Lego Adapts to Human Behavior That's Wiping Out the Toy Shops

(Bloomberg) -- Lego A/S is preparing for a world in which online sales will double over the next half decade as the quaint habit of buying toys in shops becomes the exception rather than the rule.

Niels B. Christiansen, the chief executive officer of the Danish maker of the world famous toy building blocks, says Lego expects to see most of its growth via Internet commerce.

“Online and e-commerce sales have become increasingly significant for us and for the industry,'' he said in a phone interview. “It's where we see the biggest growth rates.''

The comments point to a painful shift that has already cost the lives of many small family-owned toy stores, and contributed to the demise of retail giants like Toys “R” Us Inc. Businesses that fail to acknowledge the change in consumer behavior face a bleak and potentially short future.

For Lego, the shift to online sales means kids won't get to “feel the toys or shake the boxes” like they can in physical stores, the CEO said. So the challenge now is figuring out how to replace that experience online.

“We see that an increasing number of people start their search for products online, via Google or Amazon,'' Christiansen said. “They may end up buying the product in a physical store, but online is where they start.”

For now, traditional toy stores still provide roughly a third of Lego's sales. When Toys “R” Us collapsed, Lego lost “a big and important customer, also on a global scale,'' he said.

Read more: Who Killed Geoffrey the Giraffe? The Last Days of Toys ‘R' Us

Lego responded by contacting its biggest global customers, including Walmart and Target, to negotiate more shelf space at their stores.

“We have done everything we can to improve the service we offer to them and listen to their side of the situation,” Christiansen said. That's allowed Lego to “compensate for the loss of Toys “R” Us.”

Lego returned to growth last year after suffering its first revenue decline in 13 years in 2017. Lego's results marked a rare bright spot for an industry that has been pummeled by shifting consumer preferences and punishing retail markets.

“There was a lot of headwind in the industry in 2018 and yet we succeeded in growing,” Christiansen said. “We will follow up and try to extend that curve.”

--With assistance from Nick Rigillo.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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