Lego defends its title as the world’s most valuable toy brand with a brand value of US$6.8 billion, despite an 11% decrease in brand value from last year, according to the latest report by Brand Finance, the world’s leading independent brand valuation and strategy consultancy.
Posting modest profits for this financial year, Lego’s strength lies in its success across both established and strategic growth markets. In established markets, such as the United States and Western Europe, growth was in the low-single digits. In China, a strategic growth market for the Group, revenue grew strong double-digits as the brand expanded into new cities and built its presence on ecommerce, digital and physical platforms.
Lego’s substantial drop in brand value, however, can be attributed to two key factors: the decline in demand for its core offering, plastic bricks, with sales growing 3% in the past year; and its strong competition in the market from digital services, such as online gaming. Lego has tried to counteract these challenges through focusing on bridging the gap between its physical offering and digital, for example through the launch of the Lego Life mobile app and the introduction of new products and experiences with integrated digital play. Its augmented reality app AR Playgrounds, the DUPLO Cargo Train teaches coding to young fans and LEGO BOOST encourages kids to engage with robotics.
Despite this, Lego still retains the top spot leaving behind its second and third place rivals: Bandai Namco (up 57% to US$1.6 billion) and Fisher-Price (down 19% to US$655 million). Lego can rely on its long history and position as a trusted brand in the market. The brand immediately evokes a sense of nostalgia for adults, who continue to view Lego’s bricks as an educational and engaging toy they want their children using, rather than encouraging more screen time. For this reason, Lego must retain its brick identity but will have to continue to diversify into the digital space if it wants to keep its brand value at the levels it has been achieving in the past.
David Haigh, CEO Brand Finance, commented:
“We are seeing a clear trend across the industry, where brands that innovate and seek strategic partnerships to broaden their offering, especially in the digital space, are set to perform better than those that are slow to evolve to meet their customers’ changing needs. To stay at the top of their game, Lego will now need to accelerate its efforts in that direction.”
Bandai Namco brands power ahead
Bandai Namco retains second place, with a brand value of US$1.6 billion, up 57%, and has four other brands in its portfolio in the top 25 ranking. The majority of these brands achieving a substantial and impressive increase in brand value: Mobile Suit Gundam (up 37% to US$249 million); Power Rangers (up 51% to US$141 million); and Kamen Rider (up 67% to US$129 million). Yo-Kai Watch is the only brand in its portfolio to decrease in brand value, down 26% to US$95 million.
This increase in brand value directly correlates to its strong domestic sales, particularly for Mobile Suit Gundam, with net revenue jumping 18% in the first seven months of last year. This success is highlighted in the 13% increase in the financial markets, the biggest gain since 2014. This can be attributed to the brand’s three-year plan, which has a heavy focus on maximising its IP to try and stay ahead of the curve on changing consumer behaviour. As with other brands in the sector, Bandai Namco has to expand into global markets and areas with high growth potential, as markets where it has previously seen high growth, such as Japan, are now becoming saturated.
Mattel vs Hasbro
The majority of the top 25 comprises of brands owned by Mattel Inc and Hasbro Inc. Mattel has had a difficult year following the closure of Toys R Us, which accounted for 8% of its sales. All brands within the company have seen a decrease in brand value, for example Fisher-Price (down 19% to US$655 million), American Girl (down 29% to US$65 million) and Thomas & Friends (outside the top 25), this decrease can be attributed to the softening demand for traditional toys. Demand for Barbie has also fallen, along with its brand value (down 10% to US$372 million), this may be a reaction to the bout of bad press the brand has received over the last year for the lack of diversity and unrealistic appearance of its doll range.
Despite these challenges, Mattel is seeking new opportunities to try and increase sales of its core brands and has recently entered a strategic partnership with Alibaba, the world’s largest online and mobile commerce company, with 443 million active buyers. This has opened doors within the Chinese market, a key driver for growth for Mattel in the future. The brand is also beginning to make moves in the entertainment space, which it has previously been criticised for not doing, and has appointed an ex-Disney channel executive who will focus on broadening its reach through potential movies based on brands Barbie and Hot Wheels (down 10% to US$234 million). If Mattel takes advantage of these new ventures, it could kick-start an upturn in its brand value in the coming year.
Hasbro has had a decidedly more positive year, winning the Disney licence from Mattel, which includes brands such as Frozen, Princess and Trolls. This purchase has already improved sales units for both girls and boys for Hasbro, increasing by 52% and 23% respectively in the third quarter of 2018. The brand has also seen a direct positive impact on their sales from the release of the new Spiderman and Batman movies.
Hasbro’s Nerf and My Little Pony score a AAA brand strength rating, the only other brands apart from Lego, to do so. Hasbro’s brands are reputable amongst industry peers for wide reaching ethical practices and highly regarded for their recently introduced toy recycling programmes.
Tomy keeps on trucking
Japan’s Tomy Company has doubled its trading volumes this last year and in October 2018 the company’s shares rose 6.5%. Three of its brands make the top 25: Tomy Company (up 3% to US$ 65 million); TOMICA (brand value at US$63 million); and Duel Masters (down 13% to US$60 million).
Aside from calculating overall brand value, Brand Finance also determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. Along with the level of revenues, brand strength is a crucial driver of brand value.
Although Lego remains the strongest brand in the sector, it has lost its elite AAA+ rating, now downgraded to a AAA rating. Its Brand Strength Index (BSI) score has also decreased from 90.6 out of 100 to 89.0 out of 100. This is a further decline from 2017, when Lego was named the world’s strongest brand with a distinguished 92.7 out of 100 BSI score in the Brand Finance Global 500 report of the world’s 500 most valuable brands. This fall could be a result of the multiple challenges facing the toy industry and the departure of specialist retailers such as Toys R Us.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 25 most valuable toy brands are included in the Brand Finance Toys 25 2019 ranking.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand Strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, more information about the methodology, as well as definitions of key terms are available in the Brand Finance Toys 25 2019 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand Strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.