Early this morning, I went out for a stroll to familiarise myself with my surroundings. I walked into Beachwalk Shopping Mall and chanced upon a LEGO shop. Immediately, I thought about its business model.
- LEGO is a simple business built on a simple idea to create infinite possibilities.
- This business leverages on intellectual property created by others. E.g, Star Wars and Harry Potter franchise series of LEGO. This grants them strong pricing power and it contributed to higher profitability margins.
- We have seen how the category of toys has changed over the years. LEGO is one of the few that withstood the test of time and proven its relevance and durability.
When we assess a business’s longevity, we think about how slow disruptive forces impacts LEGO’s business and whether LEGO is immune to it. After many decades, LEGO is still around and I would not be surprised to see several kids across the world begging their parents for a LEGO set for this Christmas. There is something satisfying when you gather a group of LEGO blocks and create something out of your creativity.
The backbone of its continued success is a strong team of 250 designers representing over 35 nationalities to innovate and produce exciting new toys every year.
- This is a business with multi-generational influence.
In short, it is a powerful combination of the mentioned key factors.
Just take a look at the financial numbers of LEGO, any investors would be drooling – just like me.
A test of the business model lies in its prudent balance sheet and growing profitability margins – not just mere growing revenue and net profits. Across 5 years, LEGO demonstrated improved margins on all fronts.
LEGO is not a commodity toy, it is a recognised global brand.
LEGO is not stopping anytime soon.
On 25 December 2016, Lego continued its global expansion by opening their factory in Jiaxing, south of Shanghai. A month before that, it opened the largest store – yet – in London’s tourism hotspot, Leicester Square.
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PS: To read further about LEGO, here is an interesting article that describes how LEGO revived its business to charge itself ahead of Hasbro.
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author(s) involved in the writing of this piece does not have any current vested interest of the companies mentioned. If you require expert financial or other assistance or legal advice, a competent professional should be consulted.