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Rebuilding Lego for Today's Kids

Rebuilding Lego for Today's Kids

Photograph by Aaron Dyer for Bloomberg Businessweek

Lego fans no longer need to fret about the cat or dog knocking over their constructions. They can ward off bothersome pets or nosy siblings with a plastic-brick creation such as the R3ptar. The robotic snake, which can be programmed from a smartphone app, is equipped with a snapping mechanical jaw and fangs that will send even the boldest kid brother packing.

R3ptar is among the new creations the Danish toymaker is counting on to stay relevant in the Internet age—and during the holiday season. Broadening its product range to attract older users with more complex kits is helping Lego grow faster than competitors Mattel (MAT) and Hasbro (HAS). Lego’s success “lies in embracing what digital can do,” Chief Marketing Officer Mads Nipper says over coffee in his toy-filled office at the company headquarters in Billund. As evidence, he points to the 20 million monthly visitors to Lego’s websites and the 100 million-plus copies of video games sold by its licensing  partners.

Still controlled by the family of carpenter Ole Kirk Kristiansen, who founded the business in 1932, the toymaker has come a long way from the days when it produced yo-yos, ducks, and fire trucks made of wood. To boost its appeal to girls, it introduced a series it calls Lego Friends, which includes a cruise ship, a riding camp, and a cat’s playground. Lego says sales growth for the sets is outpacing the company average, in part because they feature slimmer feminine versions of Lego’s traditional, somewhat bulky minifigures. In February the company will unleash an animated feature film starring Chris Pratt, Will Ferrell, and Morgan Freeman. Lego’s also enticing older builders back with kits to recreate landmark buildings such as the White House, Big Ben, and homes designed by Frank Lloyd Wright.

The R3ptar snake can be built from a 601-piece kit introduced this year that includes sensors, software, and motors to control the robot’s movement and speech. Known as EV3, the $350 set is the third incarnation of Lego’s Mindstorms series, introduced in 1998. It includes instructions for creating five walking, talking, and thinking robots, including the snake, the scorpion-like Spik3r, and the mohawk-sporting Ev3rstorm. “These robots have attitude,” says product designer Lars Joe Hyldig, who spent about three years developing them. “They can surprise you.”

While simple enough to be built by 10-year-olds, Mindstorms toys are purchased by many adults for themselves, Lego says. “I’m looking forward to buying some of these for my nieces and nephews and ‘help’ them put them together,” fan Tom Cullen wrote on his Twitter feed in September. Lego invited adult fans around the world to help create 12 bonus designs for the new EV3 kit, such as an electric guitar and a bulldozer, for which building instructions are posted online.

The fearsome-looking Mindstorms robots are unlikely to stem criticism from some fans that Lego is straying too far from the toys that have engaged children for generations. According to a study released this year by Christoph Bartneck, a former Lego employee who is a lecturer at the University of Canterbury in Christchurch, New Zealand, the faces on the toymaker’s minifigures have grown angrier in the last four decades as Lego has embraced more conflict-based themes. A set based on The Simpsons television series that’s due next year has irked some members of Lego’s online community, who grouse that it’s not appropriate for the company’s target audience. “Lego, do not make the Simpsons!” a user called Superfox9783 wrote on a message board. “It is not a kid-friendly theme! If you do, I will boycott your products.”

Such concerns aren’t reflected in Lego’s sales, which are outpacing its primary rivals’, helped by new products and growth in Asia. Revenue in the first half of 2013 increased 13 percent, to 10.4 billion Danish kroner ($1.89 billion). Larger rival Mattel had a 4 percent gain, and Hasbro, which Lego overtook to become the world’s second-biggest toymaker earlier this year, showed a slight decline. The company has doubled its market share since 2008, says Robert Porter, an analyst at Euromonitor International. Among its top peers, “Lego has been the most successful of all over the past few years,” he says. It controls about 60 percent of the construction-toy business, which Euromonitor estimates will grow to more than $10 billion by 2017, from about $7.7 billion in 2012.

Lego is adding new manufacturing facilities in China and plans to expand sales there as rising incomes boost demand, Chief Executive Officer Jørgen Vig Knudstorp told Bloomberg TV in October. In response to growing demand in emerging markets, the new robots come with native-language editions for 10 countries, including Russia, China, and South Korea. They used to speak only English and three other European tongues.

To remain atop Santa’s gift lists—the company gets 70 percent of its revenue in the last two months of the year—Lego executives say the toymaker must continue freshening its lineup without alienating traditional fans. “It’s very much front-of-mind,” says Chief Financial Officer John Goodwin. “We have to keep that newness.” That doesn’t mean there won’t be a place for the traditional colored building bricks long synonymous with Lego. “We still think physical play is going to have a key role even in a digital world,” Goodwin says. “Physical creation is something that’s just wired inside all of us, and the joy you get from that can’t fully be replicated via a virtual experience.”

The bottom line: Lego, which controls about 60 percent of the construction-toy business, is wooing older children with a $350 robot set.

Gustafsson is a reporter for Bloomberg News in Stockholm.

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