centralasian (centralasian) wrote,

[PER] лего-марки & лего-проблемы

оказывается, про лего уже и марки выпустили. хоть и гибралтарские, а всё равно приятно.

это, однако, не спасает лего от неприятностей: в прошлом году компания потерпела самые крупные за свою историю убытки, и убыточный год был уже третьим за последние шесть лет.
"We have not been good at reading the market; we have not been good at understanding what's actually going on. We have not been good at forecasting," Mr Kristiansen says bluntly."

After the crash: Lego picks up the pieces

For Lego, the bricks no longer seem to stack up. The iconic Danish plastic toymaker, one of the world's best-known toy brands, has just announced the biggest loss in its history. The DKr1.4bn (£125m) deficit last year came after sales fell by just over a quarter to DKr8.4bn and a big drop in market share. The company's chief operating officer has been sacked, hundreds of jobs are being cut and strategy is being urgently rethought.

If this were a one-off, it would be bad enough. But this is the company's third loss in six years. It raises the question of whether Lego, a an archetypally traditional toy, has lost its way in a market that is more competitive, faster moving and more fad-driven than ever. Its current predicament is an extraordinary comedown for a company that, only four years ago, was judged Toy of the Century and which had become used to decades of unbroken sales growth. If things do not improve quickly, its very independence will be at stake.

Kjeld Kirk Kristiansen, the 56-year-old main owner of the family business and the grandson of its founder, knows this only too well. He is the world's 205th richest person according to Forbes - worth $2.5bn (£1.35bn) in 2003. The crisis has forced him to take over the day-to-day running of the business in what is evidently the biggest challenge of his career. His assessment is simple: Lego was so busy chasing the fashion of the day that it took its eye off its core brand. It is a cautionary tale that will resonate with many businesses.

Mr Kristiansen says candidly that Lego became over-dependent on licences, for products such as Harry Potter and Star Wars, and, remarkably, lost sight of one of its critical target groups: small children.

"We have simply not had enough focus on our core products. Too much of our growth has been generated by licensed products. And we chose a wrong strategy two years ago in re-launching our pre-school assortment under the Explore name."

Lego - the name derives from the Danish words "leg godt" meaning "play well" - began licensing in the late 1990s in a bid to get its share of the huge revenues that flow from hot toy trends. But the strategy has exposed it to unexpected earnings volatility. It is no coincidence that the company made a profit in 1999 when a Star Wars film was released and in 2001 and 2002, when the first Harry Potter films came out, but losses in the other years when there were no films. Harry Potter Lego sets simply did not sell well last year.

The second mistake was to phase out the pre-school Duplo brand, which Lego had used since 1969, and replace it with Lego Explore. Too many parents thought Lego had simply stopped making the larger-sized Duplo bricks for children aged 18 months to five years. Disastrously, it meant that Lego's revenues in the pre-school market halved last year.

But, behind the specific failures, there has been a more general malaise.

"We have not been good at reading the market; we have not been good at understanding what's actually going on. We have not been good at forecasting," Mr Kristiansen says bluntly.

This has particularly been the case in the US, Lego's biggest and most fashion-driven market. Lego had a terrible year there in 2003, ending an unbroken run of growth stretching back to 1975 when its plastic bricks first appeared in US shops. Poul Schou, a Lego marketing executive who has just returned to Denmark from the US, says the company "oversold" its products to US retailers in 2002, meaning they entered 2003 with bloated stocks. It also failed to predict what its US best-sellers would be, particularly among its popular Bionicle figures.

As Mr Kristiansen told the staff newsletter recently: "There must never be a repeat of the situation in which the two best-selling Bionicle products were unavailable in the run-up to Christmas, as happened in 2003 in the US."

The company has even managed to antagonise some of its loyal band of adult fans, who have bemoaned Lego's mistakes on websites around the world. They have been upset by changes to the colours of some of the new bricks, which they say no longer match up with older colours. Christian Krützfeldt, a self-confessed Adult Fan of Lego (Afol) from Germany, claims: "It was possible to take a Lego brick you had as a child and pass it on to your children and they could use it. However, due to the recent change that isn't possible any more."

The back-to-basics strategy means Lego will put more emphasis on the classic sets and themes that have served it so well over the past 50 years (Lego was founded in 1932 by Mr Kristiansen's grandfather, a maker of wooden toys. The plastic brick was not invented until 1949).

Sub-brands that have been neglected will be given more prominence, including the Lego Technic and Mindstorms ranges that involve electronics and computers and are aimed at older children.

The Duplo brand will be reactivated and a new brand, Quatro, with even bigger bricks for children up to two years old, is being launched. The company will also try to promote more of its own intellectual property, building on the success of Bionicle. Its latest foray in this area is called Knight's Kingdom. Both Bionicle and Knight's Kingdom feature classic goody-versus-baddy confrontations and are the nearest the company will go to portraying conflict. It has always refused to supply war toys such as tanks and fighter aircraft. None of the licences is being phased out, however: indeed a new one, with Ferrari, has just been added.

Soren Holm, Lego's creative director, says the company needs to take classic concepts and "give them a twist", something that grabs the attention and emotions of the children of today.

"Look at Beyblades," he says admiringly of the hugely successful Hasbro spinning blades. "You don't get anything more classic than a spinning top, but they've added characters to them and a competitive element."

But the reference to Beyblades highlights one of Lego's biggest problems: a steadily stronger competitive challenge from other toy and games manufacturers.

"The sheer mass of products available to children at affordable prices has changed the expectations and dimensions of childhood," says Michael Moore, who worked for Lego for 26 years until 1999. "If you go back 15 years, there were no direct competitors in the UK. Today there is Mega Bloks [the Canadian company that produces similar bricks to Lego] and K'Nex," he notes.

Two of Lego's biggest rivals, Hasbro and Mattel, have much broader product ranges and can more easily ride out a disappointing performance by one product or genre.

It is not just competition. "Kids grow up much quicker than they did 15 years ago. And there are so many things for them to do - TV, video, consoles, sports - that the time available for play is much smaller," says Mr Schou. Children increasingly opt for interactive computer games and electronic gadgets from the age of about eight, in spite of Lego's efforts to keep them interested in its products with offerings such as Mindstorms. Some start to move on from the age of six. No wonder there is such a strong drive to do better in the pre-school market.

Lego is not just changing its product offering. It is also shaking up a culture that Mr Kristiansen says has been "too inward-looking" and too complacent after many years of success. Three or four years ago the group deliberately brought in a number of outsiders in a bid to inject new blood and ideas. But some of these appointments have not worked out. Poul Plougmann, the chief operating officer who came from Bang & Olufsen, has been ousted. Francesco Ciccolella, also from Bang & Olufsen, left after the Duplo name-change debacle; and Andrew Black, a former Nike executive, left the group's US operation early last year.

Mr Kristiansen says the clearest sign of the cultural change is that the company is now spending far more time consulting parents, children and retailers. Previously it was rather sniffy about accepting ideas from outsiders. Another sign of the more humble approach is that Lego has changed one of its main ambitions: currently number six in a world ranking of the best-known brands for families with children, it is pitching to be one of the top five by next year. Its previous ambition was to be number one.

Mr Kristiansen says Lego's first aim is to break even this year, which should be possible if it lifts sales to about DKr9bn. Ironically, given the reduced emphasis on licences, sales should be helped by the launch of the third Harry Potter film.

But the losses and lacklustre profits even in good years have taken their toll. It has got to the point where the company's balance sheet is starting to feel the strain. Mr Kristiansen warns that if Lego fails to do better this year, its financial independence will be at stake.

"We are still not in a financial crisis. We are in a crisis in terms of our earnings and competitiveness," he says.

He will not spell out exactly what the consequences of a financial crisis would be but he does make it clear that Lego will not be forced into the arms of another toymaker. "It's definitely my plan that Lego should continue as a family-owned company," he says.

There is still some uncertainty over the future role of his family, however. Mr Kristiansen says he does not expect any of his three children, now in their early 20s, to play a role in the daily running of the company. They may, however, take seats on the board. Stressing that his first task is to get Lego back on its feet, he gives no clues as to when he might step back himself.

Mr Krützfeldt is in no doubt about the scale of the challenge the company is facing: "Personally I would love to see the return of the old themes from long ago or similar and more basic bricks, instead of specialised bricks for only one purpose. However, I realise that these days many kids prefer to play with toys like Power Rangers or Gameboys instead of plastic bricks. It will not be easy for Lego to return to its roots and be able to make a profit at the same time. They will have to adapt to be able to compete with the toys of today."

Jon Salisbury, an editorial consultant on the UK's Toy News, is also cautious. "They were so successful for so long, they didn't have to question their marketing or product development ability. Every retailer in Europe wanted to sell Lego. Now they are having to compete with the rest of the toy industry on toy industry terms."

He warns that the company's traditional products will never have the earning power of blockbuster licence-related products, which means that it may have to accept a more modest growth rate in future.

There are early signs that the back-to-basics strategy is working, however. A new range for girls, called Clikits, is selling well. And sales of Lego's Make and Create line doubled last year. There is little sign that the brand has been damaged by its recent difficulties.

"Lego has a position to die for. Children think they are having fun and parents think it's educational. It's a wonderful position and probably unique in the toy industry," says Mr Moore.

But Mr Kristiansen accepts that Lego has failed to keep its promises before. He is confident that it will be different this time.

"There's a real sense of urgency and commitment. We have to do it. We have to prove it now."

By Christopher Brown-Humes
Financial Times; Apr 02, 2004


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