The secret to Lego's success

The former plastic brick basketcase is now the world's most profitable toymaker

by Andrew Saunders
Last Updated: 14 Apr 2016

Formative years

Like a model of the Houses of Parliament made from its shiny plastic blocks, success for Lego took a long time to build. Beginning in 1932 when a Depression-hit Danish carpenter called Ole Kirk Christiansen set up a home workshop to make ends meet, the firm soldiered on making modest wooden toys for 25 years.

The classic Lego bricks that we know and love today didn't appear until 1958. That same year, Ole Kirk died and his son Godtfred took over the firm, then employing 140 people. Expansive where his father had been cautious, Christiansen Jr opened up exports and cut ties to Lego's wooden-toy past to go all out for plastic. It caused a family rift but sales took off at last, and thanks to its motto - Only the best is good enough - Lego soon earned a worldwide reputation for quality at a time when plastic toys were regarded as cheap 'n' nasty.

A golden three decades followed, when each new idea - mini-figures, Lego Technic, the Star Wars franchise - was more popular than the last. By the 1990s Lego had 8,000 employees, had reached more than 100 countries and the Kirk Christiansen family had become the richest in Denmark. Kids eh?

Recent history

But - despite a glittering endorsement from Google's founders in Time magazine - by the late 1990s cracks were showing. Expansion into everything from clothes to publishing, video games to theme parks pushed up costs while sales stalled. In 2004 revenues abruptly slumped by 30% and Lego posted a record loss of 1.4bn Danish Kroner ($239m) and was, senior execs have since admitted, nearly bankrupt. There was even talk of a takeover by US arch-rival-cum-nemesis Mattel.

Some 3,500 jobs were cut or outsourced, and hundreds of non-core products axed to focus back on the bricks. And on clever ways to sell more of them, like apps, smart bricks and the smash hit The Lego Movie, which was not only 2014's highest grossing film, but also a peerless piece of content marketing. Lego has even taken over from Ferrari as the world's most powerful brand, according to consultancy Brand Finance. With Lego's revenues up 13% last year to 28.6bn DKr ($4.4bn) and profits up 15% to 7bn DKr ($1.1bn), rival toymakers are now bricking it.

Who's in charge?

CEO Jorgen Vig Knudstorp took over in 2004. He is the first non-family member to run the firm, but it is still owned by the Kirk Christansens.

The secret formula?

Lego manages the rare double of being highly desirable to both kids and parents - like a jam doughnut that's good for you. It's also engagingly uncorporate - senior execs hand out Lego mini-figures instead of business cards.

VITAL STATISTICS

HQ: Billund, Denmark

Employees: 12,582

Revenues: 28.6bn DKr ($4.4bn)

Net profits: 7bn DKr ($1.1bn)

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