Lessons from the Great Comebacks: LEGO – The Toy of the Century

The Brand Finance directory lists LEGO as the most valuable toy brand in the world, however, in 2004 the company was losing a million dollars a day and was on the verge of bankruptcy.

For most people, the LEGO name is synonymous with plastic building block toys, just as all infant bodysuits are referred to as the brand ‘Onesie.’ The LEGO brand is so popular that it has been named the ‘Toy of the Century’ twice in two centuries since its conception in 1932.

But in 1993, the toy maker saw a slump in its sales and so tripled its offerings. By 2003 LEGO had diversified their catalogue by creating amusement parks, jewellery, education centres, interactive video games and alliances with the Star Wars and Harry Potter. Despite this, 2003 saw the company’s sales fall by 29% worldwide with the biggest loss recorded in the company’s history:  £217 million.

New Leadership

By 2004, LEGO was in a dire state, with massive debts equal to its annual sales, and predacious private-equity firms biding their time to acquire the family-owned business. In the middle of this crisis, Danish businessperson, Jørgen Vig Knudstorp was appointed as the CEO of LEGO.

“We had a dress rehearsal of the world financial crisis: a strong decline in sales and a massive increase in our indebtedness,” said Knudstorp, “We needed a permanent change in our lifestyle.”

Regaining Focus

When reviewing the company’s innovations from the 90’s, Knudstorp found that LEGO’s crisis had begun when it begun to modernise itself in the age of video games and appealing to the young female market with watches and clothing lines. Knudstorp return LEGO to their core business, observing that, “the more we’re true to ourselves, the better we are.”

With this in mind, in March 2004, Knudstorp begun restructuring LEGO’s operations. He sold of all the parts of the business that were not essential to the business. He sold off properties in Australia, USA, South Korea, its videogames development unit, and its theme parks. He also reduced the LEGO components by 50% and outsourced many of its processes, reducing the number of LEGO employees by a further 4,500.

Revival and Domination

With these cut downs in costs and a refocus strategy, LEGO was able to display creativity in what it was good at: ‘plastic building blocks!’ LEGO introduced popular lines like Ninjago, Vikings and Architecture as well as products from the Toy Story and Lord of the Rings franchises. In the 2010s the widely successful Lego movie was released, with a direct sequel and two spin-off movies, “The Lego Batman Movie” and “The Lego Ninjago Movie.”

By 2013, Lego became the world’s most profitable toymaker. It currently has a net worth of $40 billion and has made one of the greatest comebacks in the 21st century.

Contributing Advisors