LEGO Gets Leg Up On Toy Competitors
DAVID GREENE, host:
And the Danish toy company LEGO sailed through the global recession. The company that makes those brightly colored snap-together plastic bricks announced that profits jumped more than 60 percent last year. LEGO's success is all the more remarkable when you consider that just a few years ago, the toy company was falling apart.
NPR's Jessica Smith has the story.
JESSICA SMITH: As a young Dane just out of college, Soren Torp Laursen wanted to work for a company that would allow him to travel around the world. There aren't many companies like that in Denmark, but Laursen landed a job at one of his country's few global corporations. It happened to be a toy company.
(Soundbite of music)
Unidentified Group: (Singing) At Legoland, land, land, land. At Legoland, land.
Mr. SOREN TORP LAURSEN (Senior Vice President, LEGO Group): And then I thought okay, I'll take that for couple of years, maybe a year after that and then I'll move on and here I am 23 years later.
SMITH: Laursen is now the top executive in the U.S. for LEGO. It's a company whose history was, until recently, like a fairytale. Fifty years of non-stop success and that was almost LEGO's undoing.
Mr. LAURSEN: Our culture was a culture of complacency, an element of self-centeredness, introvertness, you know? We had probably gone a little bit, you know, fat and happy.
SMITH: That mindset prevented the company from responding to challenges that were cropping up starting in the 1990s, like cheap competition which was stealing sales. Also, LEGO was so confident of its brand that it was throwing money around to expand into areas it didn't know much about, like clothing and theme parks and computer games.
Industry analyst Sean McGowan says LEGO also wasn't responding to the growing power of big retailers.
Mr. SEAN MCGOWAN (Toy analyst, Needham & Co.): Well, when Wal-Mart would push back as they push back on everybody - and it's not just Wal-Mart. It would be Target and Toys R Us as well - the attitude that these retailers confronted was, you know, this is our product and this is our price. That's the end of the discussion.
SMITH: And that was the end of LEGO on many store shelves. By early last decade LEGO's Laursen recalls...
Mr. LAURSEN: It was bad. We were on the brink of running out of cash, basically.
SMITH: There was even talk of selling LEGO.
Mr. MCGOWAN: This had been a fiercely independent family-owned business that was like a Danish national treasure. I used to joke that the only way that Mattel or Hasbro is going to buy LEGO is by declaring war in Denmark.
SMITH: Danish journalist Peter Benson went even further.
Mr. PETER BENSON (Journalist): Actually, in my newspaper I made a front page story saying that children doesn't want to play with LEGO anymore. LEGO is dying. The funny thing is LEGO found their way out by going back to basics.
SMITH: What happened was that LEGO's CEO, a member of the founding family, stepped aside and brought in an outsider, a 30-something business consultant. And the new CEO decided that the company's future lay in its original product -- the plastic brick. After that, the company turnaround snapped into place with a speed that analyst Sean McGowan says is unique in the industry. LEGO Soren Laursen explains it this way.
Mr. LAURSEN: There was a reignited belief in the core idea of what LEGO stands for, a systematic creativity building a tactile toy.
SMITH: There were also painful steps like firing thousands of employees, something the company had never done before. LEGO shifted production to cheaper countries and it sold off money-losing businesses, like the theme parks so the company could focus on selling bricks and classic toy set that kids like fire stations and police stations.
(Soundbite of LEGO advertisement)
Unidentified Man: You can kill the new great fire truck. Race off to the rescue.
Mr. LAURSEN: Because we were so focused on all the new businesses you couldn't find a proper police station or medieval castle, and therein, I think, lies part of the fastness of the turnaround, because the minute we started making those products the consumers were still out there ready to buy them.
(Soundbite of LEGO advertisement)
Unidentified Announcer: The fastest ship in the galaxy is in your hands with the new LEGO millennium Falcon.
SMITH: And now as Danish journalist Peter Benson describes LEGO...
Mr. BENSON: They are really high-flying these days. The sky is the limit.
SMITH: LEGO "Star Wars" videogames are a hit. New LEGO stores are opening. New theme parks are in the works, which makes you wonder if the company is once again going down the dangerous path of overexpansion. A difference now is that the theme parks and videogames are handled by outside companies. That's something that never would've happened before, what Laursen calls the crisis.
Mr. LAURSEN: The crisis in many ways helped us transition through the process of self-centeredness, and we have subsequently evolved significantly our culture to being a much more open and collaborative culture.
SMITH: The passionate toy seller says a powerful anecdote to complacency is fear of making the same mistakes, and also the memory of seeing so many colleagues fired so that the company could be saved. Laursen says an event like that leaves scars you don't easily forget.
Jessica Smith, NPR News.