56 Business The EconomistJuly 27th 2019
O
ne of themost successful advertis-
ing taglines coined in Germany in
the past two decades was “Geiz ist geil”:
stinginess is cool. Conceived in 2002 by
Saturn, an electronics retailer, it cap-
tured the mood of the country’s cash-
strapped shoppers two years after the
dotcom crash, while playing to their
penchant for parsimony. But after a
decade of economic growth and low
unemployment, Germans are feeling
flush again and the local discount giants
that they once loved, less so.
Aldi (split into two legally distinct
companies, Aldi Nord and Aldi Süd, in
1966), Lidl, Netto and Penny still have a
market share at home of more than 40%
between them. But traditional German
grocers such as Rewe, whose sales grew
by 9% last year, are outpacing the dis-
counters. A recent study by Edge of As-
cential, an advisory outfit, predicts that
sales at discount chains will grow on
average by 2% this year. Aldi Nord is
suffering more. It lost money in 2018 for
the first time in decades, and sales are
forecast to fall in 2019. “German shop-
pers are rethinking priorities,” says Boris
Planer of Ascential. They are less fussed
about hunting for the lowest price, and
now turn their noses up at cheap tinned
food displayed under fluorescent light.When Saturn revived its old slogan last
month with “Geiz is back”, it did so only
for a fortnight.
Might international business make
up for anaemic growth at home? Aldi and
Lidl are booming in Britain, where the
Teutonic twosome already has more than
13% of the market and expects to do
better still in a possible post-Brexit
slump. Aldi is doing well in America and
in June it entered China with two shops
in Shanghai—for the first time as an
upmarket grocer flogging wine from
Bordeaux, milk from Australia and fresh
organic produce. But foreign expansion
is risky. A month earlier, Lidl gave up on
China as unprofitable. It is struggling to
run its large, costly stores in America.
At home, the discounters hope to lure
discerning shoppers by sprucing up their
stores. Aldi now sells smoothies and
vegan fare. Aldi Nord is spending part of
a €5.2bn ($5.8bn) investment on a facelift
for its 2,300-odd outlets in Germany.
Booted out for upgrading its shabbier
stores too slowly, the firm’s boss, Marc
Heussinger, was replaced last year by
Torsten Hufnagel, his deputy. But Mr
Hufnagel’s revamping efforts may have
come too late. Fears are growing of an
end to Germany’s golden decade. Stingi-
ness may soon be in vogue again.Stinginess is uncool
German retailersBERLIN
As Germans grow less frugal, its discount grocers are suffering in their home marketB
udding engineerscluster around a
table-sized model of the China Art Mu-
seum, a landmark of Shanghai, adding he-
lipads, carrot patches and other improve-
ments with colourful bricks. Prising a child
from Lego’s vast shop near People’s Square
can be like unsticking two stubborn bits of
Lego. Li Yang, visiting for a few days from
Shenzhen, has been waiting for her daugh-
ter for two hours. Zhu Yunfei, watching his
son, marvels at the variety: “Coming here
to play with him is making up for my child-
hood,” he says. They drop by every week.
Lego’s rise in China has been vertigi-
nous. In 2017 it overtook Alpha Group, a lo-
cal giant, to become the country’s leading
toy company (not including video games).
In the past two years it has opened 89
stores. It wants 50 more by December,
which will bring it to 30 cities. Its first Chi-
nese factory started moulding bricks in- The toy industry is growing by 9% an-
nually in the country, but the Danish firm’s
Chinese arm notches up “very strong dou-
ble digits”, says Paul Huang, its boss.
It has done so even as the brickmaker’s
global business has looked shakier. In 2017
Lego cut 1,400 jobs and recorded its first
drop in revenues and profits in over a de-
cade. But last year both ticked up again, by
4% each. Lego has thus retained its status
as the world’s biggest toymaker, snatched
from Mattel in 2014—even as its American
rival last year earned its highest revenues
in five years from its Barbie dolls.
Newly affluent parents in China have
helped Lego recover. “We have not maxed
out there, by far,” says Niels Christiansen,
whom Lego brought in as chief executive
two years ago. As in the West, the educa-
tional merits of bricks appeal to Chinese
parents. Last year 98% of those surveyed by
Lego said that play was essential for their
child’s well-being, even more than Ameri-
cans and Danes.
Lego has also astutely catered to local
tastes. This year the firm launched three
sets specifically for China, the first time it
has done so for any country. Fans were de-
lighted at the attention to cultural detail.
One was a Chinese New Year’s Eve dinner
kit, with tiny red envelopes and chunlian,
lucky couplets on banners pasted around
doorways. A dragon boat race set included a
sticky-rice dumpling, a popular festival
snack. The high-quality kits are pricey,
costing up to 700 yuan ($100) apiece.
With Barbie, Mattel tried to localise in
the wrong way. A former Chinese manager
at the American company calls its promo-
tion of a line of cheaper, flimsier dolls “ar-
rogant”. Because no effort was put into
making her locally relevant, Barbie heldnone of her usual aspirational appeal, even
for spendthrift Chinese. In 2009 Mattel
opened the world’s largest Barbie shop on a
luxury shopping street in central Shanghai,
stuffed with 800 dolls. The six-floor pink
colossus confused Chinese parents by of-
fering mothers a spa, designer fashion and
“Barbietini” cocktails, and their daughters
more age-appropriate attractions. It was a
flop and shut two years later.
It is hard to convince prudish parents of
the creative merits of frivolous dolls, and
grown-up Chinese collectors prefer short
and chubby Molly, a popular local poppet.
The Chinese market for construction toys
is six times bigger than for dolls. In Mr
Zhu’s words, “there is no art to a Barbie”.
Tellingly, Mattel’s most successful brand in
China is a maker of educational baby toys,
Fisher-Price, with a market share of 1.1%,
according to Euromonitor, a data provider.
Barbie, with 0.3%, comes a lowly 31st. By
contrast, Lego’s 4.5% share puts it firmly in
first place: a fortification that will serve it
well, as China’s market for toys and video
games, worth $45bn, overtakes America’s
in the next few years. 7SHANGHAI
Why the toy brickmaker has soared but
America’s favourite doll has stumbledLego v Barbie in ChinaYellow brick road