The most interesting retail experiment that no one is talking about

The LEGO Dead Ocean Strategy

Near my home in Philadelphia, LEGO just opened its tenth North American LEGOLand Discovery Center.  It’s located in the Plymouth Meeting Mall, a mall opened in 1966 outside Philadelphia and once one of the premier malls in the country.  Plymouth Meeting Mall, like many others, had fallen on hard times as flagship retailers such as Macy’s have closed stores.  With customers choosing alternatives like Amazon, Wal*Mart, and the nearby King of Prussia Mall, the mall was slowly dying.

If you were the owners of the mall, what would you do?  How would you fill tens of thousands of square feet of empty space?  JC Penny’s and Sears are unlikely to be interested in expanding, no matter what price you offer.  If you can’t fill the anchor store spaces, the smaller stores that depend on the larger stores to draw in business will also close down.

Enter LEGO.  The company has begun building what it calls LEGOLand Discovery Centers.  The one in Plymouth Meeting, which opened in early 2017, is 33,000 square feet (3100 m2) of LEGO-themed play.  For $20 per person, you can spend as much time as you wish in this LEGO playground.  Two rules: no adult can enter unless accompanied by a kid aged 3-10, and no kids can leave unless accompanied by the adult they came with.  The Center is miniature version of LEGO’s current LEGOLand amusement parks – a chain of large amusement parks that LEGO’s been running since the 1960s.  The Discovery Centers take many of the same attractions, make them smaller, and host them in a former department store space.  The space is split up into more than a dozen different sections with themes such as pirates, ninjas, LEGO Friends (a LEGO theme oriented more toward girls), race cars, and (of course) a café for the adults.

legoland-discovery-center-mapGo in on a rainy afternoon and you’ll see kids running around, playing, building, and generally having fun while the adults are in the café enjoying the relative quiet and free wifi.  There are birthday parties in the birthday room, expert builders teaching kids new building techniques, and a 3D cinema running continuous LEGO-themed movies.  And, when you leave at the end of the day with your child, you pass through a fully stocked LEGO store.  Few parents emerge from unscathed.

Consider the negotiation between the LEGOLand Discovery Center group and the mall owner. The LEGO group can promise to not only fill empty space that’s expensive to maintain (the JC Penney’s or Macy’s that just closed), but also bring in foot traffic during slow periods and bring in adults during the evenings (when they host corporate events and adult LEGO evenings).  These new customers can only enter the Discovery Center by walking through the mall, so are likely to stop at one or more stores and restaurants during their trip.

One popular school of thought about innovation is the Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgne.  The authors argue that companies often compete in “red oceans” – markets with such intense competition that it’s like an ocean with sharks and other predators feeding and so much blood in the water that the entire ocean is stained red.  Instead, the authors argue, companies should seek out new markets with new customers that no one else is serving.  By sailing on these “blue oceans”, companies will enjoy high profits and strong sales growth.

But what would you call a strategy that takes a stripped-down version of a current offering, takes it into a dying market, and offers it to the same set of customers that it currently serves?  This isn’t a red ocean, it’s a dead ocean.  And it’s working for LEGO.

Because not only does LEGO get cheap space to rent out for high fees, but it also hooks kids on its signature brick products.  Kids learn the story of Ninjago (one of LEGO’s most popular themes and the subject of LEGO’s second feature film of 2017) and get to play with the toys for free.  Standing in the store at the end of the visit, anyone can see the intense pressure exerted on parents to buy a Ninjago or other toy for the kids as they leave.  And kids of course invite their friends to join them for a day or a birthday party, hooking other kids on the toys.

Many have talked about the death of retail and the rise of Amazon.  But few are talking about the new stores and experiences that are popping up as the old ones die out.  LEGO’s “dead ocean” strategy is an interesting model for any company looking to bolster an existing product in an existing market.

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