How Mattel Is Challenging Lego’s Building Brick Dominance

April 19, 2017, 11:45 AM UTC

Mattel says it has the building blocks in place to more aggressively compete in the world of construction toys.

While Mattel is the world’s largest toy maker with about $6 billion in annual sales versus Lego’s $5.4 billion haul, in the construction aisle, Lego is king. In the critical U.S. toy market, $8 out of every $10 spent on construction sets go to Lego, according to data compiled by research firm Euromonitor. Mattel’s (MAT) Mega Bloks is a distant second with just 11% market share.

But Mattel is aiming to become a stronger #2 player in the construction toy aisle. To do this, the toy maker behind the iconic Barbie and Fisher-Price brands paid $460 million three years ago to acquire Mega Brands, a Montreal-based construction building sets maker that had mostly established itself as a strong developer of preschool-focused blocks. Since then, Mattel has bulked up marketing, changed the packaging, and boosted innovative efforts behind the brand to help it better compete. This year, it also debuted a new version of the toy, called Mega Construx, aimed at older kids.

“As the challenger brand, what we needed to offer was a differentiated building experience that goes beyond what is expected in construction,” Bisma Ansari, senior vice president of Mega Brands, told Fortune in an interview. “We are doing things differently in order to get you a better play experience.”

Before Mattel’s deal for Mega, the toy companies had worked together, with partnerships that tied Mattel’s Barbie and Hot Wheels brands to Mega’s format of building set play. In the past, the idea was always to add Mattel’s brands to Mega’s “world.” But going forward, Mattel says it wants to marry the brands in the opposite direction as well. This year, for example, it will sell Hot Wheels tracks that will feature Mega bricks. Other brands like American Girl could potentially see construction play added to their toy lines.

Mega has already created building blocks that feature the American Girl brand—a girl-focused line that competes with Lego’s popular Lego Friends. “By having construction sets built around the American Girl brand, it has been a way to extend the reach for girls who love what that brand is about,” Ansari said.

A Lego set (above) and a Mega set (below) made by Mattel.
Courtesy of Lego/Mattel

Though the underlying play experience of building blocks is essentially the same, there are some key differences between the Lego and Mega brands. A main point of differentiation: how the characters look. Lego characters—whether they are internally developed or based on a hit film like Star Wars—always look like the modular characters the brand is most famously known for. Luke Skywalker will always look like a Lego version of the Jedi Knight.

But Mega aims to ensure that the characters look like the property they are based on. When a Despicable Me or Teenage Mutant Ninja Turtle toy character appears in a Mega building set, they mirror their exact appearance in the film or TV show. Mattel says the micro figures have up to 16 points of “articulation”—i.e. poses and customization—and Mattel’s research indicates that’s a hit with kids and collectors.

“Figures are an important part of the construction world,” said Michael Shore, vice president of global consumer insights at Mattel. “Kids like the characters that are authentic and stay true to the property they are based on.”

Mattel’s bigger push for Mega comes at a time when Lego’s growth has been slowing after several years of impressive gains. Denmark-based Lego’s U.S. sales were flat year-over-year in 2016. Lego—which doubled in size in just five years—has admitted that growth will moderate as it continues to mature. With 70% of sales coming from the U.S. and Europe, Lego has indicating it is particularly interested in reaching kids it doesn’t address in other foreign markets, namely China.

Jim Silver, editor-in-chief of toy-focused website, says that Mattel has done a good job bulking up on key licenses based on hit films like Despicable Me and also by refreshing the packaging. And while he lauds incorporating Mega into other key Mattel brands, he thinks the line could do more to develop its own intellectual property.

“They can use some properties Mattel has like Barbie and Monster High but for the older kids where they are weaker, they have to develop intellectual property,” says Silver. He points to hits that Lego has had with internally developed lines like Lego Friends and the ninja-focused brand Ninjago.

Mattel is aware of that criticism. “Before this year, Mega was perceived as a preschool-only brand,” said Ansari, who worked for Mega before it was acquired by Mattel. “That led us to the opportunity to introduce Mega Construx.”

Mega Construx, which Mattel supported with a national ad campaign, is a way for the toy maker to elevate the brand to older kids. And it Mattel has already quickly added a licensed brand to the Mega Construx sub-property. In February, the company announced there would be a Pokémon line of construction toys that would hit retail shelves this summer.

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