Building an Empire One Block at a Time

The best example of these build-then-play creations is Bionicle, a line of character-based Legos that have their own mythological backstories. Last year, according to the research firm Funosophy, Lego's latest Bionicle and "Star Wars" toys were two of boys' top-10 most-requested holiday gifts. This broad lineup, retailers say, is testament to how adept the company has become. "Kids don't say, 'Hey, Mom and Dad, I want a construction toy'," says Mark Randall, who runs Amazon.com's toy business, where Lego is among the biggest sellers. "They say, 'Hey, Mom and Dad, I want Lego'."

According to research by NPD Group, Lego controls about 60 percent of the $600 million U.S. construction-toy market. Its closest competitor is Mega Bloks, whose hottest sellers are oversize blocks designed for preschoolers. The other big player is K'Nex, which uses a different building model: sticks instead of bricks, and a "spatial" creation process, instead of "stacking." Each of the three brands has its particular strength. "Mega is more activity-play and preschool focused, and K'Nex is more of an educational, building experience," says Richard Barry, a Toys "R" Us vice president. You'd think rivals like Mega and K'Nex would have been gleeful as Lego's strategy went adrift in recent years, but in fact, the entire category suffered as Lego lagged, and the competition is happy to have Lego back on track.

Now Lego's biggest challenge is keeping up with demand as it shifts nearly all its manufacturing to outside companies. Randall, Amazon.com's toy chief, says he's calling Lego every week to monitor the situation. One smaller retailer complained to NEWSWEEK that Lego is so focused on giving limited supplies to big players like Toys "R" Us, there are few left for non-big-box retailers. Lego attributes the limited supplies to unexpectedly high demand.

Barring short-term supply problems, toy experts say Lego's big long-term advantage is the nostalgia factor, which has lately helped revive 1980s brands like Care Bears and Cabbage Patch Kids. In America, today's parents grew up playing Legos, but most grandparents didn't. In Europe, however, three generations have enjoyed building bridges and towers (and experiencing the even more exquisite joy of smashing siblings' creations). Lego believes that's why construction toys account for 13 percent of toy sales in Northern Europe, compared with just 3 percent in the United States. As more Americans who grew up with the toy come of age, the company hopes Legos will become just as popular here. Until then, they'll keep building, brick by brick.

With Samantha Henig

© 2007