LEGO has been one of the hottest toy companies on earth for the last decade. In that time it has grown into one of the most successful companies and by far the biggest toy maker in the world.
On our LEGO Stocks and Shares page we discussed everything that was good and great about this company. We told you whether you could or could not invest and we also provided some other tips on how to profit from the success of this company. But recently there have been some stark warnings made about LEGO and some suggestions that it may not be as big as once thought.
LEGO’s Past Struggles
In 2003 LEGO was struggling and it looked like it wouldn’t last for long. It had been one of the biggest toys in the world for a few decades but demand was on the downturn and it didn’t look like it would be able to sustain itself for much longer.
In a last ditch attempt to turn things around they hired a man named Jorgen Vig Knudstorp who had helped similar companies to succeed. And the appointment worked very well for this global toy brand, because the decade that followed was one of the most successful that the company has ever seen.
Jorgen Vig Knudstorp took them to the top, by-passing the likes of Hasbro and Mattel. It looked like LEGO had the world at their feet and this continued into 2017. After all, not only were their toys still selling, and not only were they producing millions of LEGO bricks a day, but they also had their films, their games and many other parts of the brand.
But then there was a downturn. This seems to have come out of nowhere and it has been a shock to the system for LEGO. The question is, is this the beginning of the end for the brand or will they turn things around in 2018 and beyond just as they did back in 2003?
LEGO Sales Have Slowed
LEGO has seen double-digit growth in the last 5 years, but the toy manufacturer saw a decline in sales in the first half of 2017. This decline was as high as 5 percent. That might not sound like much, but the fact that there is a decline at all is enough of a worry for a company that has been on the up and up for a number of years now.
This drop in sales was enough to shake the company into action and they immediately announced that they would be laying off a significant number of employees. Over 18,000 employees will likely lose their jobs as a result of this, accounting for around 8% of the total workforce.
The LEGO Revenue Drop in More Detail
LEGO have tried to turn themselves into a truly global brand. They targeted the Chinese market a few years ago and in the first half of 2017 they recorded a growth in the double-digits in China. This was huge and it should have led to a big year for the brand, but at the same time they lost traction in established markets in the US and Europe, and this is why they were hit so hard.
China may be a huge market, but a little growth in a huge country is never going to be enough to offset a huge loss in a big country. For whatever reason, demand for LEGO in countries like the US, UK and Germany was less in the first half of 2017 than was expected, less than it had been in previous years.
Total sales amounted to $2.38 billion. This was enough to keep them at the top of the list for biggest toy manufacturers in the world, but the decline suggests that some of the market is moving away from LEGO and towards brands that have been created by their biggest rivals.
The question is, just what has happened to the brand?
The Reason Behind the Decline
There are a number of things that could have caused this decline in sales. One of the main causes may be consumer fatigue. Simply put, the market has been saturated by LEGO products and by the LEGO brand in the last couple of years and in a marketplace that is built on fads and trends, this could have caused some disinterest to rise to the surface. Kids want the next big thing and a brand that has been around for a long time and that everyone knows about is never going to be that.
LEGO has continued to flourish purely because it’s a toy that all kids want by default and because they have occasional releases that trigger those trends to spark renewed interest in new generations, whether it be in the form of TV and film tie-ins, or because of the release of a new product. But this market is always going to follow trends and it’s always one new, exciting release from seeing a big shake up.
The LEGO Movie, which was released in 2014, played a big role in increasing interest in this toy and it came at a time when it was already growing in popularity. But 2017 has seen two further LEGO Box Office releases and a further two that went straight to DVD. There have also been TV specials and TV shows, and it’s surely no coincidence that 2017 has been the biggest year for on-screen LEGO appearances and this has also been the year in which people have began moving away from the brand.
The Future is Bright
The important thing to note is that LEGO is still huge. It still far outsells anything else on the market and it has the sort of brand recognition that any company would kill for. Kids and adults love it, there are dedicated fan clubs and communities around the world based on this creative toy, and decreasing sales or not, it will still have a bright future.
So, as we mentioned in our LEGO share guide, it is still a good time to invest in LEGO sets, focusing on limited editions ones and preparing for these to increase in value like so many others have done in the past.
If you keep them in good condition, get the sets that are produced in small numbers and have something different to offer, and make sure you keep for at least a few years, then you can earn a small profit from investing in LEGO.
