Lego going green means 'reinventing the entire product' ahead of $1 billion Virginia investment

The Lego Group recently announced a $1 billion investment to build a new carbon-neutral factory in Chesterfield County, Virginia, in a strategic supply chain and sustainability move.

The Danish toy company will break ground on the 1.7 million square foot site in the fall of 2022 and plans to begin producing the iconic colorful bricks in 2025.

“It's been a huge undertaking to get that because [Lego is] basically reinventing the entire product from the ground up and doing it in a relatively short period of time,” James Zahn, deputy editor at the Toybook, told Yahoo Finance. “When you look at a company that's 90 years old that completely changed the business in five, six years, it’s quite impressive.”

Specifically, making the new bricks compatible with older ones is much more complicated than simply swapping one material for another. Zahn described the undertaking as “one of the biggest challenges that LEGO had specifically in going sustainable."

In other words, as the company website states: “A LEGO brick of the future needs to fit seamlessly with a brick made over 60 years ago."

'You're going to have to kind of retrain the consumers'

In a toy industry synonymous with petroleum-based plastics, Lego is at the forefront of the push toward alternatives.

The company has pledged to remove all single-use plastic in e-commerce shipments by 2025 and use sustainable materials in all products by 2030. In 2020, Lego adopted a science-based emissions target to reduce emissions by 37% from a 2019 baseline by 2032.

“I think that the bigger play right here is that the toy industry as a whole has really come to a place and it's taking years to get here, where sustainability is no longer a trend — it's just the way that the business is going to be moving forward,” Zahn said. “And 2030 is a really solid benchmark that a lot of companies – Lego, Mattel – are looking at as being where eventually the consumer won't have a choice between a sustainable product and a traditional product because sustainable will become traditional at that point.”

The changes for Lego begin with the company's 84,425 tons of packaging material (as of 2021). The company has expanded its use of sustainably sourced materials and now uses paper and cardboard for 93% of its packaging.

“You're going to have to kind of retrain the consumers for what to look for,” Zahn said of customers who are used to being able to see the toy through clear plastic. “So when you look at like Hasbro and Mattel and some of the smaller companies of the world starting to repackage like that, essentially, they're sort of catching up to where Lego already is because Legos products already come in flat rectangular boxes.”

'Lego is everywhere'

From a business perspective, the outlook for the toy giant was completely different a few decades ago.

“Lego in the late '90s was in a pretty precarious situation, almost teetering on bankruptcy,” Zahn explained. “And what had really turned their business around at the time was licensing, which was something that they had not been involved with previously.”

According to Zahn, the turning point for the company occurred in 1999 when "Star Wars: The Phantom Menace" came out and Lego saw a huge boost from licensing Star Wars Lego sets. The focus on licensing continued to pay dividends — and cater to new generations — through various franchises like Harry Potter, Marvel, DC, and even Stranger Things.

“Lego demand globally has just exploded over the past few years,” Zahn said.

Lego extended the reach of its intellectual property through movies and entertainment as well, becoming the toy behemoth it is today.

“They've come to this point now where Lego is everywhere,” Zahn said. “Lego is sold at all of your major retailers. And very importantly – and it's sometimes even left out of the conversation – Lego is a staple item for thousands of independent toy stores and gift retailers across the U.S.”

'A new conversation about manufacturing here in the U.S'

The Virginia plant will be Lego's first in the U.S. and seventh in the world, which includes another $1 billion carbon-neutral facility being built in Vietnam.

One of the reasons Lego chose Virginia as the site of the factory, according to a PR memo obtained by Nexstar’s WRIC, was the Virginia Clean Economy Act passed under former Governor Ralph Northam. The legislation stipulated that power producers must achieve carbon neutrality by 2045. (The memo also suggested that Lego Group has been prepared to distance itself from current Governor Glenn Youngkin's political agenda, which includes rolling back portions of that law and banning critical race theory.)

Previously, some U.S. demand was fulfilled by a smaller Lego factory located in Enfield, Connecticut. But that plant closed in 2006 when the company moved production to Mexico. For decades, toy makers have relocated manufacturing outside the U.S., particularly to countries in Asia.

“The opening of the new plant in Virginia really falls in line with an overall spotlight that we've seen put on... nearshoring production of toys for the U.S. market in recent years, which is something that really accelerated during the pandemic,” Zahn said, adding that global supply chain shocks "created this perfect storm to open a new conversation about manufacturing here in the U.S."

And building a facility in the U.S., Zahn added, “really cleans up that distribution channel and will make it so that stores in the U.S. are not fighting with stores in other countries to get their hands on that hot product."

There is at least one open question: With an expected 1,760 jobs to fill at the Virginia plant, Lego faces a hurdle on the labor front.

“I really am interested to see how they tackle some of the labor issues because that has been an ongoing conversation with a lot of manufacturers,” Zahn said. “Essentially if we were able to open more U.S. factories today, would the bodies be available to actually staff those factories?”

Whether Lego will be able to keep the factory staffed “remains to be seen,” he added, “because there are some toy makers that do have facilities here in the U.S., and they tend to always be hiring because there's a shortage of the labor required to run those.”

Grace is an assistant editor for Yahoo Finance.

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