The Danish toy company has overtaken rival Mattel after an incredible quadrupling of revenues in less than 10 years. The Lego Group is engaged in the development of children’s creativity through playing and learning.
According to a toy analyst at market research firm Mintel, Lego’s recovery had been fuelled by its invetsment in quality and design. Jane Westgarth of Mintel, said “They are doing things that are taking Lego into a slightly different position, from the boxes of bricks where you had to use your imagination to sets you use in specific ways with characters you already know,” she said. “If it’s good quality, people are prepared to pay that little bit extra.”
It is a brand name familiar to children around the world, but a decade ago Lego was in crisis. Sales were collapsing at a rate of 26% a year, it lost 1.4bn Danish kroner (£150m) in 2003 and private equity firms were circling the 82-year-old family-owned Danish company.
Now, after a series of job cuts and the ending of the family’s management of the company, the plastic brick business has rebuilt itself into the world’s most profitable toy maker ahead of Barbie’s Mattel.
The company, which has been headquartered in the small Danish town of Billund (population 6,155) since 1932, has reported “another record breaking year” of sales and profits growth – for the ninth consecutive year. Its high profitability comes from its ability to turn each kilogram of raw material plastic – which costs less than $1 – into sets that sell for more than $75 per kg.
Annual profits increased by almost 10% to 8.2bn kroner (£900m) – about the same as the profit Facebook turned in last year. Sales jumped 10% to 25.3bn kroner (£2.8bn).
“That is an incredible quadrupling of our revenues in less than 10 years,” Joergen Vig Knudstorp, Lego Chief executive, said “We think we are changing children’s lives forever when they play with Lego. We think this was another year where we got great affirmation of that.”
Knudstorp is credited with driving Lego’s resurgence since he took over as CEO from Kjeld Kirk Kristiansen, grandson of the company’s carpenter founder, during the 2003-4 crisis.
He said Lego’s success was due to constant innovation and the creation of 60-70 new products every year, including Harry Potter, Star Wars and SpongeBob SquarePants ranges. But he admitted it is still a “major innovation challenge” to “stay on the top of children’s wish lists” against competition from iPads and computer games. “We need to constantly become better, or otherwise there will be someone out there who will catch up to us,” he said.
Lego, which is derived from the Danish “leg godt” meaning “play well”, is also benefiting from “a considerable amount of excitement” prompted by the Lego Movie. The film, which features the hit Tegan and Sara song Everything is Awesome, is taking £2m a day in UK cinema box offices, and has topped the US and Canadian charts for three consecutive weekends.
The company is still owned by the descendents of Ole Kirk Kristiansen, a master carpenter and joiner who founded the company in Billund in 1932, when it was a small village. Ole’s son Godtfred joined the firm when he was 12 years old, and the company’s first toy was a wooden duck called Lego. The first plastic bricks were produced in 1949.
Godtfred’s son Kjeld Kirk Kristiansen was chief executive from 1979-2004. Forbes magazine named Kjeld as denmark’s richest man with a net worth of $7.3bn in March 2013. A spokeswoman declined to comment on the family’s current wealth.
Source: The Guardian
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