Lego A/S sells building blocks made in Mexico to the U.S. And despite the signals coming from the White House, the chief executive officer of the world’s most profitable toymaker says there’s no reason to prepare for a breakdown in trade relations because it’s unclear President Donald Trump will actually act on his threats.
“We don’t see signs that we need to do that at the moment,” Lego CEO Bali Padda told Bloomberg.
He’s not alone in treating Trump’s rhetoric with a degree of apprehension. The government of Lego’s home country, Denmark, has voiced a similar view. Danish Foreign Minister Anders Samuelsen said Trump’s outbursts on Twitter can’t be seen as a substitute for any legislative process that would need to take place for real changes to occur. Samuelsen has said that behind-the-scenes diplomacy indicates the world order won’t be as radically upended as some of Trump’s pronouncements might suggest.
Padda, who took over from Jorgen Vig Knudstorp as CEO in January, says fearing the worst is just based on “speculation at the moment. We would rather wait to see what happens.”
Even without a trade war, Lego is already facing challenges in the U.S., its biggest market. Amid rising competition, the toymaker’s revenue stagnated in 2016, marking the first time “in many years” that Lego didn’t record U.S. growth, Padda said. In 2015, the company’s U.S. sales grew in “double-digit” percentage terms. Closely held Lego doesn’t publish an exact breakdown.
Lego’s two biggest global rivals, Hasbro Inc. and Mattel Inc., are both American. To stay competitive in the U.S., the Danish company in 2015 unveiled plans to expand its Monterrey facility in Mexico -- its only production unit in the Americas -- by adding 3,000 jobs there.
Keeping production costs down is key, if Lego is to stay competitive. “Our ambition is to grow ahead of the toy industry,” Padda said. That goal includes a significant presence in the world’s second-largest economy, which Trump has blasted for keeping its currency cheap.
“We are focusing a lot on China and will continue to do that,” Padda said. “We grew from a consumer sales point of view by 25% to 30% in China last year.”
For Lego, a more urgent issue than a potential trade war is how to respond to a revolution in consumer behavior. Online shopping is the future and retailers who fail to prepare face a grim future.
“With the shopper changing behavior, we have focused quite a bit on e-commerce,” Padda said. Lego is “working with new partners in that area.”
By Christian Wienberg