The Rise, Fall, and Rebuild of LEGO

Source: Medium

A Toy on the Brink

For generations, LEGO has been more than just a toy—it has been a universal language of creativity, teaching children (and adults) that with a handful of bricks, you can build entire worlds. But in the early 2000s, the company behind this cultural icon nearly crumbled under the weight of debt, stagnation, and digital disruption. We have all played with LEGO before, but there is a captivating story behind the company that lives in the shadows of the business world—one of collapse, resilience, and ultimately one of the most remarkable corporate turnarounds of the 21st century.

Hitting Rock Bottom

LEGO hit rock bottom in 2003, with sales dropping 30% from the previous year. Along with this, the operating margin had fallen to 2.4% in 2003 from 19% in the late 1990s. Lastly, the biggest punch of them all, LEGO accrued debt of 800 million by 2004, which put the company in a fight or flight position.

These numbers are clearly the result of many challenging factors within the core of the company. First of all, LEGO had not introduced any new or innovative products to its portfolio for an entire decade, leading up to 2003. As a toy company, it is vital to always stay up to date with trends and fads so that successful widgets and gadgets can be produced. Not innovating was the first thing that caused the company to crumble. Another internal factor that caused LEGO to struggle financially was its rapid expansion into areas like amusement parks, clothing, and media ventures. 

As LEGO expanded its product lines, coordinating between multiple suppliers, factories, and distributors became increasingly complex. Its inventory system was inefficient, and the company often struggled to supply the quantities demanded, leading to both surpluses and shortages. Additionally, LEGO sourced the majority of its materials from suppliers around the world, which further delayed the manufacturing process.

External Pressures

There were also outside factors that caused LEGO to struggle, such as the general rise of technology for kids in the early 2000s. Video game platforms offered a new form of entertainment for all kids, which captivated children's attention away from physical toys. There were also electronic toys and interactive devices, which kids found more fascinating than traditional construction toys.

A New Leader - Rebuilding the Brand

In 2004, a new CEO, Jørgen Vig Knudstorp, saw the light at the end of the tunnel for LEGO. First, Knudstorp wanted to cut down on the goods and services offered and focus on LEGO’s core product: interlocking plastic bricks. The focus shift allowed for more R&D and expenses to go toward innovating the plastic bricks and finding ways to make them more appealing for kids.

Another crucial step that LEGO took was entering the highly intriguing digital space. Warner Bros sold more than 100 million units of LEGO video games, which generated high amounts of revenue. In addition, LEGO also entered the film industry, where it had tremendous success with The Lego Movie. There was an original $65 million budget for the production, but the film itself grossed over $470.1 million worldwide in ticket sales.

Another way that Knudstorp helped in the turnaround of LEGO was that he narrowed the amount of suppliers and retailers so that fixed costs for the company were lower. Focusing on big retailers instead of smaller ones allowed them to better predict demand trends and more efficiently manage inventory. Lastly, LEGO began to collaborate heavily with its fans so that people could give suggestions and recommendations for what the company should do next. This helped create products that customers were interested in and also made the brand more collaborative.

So, it is clear that LEGO made some very key changes to its business model after the takeover of Knudstorp. In 2014, LEGO’s revenue was over $2 billion, and over the 10-year period from 2004-2014, its sales rose by close to 900%.

The Results: A Decade Full of Growth

Where is LEGO at financially today? LEGO’s revenue grew by 13% ($10.5 billion) from 2023 to 2024, proving that LEGO is still as popular as ever. Operating profit also increased by 10% which means that the company wasn’t just selling more, it was also managing costs efficiently and making more money from its actual operations. The 2024 portfolio was the LEGO Group’s largest ever, with 840 products designed for builders of all ages and interests. The company is also investing in creating memorable retail experiences, expanding its global supply chain, and strengthening its digital foundations for long-term growth.

Building the Future

Overall, LEGO was a company in the deepest of lows that built its way back up to one of the most successful companies in the toy industry. LEGO’s story is proof that even in a digital age dominated by screens, the timeless power of imagination can not only save a company from collapse but also inspire a new generation to keep building a world of possibilities, one brick at a time.