Monday Musings #7: How LEGO made nearly a billion dollars in the first half of 2021

October 26, 2021 | 14

Welcome to another instalment of Monday Musings – a fortnightly(ish) series devoted to random musings on the LEGO hobby, community, my collection and beyond.

A note: apologies for the slightly slower posting schedule – I’ve just welcomed a new baby boy into my family, and have been spending some much-valued time with my family, and some of the blog’s content has taken a bit of a backseat!

In case you missed it, Monday Musings can be long-form, or short bursts of whatever strikes my fancy, and be more traditional “blog-type” content.

You may have noticed that I’m doing more news and launch posts, which I enjoy and still find ways to inject my opinions, instead of say, just drop a random gallery of images and call it a day, but I like writing, and want to give you guys a peek into how I’m perceiving things in the LEGO World – hence, Monday musings.

Here are the links to my previous posts:

• #1 Having to limit the LEGO themes you collect
• #2 Is LEGO a good investment?
• #3 Does LEGO listen to their fans?
• #4 What kind of LEGO fan are you?
• #5 LEGO Leaks ruin the fan experience
• #6: Buy your LEGO early ahead of the 2021 holiday season

For Monday Musings #7, I’ve been wanting to write this piece and analysis for a while, when LEGO announced their financial results for the first half of 2021, but life got in the way!

In the last Monday Musings column, we learned about the global supply chain and logistics crisis, and today, we’re going to learn about profit margins and how companies can make more money without necessarily selling more!

LEGO made a LOT of money in the first half of 2021

In case you missed it, LEGO made an absolute BUCKETLOAD of money in the first half of 2021.

Off the back of incredibly strong consumer demand, consumer sales were up 36% (against previous year), revenue was up 46% to DKK 23 bn (US$3.61 billion), and most shockingly, LEGO’s net profit was up a whopping 140% to DKK 6.3 billion (US$0.97 billion).

That’s almost a BILLION US dollars in the first six months of 2021.

LEGO’s colourful infographics are great to capture some of the highlights, and all the good they do in the world, but let me illustrate just how monstrous of a half LEGO had.

Here’s a graph of The LEGO Group’s Revenue and Net Profit, from 2013 to 2021. Remember, this view gives you a comparison of the first six months of 2021 versus full 12 months of previous years.

Note: all currency is in Danish Krone (DKK), in billions.

Revenue-wise, you’d expect half a year’s worth of LEGO to, roughly work out at about half the revenue of previous years, but even so, LEGO made in the first half of 2021, close to what it made in the years 2014 and 2013.

Those were The LEGO Movie years for comparison.

The other staggering thing, if you look at the net profit (which is how much LEGO actually makes, once it pays for its operations, salaries, taxes, debt etc) – it’s pretty damn close to the full year net profit of previous years, in fact, surpassing FY 2013.

In just six months!

But it gets crazier.

LEGO is a toy company, and toy companies live or die by the Christmas holiday season, which is in the 2nd half of the year.

Here’s a look at The LEGO Group’s revenue and net profit broken down by halves (H1 being first half, and H2 being second half).

The numbers here are even more bonkers, see below table for absolute numbers.

LEGO’s first half of 2021, is rivalling, and in some cases, exceeding the second half numbers from every year, prior to 2020.

Generally, LEGO’s second half revenue and net profit, tends to be within the 1.5x – 2x the first half, so if you can extrapolate that out, LEGO are going to have a monster second half of 2021… if the supply chain crisis doesn’t cause havoc (spoiler warning: it will, but not as drastic as other businesses).

These numbers are incredible, and in all my years writing about LEGO, I’ve never seen such jaw-dropping financial results, and there are 3 major reason why:

Covid tailwinds have increased demand for LEGO

One of the big stories from 2020 (and its financial results) is that toys, and collectables like LEGO had a big burst of growth during lockdown, as financially secure families and adults stayed home, and were looking for activities and hobbies to pass the time.

Lockdown drove a ton of growth, whether its adults rediscovering LEGO, LEGO as a means to practice wellness and maintain mental health, or entertain their kids, and the first half of 2021 saw that continued growth, with consumer sales increasing by 36%, and revenue increasing by 46%.

In short, more people were buying LEGO, and those people were spending more on LEGO (higher priced sets, etc).

Plus, LEGO had a fantastic run of sets and launches in early 2021.

LEGO’s bet on Adults pays off

2020 and the 2021 felt like an all out onslaught on our wallets as AFOLs or adult LEGO fans. With incredible launches seemingly each month, and a plethora of sets being released in the sleek “LEGO for Adults” packaging, it almost felt relentless trying to keep up.

The big story of LEGO’s financials, isn’t necessarily increased revenue and sales (both of which are still terrific) – the most incredible achievement is LEGO’s operating profit growing 104 percent to DKK 8.0 billion and most importantly, net profit growing 140 percent to DKK 6.3 billion.

That’s a seriously insane achievement, and any Executive Team that can double net profit are probably geniuses.

There are a lot of ways to increase net profit, you either cut costs by firing people, reduce salaries (both of which LEGO did not do), or reduce operating costs through improved processes, automation, or various efficiencies that can be found.

That said, LEGO are incredible at operational efficiency and automation, so a part of this could also be attributed to its China, Jiaxing factory which it opened in 2016, finally firing on all cylinders and running at full capacity.

LEGO have discovered the goldmine that are adult sets, which for the first time, cracked the Top 5 themes through Creator Expert.

With higher prices, and less sensitive to price discounting, LEGO have found the golden goose that are Adult LEGO sets – sets that can command hundreds of dollars, and simultaneously are way more profitable than $20 or $50 LEGO City sets.

Adults also tend to buy more, so the overall lifetime value of adults are way more than your average LEGO City or LEGO Friends buyer who only shops for birthdays, or Christmas.

Remember, revenue only grew 46% but net profit grew by 140%.

Direct to Consumer and the shift away from retailers

Last but not least is LEGO’s move away from its key retail partners, and increased focus on a Direct to Consumer sales model, which it also has Covid to thank for.

When retail was closed in many countries around the world in late 2020, and early 2021 due to various lockdowns, LEGO sales did not crash from its usual retail channels (Target, Kmart, big department stores etc) but a majority of it shifted online to LEGO.com.

In LEGO’s First Half 2021 report, LEGO CEO quipped “We also saw the benefits of multi-year investments in e-commerce, product innovation and a global supply chain network.”, and he also revealed that “E-commerce sales across our own and partners’ platforms grew 50 percent compared with the same period last year.”

That’s massive because LEGO gets to keep a bigger share of profit from sales, when they sell direct to consumers.

With a traditional wholesale, or Business to Business sales model, where LEGO sells stock to large department stores or retailers like Target, they sell sets at wholesale prices – commonly about 30-50% off RRP, so that retailers also get to profit when they sell LEGO.

By cutting out the middle man, and going direct through their own Brand Retail Stores, and LEGO’s online store, LEGO are able to extract maximum profits from each sale that they don’t have to share with their retail partners.

In tandem with LEGO’s focus on Adults, and aggressive Creator Expert release schedule (which by the way, tend to be exclusive to LEGO Stores/LEGO.com initially), LEGO have begun positioning their own websites, and retail stores as THE place to shop, and find the LEGO sets you want.

That’s not to say LEGO’s retail partners aren’t as important – they’re still an incredibly important part of the business, but in tilting its model towards a pure direct to consumer model, LEGO are extracting a lot more profit from each sale.

This, and the upwards trajectory of highly priced Adult LEGO sets, I believe are what fuelled LEGO’s monstrous 140% net profit increase, and is a harbinger of things to come.

LEGO have obviously identified adults as a major consumer segment and target market, so the assault on our wallets are not going to stop any time soon, and will probably intensify in 2022 and beyond. Plus, more adults than ever are getting into the hobby, and LEGO have barely scratched the surface here.

So in short – sell to more people, sell higher priced items with larger profit margins, and sell direct to consumers to keep all the profits. That’s how LEGO made almost a billion US dollars in the first half of 2021.

I cannot wait to see what the full year results for 2021 are, especially with the holiday season coming up.

In 2015, off the back of The LEGO Movie, then-CEO Jørgen vig Knudstorp famously sang and danced “Everything is Awesome’ when delivering the stellar financial results.

I wonder what Niels will do next year.

What do you think of LEGO’s strategy of targeting adults? Have you found yourself purchasing more LEGO, and direct from LEGO as opposed to toy stores or department stores?

Thanks for reading – hope you enjoyed this deep dive into the business of LEGO, and more importantly, understand why LEGO have been so aggressive at targeting adults this year with its plethora of launches.

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