cess­fully ex­panded its of­fer­ings from chil­dren’s toys to adult- ori­ented prodducts. Co­op­er­a­tion with a num­ber of pop­u­lar in­tel­lec­tual prop­er­ties in­clud­ing Star Wars, Har­ry­pot­ter, r, Frozen and Juras­sic World has in­tro­duced Lego to more Chi­nese e teenagers and adults.

With more dis­pos­able in­come, , Chi­nese res­i­dents have helped Lego ego re­al­ize rapid an­nual sales growth and deeper ex­plore the mar­ket of China’s sec­ond- and third-tier cities. In Novem­ber 2016, Lego Group cel­e­brated the open­ing of a new fac­tory in Ji­ax­ing, Zhe­jiang g Prov­ince. Build­ing its first Asian fac­tory in China aligned with Lego’s go’s long-term strat­egy of “stay­ing close ose to core mar­kets.” The toy­maker aims to pro­vide high- qual­ity prodducts to mil­lions of con­sumers in China and across Asia.

Great Mar­ket Po­ten­tial

Ac­cord­ing to Chi­na­toy In­dus­tryre­view, rev­enue from the pri­mary sec­tor of China’s toy in­dus­try stood at nearly 236 bil­lion yuan in 2017, an in­crease

of 8.5 per­cent on a year- on-year ba­sis. As the sec­ond largest toy con­sumer in the world, China has huge room for fur­ther devel­op­ment of the toy mar­ket. Ac­cord­ing to Euromon­i­tor In­ter­na­tional, an in­de­pen­dent provider of strate­gic mar­ket re­search, toy sales in China will re­al­ize an an­nual growth rate of five to six per­cent over the next five years.

Against this back­drop, Lego will clearly con­tinue to ex­pand in China. In Septem­ber 2018, a Lego flag­ship store opened in Shang­hai, and an­other is planned for Beijing in early 2019. Niels B. Chris­tiansen, CEO of Lego, noted that to date, Lego has es­tab­lished 36 cer­ti­fied stores via re­tail part­ner­ships in China. By the end of 2018, the com­pany will have up to 60 stores across 15 Chi­nese cities, with the new stores mostly lo­cated in sec­on­dand third-tier cities.

Along­side brick- and-mor­tar stores, dig­i­ti­za­tion is an­other field Lego is look­ing at in China. In Jan­uary 2018, Lego an­nounced a plan to team up with one of China’s big­gest in­ter­net ser­vice providers, Ten­cent, to carry out co­op­er­a­tion in var­i­ous fields. In Septem­ber, the two sides un­veiled a sand­box game for Chi­nese play­ers, which will be re­leased at the end of this year. “We be­lieve the Chi­nese mar­ket is huge and hope that more Chi­nese kids and Lego fans will want to play with our prod­ucts,” added Huang.

In the 21st cen­tury, af­ter a marked im­prove­ment of both liv­ing stan­dards and in­come of the Chi­nese peo­ple, Lego is in­vest­ing more in the Chi­nese mar­ket. It has grad­u­ally ac­cel­er­ated its pace of brand­ing and pro­mo­tion in China.

Oc­to­ber 13, 2018: A model of Beijing built with Lego bricks at­tracts many cus­tomers in Mixc Shop­ping Mall, Shang­hai. Toy­maker Lego has seen big prospects in China in re­cent years. IC

Septem­ber 8, 2018: Us­ing over two mil­lion Lego bricks, the Brick Live An­i­mal Paradise ex­hi­bi­tion at the Na­tional Sta­dium, Beijing, cre­ates a unique world for both chil­dren and adults. VCG

Au­gust 26, 2018: Two kids write code to make their ro­bots move, in Hangzhou. Lego’s high-speed growth in China in re­cent years can be largely at­trib­uted to its non-tra­di­tional busi­nesses such as Lego Ed­u­ca­tion. IC

A cer­ti­fied Lego store in Beijing. Lego Group is grad­u­ally ex­pand­ing to more sec­ond- and thirdtier cities in China. VCG

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