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Lego’s fundamental business model is it buys ABS plastic for about $1 a pound and sells it back to us for about 50 times that.
There’s probably more Minifigures on the planet than there are humans. I mean, there has to be.
I buy and sell new and used Lego by the individual piece. Currently, I’m down to 1.965mn pieces.
Lego is one of the most extraordinary companies I cover. It competes in toys against the likes of Mattel and Hasbro, which have thousands of products and hundreds of brands. And Lego, basically, just has the brick and the Minifigure.
I think it’s quite unusual to have a toy that was invented in the late 40s, 50s that people are still playing with today with the same kind of passion and joy.
They’ve grown pretty impressively, especially in the last few years. They’re growing faster than ever. That’s pretty rare in business for a company to grow that much and change that little.
So at one point Lego was the largest manufacturer of tyres in the world based on the number of tyres that they were producing.
It’s almost a software model for profitability. The margins are so large, it’s almost like a software business.
The company is making big efforts to become sustainable. And they do own one service that might provide an answer, but it’s complicated.
As a seller, they’ve not done a single thing for me.
When you think about Lego, you probably think of kids buying new sets, but it’s become much more than that. It’s really an ecosystem now. The products come with games, TV shows, films, and apps alongside them.
They’ve evolved from a company that simply makes a box of bricks to really a talent agency for Minifigures. They really do try to create vivid Minifigures that people want to spend time with in worlds that they want to immerse themselves with. And that’s been very successful for them.
It’s also no longer just about children. All over the world there are loads of resellers buying and selling bricks, Minifigures, and whole sets, and plenty of adult customers as well for some really big sets, like cars or architecture.
When I was studying Lego, and this was many years ago, they had just done a research project where they found that the average adult fan of Lego spent 20 times more on Lego than the average family that bought Lego for their kids.
I have around £50,000 worth of Lego stashed in my house, my parents’ house, and my university accommodation, which the mother’s not as happy as I am.
So the first children to play with Lego were the kids of late 60s, 70s. Once those children had grown up and become adults, we start to see the emergence of the AFOL, Adult Fan of Lego.
Was a Lego fan for a few years when I started. And during lockdown I picked it up, so then I started selling it and then realised there was quite a lot of money in it. So since then, I’ve kind of kept it up, and it’s just got bigger and bigger each year.
I had gotten up to 2mn, and then I had a sale at the beginning of the month. And I sold 191,000 pieces in four days.
So I’m a medical student at University of Sheffield, so I’m studying to be a doctor. And I do this to fund my degree and my accommodation. I started taking it seriously coming to these shows under a year ago. And in that time it’s over tripled in value.
Oh, thank goodness for the internet. Now, people could find other AFOLs all over the world, connect, start going to these events together, start sharing pictures of what they were doing. Crucially, also selling with each other, trading, and that kind of thing. So it’s like a revelation for a lot of people.
BrickLink is a site that you can go to to get used Lego sets, Lego parts, new Lego sets that people bought and want to resell. It’s a sprawling kind of eBay for Lego.
My computer system, we’re going to go to BrickLink, which is my marketplace. That’s where I sell everything. And I’ve entered in the ID of the part.
BrickLink was originally started as a trading website. And mostly it was a place where people could come and trade Lego.
BrickLink is part of a large ecosystem that’s sprung up around Lego where people resell Lego, where people even make new types of pieces that can combine with Lego pieces to make different kinds of constructions.
It eventually grew to what it is now, which is the largest online database outside of the Lego Group itself.
BrickLink started to do something really interesting, which was design sets that you could build with the pieces available on BrickLink. Some of those set designs were really good. And I don’t think it’s a coincidence that Lego soon after BrickLink started doing this bought BrickLink. It was starting to intrude in an interesting way into Lego’s core business.
Lego is, by some distance, the world’s most profitable toymaker. It’s involved in this kind of alchemy of taking cheap plastic and turning into it expensive toys. It flirted with bankruptcy in 2003 but has come back stronger and stronger since then.
Where I see that taking Lego is a way from simply making boxes of bricks to being much more of an entertainment company and much less of a product company, that I see them not really competing against Mattel and Hasbro any more but competing against Universal Studios and Disney now. And that is a much bigger market to compete in than simply making plastic toys for kids.
Lego’s revenues are more than 50 per cent bigger than Mattel and Hasbro, but it’s a fraction of the size of Disney. And when you speak to Lego executives and the founding family, you can hear their ambition is getting bigger. They’ve got Legoland theme parks, stores, and apps. So how far can they take the brick?
I think the large multinational entertainment companies are beginning to realise that they have a new competitor in Lego. Lego is putting out feature films. Lego is putting out TV shows. Lego is creating the characters, the intellectual property behind those, but Lego is increasingly inserting itself into Disney’s core markets in a very successful way.
There was once this big worry that Lego, like other toymakers, would be disrupted by digital devices, iPhones, and games consoles. But today there are more physical sets than there have ever been with a dizzying number of bricks and Minifigures. And almost all of them come with a digital or entertainment tie-in, so there’s so much for fans to choose to buy or collect.
The adult fan community has been hugely influential on, I think, Lego as a business. Not just the products themselves, but then when we look at the Lego movies, for example, I mean, these probably wouldn’t exist if it wasn’t for AFOLs making stop motion animation with Lego, which they were doing long before Lego decided to make a film.
The Lego movies are a playful way of showing both kids and adults using the bricks, but there’s big business behind this, too. People really want a specific brick, a specific colour, a certain Minifigure, and they’re prepared to pay for it.
When I first started I took $1,000, and I bought a collection from a teenager. He was 16, and he wanted to buy a car. And his parents said put some skin in the game. Put some money towards the downpayment, so he sold his entire Star Wars collection. And I purchased it for $1,000 cold cash.
I was sweating the entire time. I was thinking I can’t believe I’m dropping $1,000 on Lego that my son isn’t going to play with. Within two weeks I had sold a third of it and made my money back. And I thought, wow, I can really do this. I can really make this into a business, and it can become profitable.
So originally I worked in a shop, and I saved every penny I made from that job in the shop and put it into this business. So you know, about £10,000 of my own money went in. And now, it’s actually self-sufficient, which is great. So I’ve now been able to quit that part-time job, and I do this as my full-time part-time job. And I reinvest almost everything I make back into the business. And hence, how it’s growing at such a speed.
All right. And Miss Susan just wants two of those.
I moved here in March of 2022 out of my house and moved into 1,400 sq ft. And I went from 500,000 pieces to over 2mn.
There’s a lot of scepticism in the reseller community as to what Lego really wants to do with BrickLink. Do they want the customer data? Do they want to develop it? Or do they want to essentially shut down something that had become competition?
Lego has always been a nullifying factor in the second-hand community. They don’t like us. They don’t want us there. And they are very quick to put the kibosh on anybody who is selling Lego off-market.
The status of BrickLink is very much up in the air. It was hit by a big cyber attack last year that hurt businesses like Ginny’s badly.
So I need 1,500. Not quite there.
So I would love to be all bright sunshine and roses about my business. The reality is that this has been my very worst year in business in seven years. So when November 1st came around, I realised I wasn’t going to be able to make my rent. So I put a 50 per cent off sale on my store, which is the reason I sold 191,000 bricks.
BrickLink is the world’s largest online community and marketplace for adult fans and we’re proud it’s part of the Lego Group. It currently has 1.6mn members and more than 18,000 stores. And we will continue to invest in the platform and grow membership and engagement. We’ve introduced the successful BrickLink Designer Program, recently launched a My Own Creation Shop pilot and made improvements to the marketplace.
BrickLink represents a challenge for Lego in terms of bricks that already exist, but Lego also faces a big sustainability issue with the new bricks it’s producing. Their bricks are made from plastic, which makes them highly durable. The last time I visited their headquarters they gave me this brick from the 1950s, which still fits perfectly together with this one from 2024. But they still have a big sustainability issue to solve.
Lego is fundamentally a product that is petroleum-based. I mean, ABS plastic has a core element of petroleum.
Their entire product is based on oil. I don’t see a way that they can truly reduce without offsetting.
One of the analyses I used as an example was Xbox versus Lego. Which has the greater environmental impact? I took the median Lego set, which has a little over 400 pieces, median in terms of cost and complexity. And I compared it to the use of the Xbox, which is about 300 watts. And figured if you played with both for nine hours then the environmental impact was about the same. If you continued playing with the Lego it was actually better for the environment, used less fossil fuels than if you continued playing with the Xbox after nine hours.
We want children to inherit a healthy planet. We’re determined to play our part in making that happen by, one, making our products and packaging more sustainable. That means overcoming some unique challenges. Materials must be durable. They must also meet the highest standards of safety, quality, and precision.
Two, minimising the environmental impact of our operations. Three, creating new ways to keep Lego bricks in play. We know there’s no silver bullet, but we’ve set targets, we’re tracking our progress, and being transparent.
Lego is investing massively in sustainability, but they’ve had setbacks. We broke the story of how their big attempt to make fossil-free ABS plastic was abandoned after they worked out it would lead to more emissions in total as they needed to buy new machines, new moulds, et cetera. So now they’re looking at working gradually to make each chemical part of the plastic greener.
And they’re looking at giving their bricks as long a life as possible, working out how people can resell, recycle, and reuse them. Because at the core, despite all these apps and films, they’re still all about the brick.
They are really a striking example of basically a single product company that has grown dramatically in many different directions while still staying focused on that single product, generally, without acquisitions.
There are plenty of questions for Lego to answer on sustainability, on digital, on reselling, but they have this incredible strength. They’re a family-owned business from the Danish countryside beating big listed US companies. Parents like buying their kids a toy that keeps them away from screens. If they can keep that up while dealing with the other issues, they still have the recipe for success.
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