Lego's Revival

Not only the story...

“Good play enriches child’s development” Let’s go back to 1932 when it all started with Ole Kirk Kristiansen’s vision.

He established his woodworking business earlier in Billund, Denmark with one motto in mind – “Only the best is good enough”. For various reasons, he shifted his production range in 1932 from furniture for local farmers to wooden toys. In 1934 he named it LEGO from the Danish words “LEg Godt” which means “play well”.

Through the decades, the LEGO group has been so successful that it has been ranked as one of the 10 toy manufacturer in 1990. But the first jolt that would weaken the magnificent Brick walls of the LEGO empire were to happen.

Indeed, after a decrease of profit margin in 1997, the company knows its first loss in 1998. Yet, LEGO as been crowned the “Toy of the century” the same year and managed to keep its head above water until 2003 thanks to various effort, namely a strategy to expand sales in foreign countries.

But these efforts haven’t prevent worse events to happen and the LEGO Group has seen its sales dropping down drastically in 2003 as a consequence of a fast changing market field and some business mistakes.

...of a rude market field...

The global traditional toy market is in trouble while the market for electronic toys knows increasingly growth. LEGO’s core market – young boys – is losing interest for physical toys preferring computer games or electronic devices. Those children are also getting older younger because of the modern educational times. They have less free time to play which shortens product life cycle. That statement well reflects the kind of market where LEGO is evolving, the market of here-today-gone-tomorrow.

The Group is facing serious competition from new toy’s manufacturers – like Megablock – which are offering a wide range of competitively priced building block since they’ve reduced their costs thanks to delocalization. The demand upon those toy manufacturers has led LEGO to suffer from losses in market shares and lower gross margin.

The competition has also gone up at the retail level. Medium sized toy retail chains are not able to compete with very large chains anymore. At the same time grocery chains are offering toys on discount terms. The growing pressure that the retail sector exerts on the toy market has also helped LEGO’s gross margin and sales to further decrease.

The market at this period was very unstable as evidenced unfavourable movement in currency rate. And apart from the fact that the market field where LEGO was playing was also shaky, a number of management mistakes helped the firm to hit the bottom. Shifts happened between 1998 and 2003.

...or managing problem...

In the late 90s, the company lost focus on design. One of its big mistakes was to grant its designer more freedom. As a result, they began to make up increasingly complex model. The product development had become too complex because of broader product range. The number of component has doubled in 7 years time – from 1997 to 2004 – which has made company’s costs for component rising slowly but surely. More troubling is the fact that this new design wasn’t resonating with kids. They were lost with too many range of choice.

Another thing that has been detrimental for the company is the extension of the brand outside toy market. The company lost focus on its core business and tried to sell more than a toy – but a lifestyle. The too complex LEGO’s portfolio which was including clothes, bags and accessories accelerate appeal for the original bricks to disappear.

A brilliant example of the company two big mistakes from above is obviously the “Galidor Disaster”. The LEGO Group launch the Galidor action figure line in 2002 in order to extent the brand. But the way designers created those figures were far from the Group core promise since it didn’t require building skills and so that it has tied children’s hands and imagination. And the company lost even more money in co-producing a kids’TV show which meant to add details to the action figure. This effort among others is a reflection of the company loss of focus.

Furthermore the lack of LEGO’s efficiency leads the company to fail predicting demand for its best selling product during Christmas in 2003 buy also other periods of best selling rate. The management mistakes have made LEGO losing part of its sales again.

All those “losses” on various field led the company to make a DKr1.6 billion loss at the end

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