Lego Group eyes smaller cities for big growth in China

The Lego Group, one of the world's best-known toymakers, is expanding its presence in emerging cities in Northwest China by opening more stores that prioritize immersive play experiences for kids, which is expected to drive further growth while enhancing digital efforts to better connect with its increasing member base in the country.

Lego China, the parent company's local subsidiary, opened its first beacon store — it is larger than other Lego stores and has more interactive elements — at the Saga Shopping Center, Xi'an, Shaanxi province, on Saturday. The store's location was specifically selected to draw more consumers. Recognized as one of the city's top shopping destinations, Saga boasts an indoor waterfall and a long elevator that moves shoppers all the way to the sixth floor.

The two-story Lego store stands out for its glittering glass display areas showcasing life-size Lego brick figures resembling princesses and military generals of the Tang Dynasty (618-907). It offers shoppers in-store tours themed Flourishing Chang'an, to pay homage to the ancient capital of the Tang Dynasty, which is now Xi'an.

For example, in the store, Lego figures hold roujiamo — meat burgers, a specialty originating from Shaanxi province. The Lego Group hopes this will resonate with local consumers who take pride in their cultural heritage.

Xu Jie, vice-president of Lego China, who oversees offline retail business, said the beacon store serves as a play destination for Lego enthusiasts, offering unique attractions such as the Lego Exploring Tree, free building table and "Lego mini figure factory", a corner where consumers can personalize mini figures with personalized facial expressions, hair styles and accessories, and clothing.

"Brick and mortar stores now serve as a place to build brand image and deliver joy and relaxation. This year, people came back to stores, particularly during the holiday seasons, but they are more cautious about spending," said Jason Yu, general manager of Kantar Worldpanel China, a research firm specializing in consumer behavior.

"Lego's strengths lie in its creative products portfolio and play experiences, qualities that stand to benefit greatly from continued digital optimizations."

Agreed Paul Huang, general manager of Lego China. "Xi'an is not only a center in Northwest China, it has become a key destination for numerous tourists who are longing to experience traditional Chinese culture."

Building on its strong presence in Beijing and Shanghai, the company is now seeking to harness market potential in emerging cities like Changsha in Hunan province, Chengdu in Sichuan province and Xi'an, said Huang.

In August, the company opened its first beacon store in Changsha. Huang said emerging cities present untapped markets where brand awareness is still evolving. "The opening of our stores in regional hubs such as Changsha and Xi'an reflects our expectation that we can reach more consumers in the regions concerned and beyond." He also said the robust execution of Lego China's business expansion plan and deeper penetration are rooted in the toymaker's unwavering confidence in the Chinese market.

He said other positives are China's sizable child population, the government's commitment to boosting consumption and supporting foreign investment, and protection for intellectual property rights, a critical aspect for the Lego brand that owns more than 12,000 global IPs.

Operating more than 460 branded stores in more than 120 cities across the country, the Lego Group's focus is now on lower-tier cities in China, with more than 40 percent of stores located in third-tier cities or below, said Xu.

China's toy market has been growing. According to the 21st China International Toy and Education Equipment Exhibition, in 2022, retail sales of toys in China reached 88.31 billion yuan ($12.36 billion), up more than 3 percent over 2021.

Among them, sales of midrange to high-end brick products with a unit price ranging from 200 yuan to 400 yuan are promising, accounting for 22 percent of the total brick sales, up 3.7 percentage points year-on-year.

Lego is also enhancing its digital innovation to better connect with tech-savvy consumers in China. It has invested in a digital hub in Shanghai to develop digital products tailored to local preferences. The company reached the first 10 million members in China this year.

On localization, Huang said the company has continued to roll out locally relevant products such as the Monkie Kid series that is inspired by renowned Chinese fiction Journey to the West. On Saturday, the Year of the Dragon 2024 collection was released in the Chinese market in the run-up to the festival season in February.