Lego’s Big Bet on Chinese Bricks and Mortar

Tambov, Russian Federation – June 22, 2017 Lego businessman with suitcase stay on the street. Studio shot.

It is always important to watch Lego. As BMO Capital Markets’ Gerrick Johnson put it in his end-of-year “Toy Scout Report”: “Kudos to LEGO (private) for exceptional performance in the toy aisle this year, likely the overall strongest selling brand.”

That is why I took notice of this headline in Bloomberg Businessweek, “Lego Bets on China’s Children With Hundreds of New Stores.” Here is how the article puts it:

Lego Group is betting big on brick-and-mortar retailing in China. With more than two-thirds of the world’s 2 billion children expected to be living in East Asia by 2032, the company says it must be physically present in the region. Over the two years ending in December 2021, Lego plans to more than double the number of stores it has in China, to 300 in 85 cities

Lego isn’t just opening stores. The company is expanding its already big e-commerce footprint, creating products with Chinese themes and opening a new Legoland theme park in Sichuan province.

Lego’s commitment to China speaks to two things: China’s predicted growth as a retail toy market and Lego’s willingness to commit its resources to assure its future there. Child births have been heading down in the world’s developed countries for years and are projected to continue in that direction for the foreseeable future. The toy industry, therefore, needs to add markets, and Lego sees China as the obvious place to do that. Particularly as the Chinese government continues to urge its citizens to save less and spend more.

Opening retail outlets in China is not for the faint of heart. It is a vast country with over 600 cities, each with a population in excess of 1 million. There are, however, many ways to take advantage of China’s growing child population and disposable income. Lego has the right idea, it is up to each company decide their best pathway to this growing market.

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