Monday, 12 March 2012

Sales and profits up for LEGO in 2011

The Annual Report from LEGO show that the company has continued to show strong growth, with an impressive increase in both sales and profits. This is not unexpected news, as LEGO has continued to gain more shelf space in stores and sets regularly sold out as usual in the run up to Christmas. Knudstorp’s strategy for growing the company is continuing to produce impressive results. But with recent controversy over LEGO Friends hitting mainstream media, and collectors grumbling about Chinese parts, is it time to remind consumers that it’s not all about the money?

Scroll halfway to the bottom for the actual press release that sparked this article.

Of course, really, it is all about the money for a toy company. But historically, for LEGO, there was more to it than that. This text is taken from the website of Kirkbi, the largest shareholder in the LEGO Group:
The LEGO Group’s declared mission is to inspire and develop the builders of tomorrow, its vision to invent the future of play – all in the spirit of the words formulated by the founder of the company, Ole Kirk Kristiansen, “Only the best is good enough” - Kirbi website
It was this spirit that guided LEGO for decades, and through simply putting out quality products – supported by some great marketing and tie ins – made LEGO a timeless, classic toy. This is why consumers have such affection for LEGO rather than for Hasbro, Mattel, or whoever else. Most people of a certain age or younger out there have fond memories of LEGO, even if they don’t collect it to this day and read websites dedicated to it.

Although it all sounded very idealistic by the time it all went wrong and LEGO posted those near fatal mid-2000 losses. This was exactly because the company was missing the point of why it existed. The official line remains that there was too much money poured into theme parks and too many spin off products such as t-shirts. That is undoubtedly true, however what shouldn’t be forgotten is that LEGO was also putting out some poorly conceived and badly designed products. If the actual LEGO sets weren’t right, what chance did the other stuff have?

When Jorgen Vid Knudstorp took the reigns to rescue LEGO, much was made of his new mantra, 
 replacing "nurturing the child" as the top priority in Lego's employee mission statement with "I am here to make money for the company."CNN Money, 2006
No doubt it was partially about marketing and spin, but it genuinely seemed to inform the way LEGO would do business. At the time, this made sense. Seven or eight years ago, this was definitely what the LEGO Group needed to project to the world. It gave confidence that the company understood the scale of change needed, and provided discipline in how decisions would need to be made.

Knustorp’s culture has fostered success, as this year’s results once again show. Profits increased by over $100 million. After the cautious optimism of the past few years, LEGO are now meeting demand and providing trade customers with enough sets to sell to the public. The new products are being received favourably, with well designed sets on the whole and an understanding of what each line needs to be. Non-construction products are wisely being licensed to other manufacturers.

After cautiously consolidating brands such as Star Wars and City, LEGO have since successfully branched into Games and this year braved the girls’ market. Here is where the company has been reminded that consumers have a special expectation of LEGO as a brand and company. A bit of a media storm was whipped up, suggesting that offering girls a product in a pink box, with special cute mini-figures and (arguably) simpler building was patronising and sexist. LEGO had of course poured shockingly large amounts of money into market research to find out what girls wanted, and LEGO Friends is what they came up with. Conducting plenty of market research is the prudent thing to do when your aim is to “make money for the company”. The problem some of the parents and collectors who have taken issue have is that they remember LEGO being all about “nurturing the child”. They still think of LEGO as being a more ethical company than Hasbro or Mattel.

Whether or not Friends is appropriate for girls, or if the product should be gender neutral, is a debate that will go on. But as I have highlighted here, it shows the perception of many who still believe LEGO does (or should) stand for a little more than the bottom line. I would even argue that if LEGO turn their back on the ethical spirit of the company, it will hurt their sales and reduce their profitability. Consumers will lose their nostalgia coloured view of the company if it ceases to care.

"I am here to make money for the company” was an appropriate statement for its time. But now that LEGO is back, and back bigger than ever, it seems like time for a new mantra to be adopted. One that will reassure consumers that whilst LEGO will aggressively pursue a larger chunk of the toy market, it will remain true to its core values and look after consumers. 

Please share your thoughts in the Comments section.


Original press release, 1st March 2012:

LEGO Group sales up by 17% in 2011
For the 8th year running the LEGO Group captured market shares in 2011 in a sluggish toy market. The Group’s share of the global market is now 7.1%. Sales rose to USD $3.495 billion.

This is reported in the company’s annual report for 2011, with the key figures showing that 2010’s high growth rate continued into 2011.
• Operating profit for the year increased to USD $1.057 billion from USD $884 million in 2010.
• Profit for the year increased to USD $776 million from USD $661 million in 2010. 
• Group equity increased to USD $1.214 billion at end 2011 from USD $981 million at end 2010.
• Sales rose by 17% to USD $3.495 billion (from USD $2.847 billion in 2010).

The LEGO Group reporting currency is DKK. Conversion from DKK to USD is based on an annual average currency rate (however conversion of equity figures is based on year-end currency rate) in 2011 and 2010 respectively.

“It is a highly satisfactory result reflecting a solid growth in profit. Growth in the North American market continued undiminished, and also in most European and Asian markets we were able to report double digit increases in sales,” says Jørgen Vig Knudstorp, LEGO Group CEO.

Success with both classic and licensed products
Sales of licence based product lines in particular were well above expectations in 2011. This was the case with, for example, with LEGO® products based on Star Wars™, Harry Potter™ and Pirates of the Caribbean™.

Sales of classic lines such as LEGO City, LEGO Technic and LEGO Creator also rose sharply, while LEGO Ninjago, the Group’s major product launch in 2011 – a combination of traditional building sets and so called spinners – exceeded expectations and was the Group’s biggest product introduction ever.

By contrast, LEGO Universe – the online game launched in late 2010 – fell below expectations, and in November 2011 the decision was made to halt development of the game.

Investment in wind energy
The LEGO Group is taking active steps to reduce its impact on the environment and in February 2012 the LEGO Group took an important step towards its goal of generating renewable energy capacity to meet 50% of its energy needs by 2015, rising to 100% by 2020.  23 February the LEGO Group’s parent company, KIRKBI A/S, announced an investment in a new offshore wind farm in Germany which is expected to enable the LEGO Group to meet its energy targets for 2020. The wind farm is expected to come on stream in 2014.

Increased production capacity and 1,000 new employees
In 2011, the LEGO Group continued to invest in production capacity in order to be able to meet demand.
• In the autumn new moulding halls were opened at the LEGO factory in Monterrey, Mexico, where a new high bay warehouse is under construction. 
• In March 2011 work began on a major extension to the LEGO factory in Kladno, Czech Republic, which is expected to open in spring 2012. 
• It has also been decided to build a brand new factory in Nyíregyháza, Hungary, to replace the existing, rented facility in the same city. 

In 2011 the number of LEGO employees, reflecting rising sales and capacity investments, increased to an average of 9,374 full time employees for the year – which was 1,009 more than in 2010.

The LEGO Group has grown strongly over the past seven years, and as a result the size and complexity of the organization has grown. In 2011, the Group set up was simplified and management was restructured removing a management level and some individuals left the company. A new and broader Corporate Management team of 22 individuals facilitates better collaboration and faster decision making. The expected outcome of this is a set up more scalable and adaptable to the challenges facing the LEGO Group, such as further expansion in emerging markets.

Continued growth expected
In the context of the LEGO Group’s positive results in 2011, global LEGO Group sales are expected to continue growing, producing a satisfactory result for 2012. One of the drivers is the new play theme, LEGO Friends, which along with the existing product range should secure continued sales growth in 2012.

The company expects, however, that the economic crisis in certain European markets will mean slower growth during the coming year. In the closing months of 2011 in particular, the LEGO Group observed the growth rate in some Western European markets decline. In the light of these economic trends the LEGO Group expects a flat or slightly declining development in the overall European toy market in 2012 – while modest increases are expected in the overall market for traditional toys elsewhere in the world.

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