Yesterday, the 85-year-old Danish toy manufacturer released their annual financial results for 2017… and the bricks didn’t exactly fall into place.
Last year, the company — which sells 75B bricks annually — saw their profit fall 17%, and revenue drop 8%, breaking their 13-year growth streak, over which revenue increased by an average of 15% annually.
The report comes on the heels of some big management changes, a decision to cut 1.4k employees (8% of their global workforce) back in September, and an overproduction issue that forced LEGO to sell off its bricks at a steep discount to make room in their warehouses.
Fail flashback: when LEGO almost lost it all
LEGO’s stumble marks the first time since 2003 that the company’s revenue and profits declined — and that time, they nearly went bankrupt.
In the late ’90s, LEGO made an ill-advised decision to diversify away from colorful bricks, and into dolls, clothes, and books. The move resulted in the company’s first non-family member CEO, Jørgen Vig Knudstorp, taking the reins.
Knudstorp resurrected LEGO from “the brink of collapse” by cutting thousands of jobs, cutting the number of bricks produced in half, and bringing the focus back to the company’s old-school products.
How the current slump started
Between 2010 and 2015, LEGO’s profits doubled. The company opened a massive Chinese factory, and, at one point, had to scale back advertising because demand was too high.
Turns out, the growth was “supernatural”: the company grew too aggressively, and last year, when sales lagged in Europe and North America, they found themselves left with warehouses full of excess bricks, which in turn limited their ability to roll out new products.
Now, LEGO wants to go hard on the digital front
LEGO’s newest CEO, Niels B. Christiansen, plans to fix the dip by rolling out more digitally focused products in order to “stay relevant.”
They’ve had some success with digital forays before (2014’s “The Lego Movie” grossed $470m at the box office) — but if history is any indication, the company would benefit from sticking to its core product: the good ‘ol fashioned, colored bricks of yesteryear.
Get the 5-minute roundup you’ll actually read in your inbox
Business and tech news in 5 minutes or less