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Could Mattel’s Acquisition of Mega Brands Threaten LEGO?

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Following the recent announcement of LEGO’s double-digit growth in 2013, Mattel has acquired Mega Brands, LEGO’s biggest competitor in construction toys, for US$460 million. With the global resources of Mattel now backing the well-established Mega Brands, category share could potentially start to drift from LEGO, especially in regions where it does not hold a dominant position. Below, Euromonitor International explores the potential ramifications of this acquisition across the world’s largest regions for traditional toys and games.

Value Share of Traditional Toys and Games for LEGO, Mattel and Mega Brands 2012 vs Absolute Value Forecast for Construction Toys, 2012-2017

Source: Euromonitor International

LEGO is by far the largest construction toys manufacturer in the world, commanding a 63% value share of the global category in 2012. With construction toys forecast to grow across the world, companies with a global footprint will have the edge on their competitors in this category. Mattel’s purchase of Mega Brands will mean just that - a reputable construction toy company backed by the full force of Mattel’s truly global reach.

Regional Shifts in Construction Toys

LEGO and Mattel both held a similar share in traditional toys and games in Asia Pacific in 2012, and with this region forecast to achieve the strongest growth over 2012-2017, competition between these two companies is expected to intensify in construction toys thanks to a much more level playing field. However, the competitive landscape in Asia Pacific, especially China, is highly fragmented. International Western companies have been trying to gain share here for years but continue to face strong opposition from regional and domestic players. In the region overall, Takara Tomy and BANDAI NAMCO accounted for 8% and 7% of traditional toys and games value sales in 2012, respectively, compared to Mattel, LEGO and Hasbro’s combined share of 8%. This, coupled with the threat of piracy, is expected to be the main challenge for Western companies seeking to capitalise on the region’s strong growth potential.

North America is Mattel’s home market, with the company commanding more than a 23% share of the region’s traditional toys and games sales. With Mattel already having invested heavily in this market, the Mega Brands acquisition should have a significant impact on the region as the company will benefit from the full force of Mattel’s marketing, logistics and operational infrastructure there. This could well mean that in the coming years the gap closes in construction toys between Mattel and LEGO in North America.

Latin America is Mattel’s second largest regional market, partly due to the success of Max Steel, which is now seen as the leading action hero in Latin America. It is by far the largest player in the region, accounting for one fifth of traditional toys and games sales in value terms compared to its closest rivals Hasbro and LEGO, with shares of 4.5% and 2%, respectively, in 2012. By having a stronger presence here, Mattel may have the potential to close the gap between itself and LEGO in construction toys.

Who Will Come Out on Top?

However, LEGO will not take this lying down. Having announced in its annual report on 27 February 2014 its success in 2013, it has been suggested that a significant amount of its profit will be reinvested into the business, propelling innovation and new product development. The recent launch of the LEGO Movie, which has reportedly been a success in its own right, will also complement and encourage the performance of LEGO’s portfolio by leveraging popular licensed characters to build on LEGO's own intellectual property seen in the movie.

Mattel’s acquisition of Mega Brands means it will now have in its portfolio strong licensed brands such as Halo, Skylanders, Call of Duty, Assassin’s Creed, Power Rangers, Hello Kitty and SpongeBob SquarePants. However, LEGO still has some of the most powerful licences on the planet, such as Marvel, Star Wars, Lord of the Rings, Harry Potter and Teenage Mutant Ninja Turtles with which to compete, as well as being a well-trusted brand with over 60 years of specialist expertise in construction toys.

Regardless of the battle in the licensing realm, it could be argued that the success of construction toys globally has been underpinned by the success of LEGO, making the company the main driver and beneficiary of most of the growth in the category.

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