LEGO RECOGNIZED THE FUTURE COMPETITOR AS VIDEO GAMES AND KNEW THEY HAD TO CHANGE – #87
As the world’s #1 toy maker by sales Lego is recognizing that digital distraction of children’s time is a constant challenge and innovation that leads children to utilizing the LEGO blocks in a unique and instructional manner that holds their interest so that repeatability of use becomes a competitor to the digital screen that is so difficult to achieve. LEGO CEO NIELS CHRISTIANSEN simply ran a double-digit gains business in markets like the U.S. and Western Europe but growth there has slowed. Why would this closely held Company have such total disregard for changes in their consumer base, global opportunities, innovation and other factors that this “BLOG” keeps stressing on a weekly basis? The world is changing rapidly every day, and if you are not growing within the scope of your business, you will fall behind rapidly and catching-up will be a costly experience with the business threatened by sudden death. One could not envision a circumstance which did not send signals to LEGO that its net operating profit would decline 16% at midyear (2019); revenue climbing only 4%. Expenses rose to 11.28 billion Kroner from 10.07 a year earlier. As a matter of fact, in the first half of the year, Lego’s sales in the U.S. and Western Europe slowed down to a level of single digit growth, while China experienced double digit growth in Lego sales due to the opening of new stores and finally resolving some distribution issues.
The message of a decline in business caused the restructuring of Management in 2017 starting with the CEO being replaced by Mr. Christiansen after the first decline of sales in more than a decade. The U.S. market represents the largest and grew by 5% in 2019. In response to the bankruptcy at Toys “R” Us, Lego distributes their products through department stores such as Kohl’s; arts-and-crafts retailers like Michael’s; and discount stores like Dollar-General in addition to online presence and its own stores. Not too impressed with the names of the distribution channels because big box stores were missing from the challenge of getting their business. (Amazon, Walmart, Target)
Mr. Christiansen’s biggest challenge is to build brand awareness outside of the U.S., and continue to do what he has been doing. The reason for needing a specific one page plan is to make sure that you can afford all the programs, or do you need to divert profits to specific areas of the business. In LEGO’S case they will have make sure that they don’t go bankrupt as the markets targeted for expansion represent different cultures, age of consumers, channels of distribution, and most important is exciting and new products matching the technology base the Customer wants. Mr. Christiansen did the right thing and look how long it took to hit the wall of inevitability. Mr. C did what most people will do, and that is to show Leadership through slashing jobs, tried to launch more products quickly (for every product used-is it being replaced with a new profit generator in the pipeline? Is the company expanding its product lines at a profitable and innovative rate that matches changing market conditions? Why did it take until now, to hire a chief digital officer who is focused on accelerating Lego’s use of technology for its bricks?
How will Lego protect its patent position from Chinese patent thieves? Why wouldn’t they immediately copy the Lego brick? It suits China’s abilities to manufacture perfectly – high volume and low cost raw materials. I suspect that Lego maintains their position, due to their ability and knowledge of how to handle this product line in the marketplace.
Management Lesson: From the experience I had visiting LEGO’S offices in Denmark, I walked away saying that they were running a pretty efficient operation. In my position as Director and VP of Sales for GBC Scandinavia, I was privileged to visit Lego’s facilities in Denmark two or three times. On each visit, I saw a company who had a good product, and Management was happy with everything. There wasn’t that sparkle and effort evident in the employees that provides an outsider the willingness to become a cheerleader too. There was no evident pride in the product, pride in management, nor pride in their services. That situation changed in 2017 when earnings and profitability were negatively affected. Don’t wait for that negative moment to hit your business. Make sure that your employees recognize the fact that the Market and the Customer rules, with their wants and desires. I sincerely hope that you are ahead of my weekly “BLOG” in managing your business. Planning is a must during this stage of the business cycle (mature product) to ensure that the proper amount of profit is being applied to supply the building Blocks for future growth – without going bankrupt, while trying to balance these issues.