LEGO - The Rise and Fall...And Rise Again

this video is sponsored by empower it's this cool app that can help you save and budget your money to download it for free simply go to empower ME slash company man the link is in the description Lego is one of the largest toy companies in existence it depends on how you measure it but almost any ranking will put them near the top and some of them will put them at the top forbes puts them as number 91 on their list of the world's most valuable brands valuing it at seven point eight billion dollars their sales came in at 5.1 billion we all know lego we see one of those bricks with the little studs on top and we all know what it is instantly here's the Lego logo try saying that five times fast the white text with the black around it and the yellow around that and the red all around that it's very recognizable I'm sure this isn't the first time you're seeing it it's the name of the toy and the name of the business it's important to note that all other major toy companies Hasbro and Mattel they make a lot of different stuff with Lego it's pretty much just Lego their success is tied to the success of one product more than any other major toy maker virtually all their marketing expenses are used to promote these blocks which is probably why we all know them so well there's an entire theme park centered around them there's multiple big-budget movie centered around them they're big but they haven't always been this big in fact a big part of their success has been fairly recent about 15 years ago they went through quite a rough patch that nearly killed them they had terrible debt there were talks of bankruptcy and looking for buyers to save them things were bad but I don't want to get too far ahead of myself first let's talk about how things got so big in the first place in my mind and you can dispute this but the single greatest contributor to their success is having a really good product if what you're selling is really strong it shouldn't be too hard to sell it it's made well it's colorful it forces creativity and imagination you can spend hours creating thousands of different with a single set and plus it's for everybody they do have their core demographics they tend to sell more to children and males but really anybody can enjoy something like this unless you're over ninety nine for some reason I'd say that's a good product but when Lego started in 1932 they didn't make this product all lay Kirk Christiansen was a carpenter in Denmark that just started making wooden toys on the side just simple little toys like this wooden duck which is a fine toy I suppose but it's no Lego but this is when the name Lego was created if you speak Danish you may know these two words leg goat G OD T well if you get rid of some of those letters you're left with le Gio and that's where the name comes from it means play well which is a fitting name but I find this strange apparently Lego in Latin means I assemble but then that's just a coincidence at first the toys weren't centered around building things so that name wouldn't have been fitting at the time but still weird so at first it was just one man from Denmark selling his handmade wooden toys door-to-door in his little community it wasn't too successful to keep it running he resorted to crafting wooden ladders or whatever else people would buy after years of limited success things got worse when a fire destroyed his factory during World War two after the war he took this opportunity to rebuild and make a bigger and better Factory and established the company that we know today it was much more successful than his first attempt but they still weren't selling what we know as Legos almost all of their toys were still made of wood strangely enough at the time their customers thought that the few plastic toys they did offer were just cheap and inferior so there wasn't much motivation to create them one of these plastic toys that they did create was essentially a Lego it was the same thing we know today but just didn't have anything at the bottom to lock the pieces together the studs at the top still made your buildings much sturdier than the traditional building blocks but still pretty wobbly and of course the customers at the time didn't appreciate it you couldn't lock the pieces together that well plus it was made of plastic and that wasn't helping things their real success didn't happen until eight years later six years later they made a little marketing change on these blocks instead of just some boring building blocks that grip together a little bit better they turned it into the Lego system in play they packaged it with street signs and cars and made it so that you can create an entire city they advertised it heavily and it sold really well and then two years later they created the Lego that we know today by adding the stuff to the bottom that's when everything took off Lego was always looking for that big hit toy that would put them on the map in the place they found it was in an unsuccessful toy that they created years before even when the public said that they didn't want it the company saw potential by remarketing it they made the public realize that maybe they did want it and even when it grew to the point of success the company still thought it could be better they continued working on it and just look what it's led to over the next 50 years Lego grew obviously their sales increased tremendously they extended their reach beyond Denmark and became an international brand that was their initial rise now for the part where they fall and then rise again I made a graph that shows their sales each year since 2002 and I think it shows it all perfectly and then I made another graph that shows their profits and it shows the exact same thing I'd say 2003 and 2004 look like their worst years but then the year surrounding them don't look too great either here's what happened Lego is a simple company as I said their entire business is centered around building blocks in that market they're untouchable but in the years leading up to their decline if they felt the need to expand on that and make their business much more complicated and here's a few ways they did that one they started producing a larger variety I'm talking about these Lego pieces during this time they more than doubled the number of individual parts being produced which is costly it was supposed to lead to a bunch of all new specialized sets that you can assemble that people would just buy and it would justify the costs but it never happened they weren't really selling more than before yet they were spending more which leads to lower profits the second thing is Legoland the first Legoland has been around since 1968 in Denmark which makes sense but then all of a sudden they started opening more of them in 1996 they opened one in England three years later they opened one in the United States in California in 2002 they opened a new one in Germany they quickly became more concerned with opening theme parks than making bricks and then for the third one I'll just label as other they were focusing on multiple other things that just weren't the core of their business they had an entire business focused on making computer games for example here's a few sentences from their 2003 annual report to show you just how bad they were doing 2003 was a very disappointing year for the Lego company year's result can only be described as unsatisfactory the negative development reflects the unsuccessful growth strategy with a consequent loss of market shares all these statements were written by the company themselves so how did they fix it I think it's pretty obvious what they needed to do especially in the way I framed all of this we can see things just got too complex and they lost sight of the core of their business so to address the first issue they greatly reduced the number of unique pieces that they were producing and just started making their sets a little simpler for the second issue they sold Legoland all four locations for 456 million dollars for the third issue that one wasn't as specific but they shut down that computer business and ended everything else that was pulling their focus the results I mean they couldn't have wished it to have gone any better their sales group five times higher in a 10-year period the lego name itself is much bigger today than it was 10 years ago they went from the verge of bankruptcy to being one of the largest toy companies in the world and I think that should cover the rise and then the fall and the rise again but there is one more thing to address in 2017 sales went down along with their profit in their most recent annual report they say 2017 was a challenging year for the LEGO Group I have a couple of explanations for this if you look at 2015 compared to 2014 that's a massive increase much bigger than anything else on the graph I think the reason for that has to do something with the box office the lego movie released 2014 open number one in the box office grossing 69 million dollars one year later the force awakens opens at number one making almost a quarter of a billion dollars opening weekend Lego is heavily involved with Star Wars so when everyone starts going crazy for this movie Lego had a good year I would say the tremendous success of these two movies had a tremendous effect on Lego sales during that time there's been follow-ups to these movies but nothing quite as successful plus I think everybody already went out and bought their LEGO sets and aren't compelled to spend money for an updated version the people from Lego said that they were stuck with excess inventory and they needed to sell it for cheaper than they would have liked in 2017 resulting in lower sales figures my conclusion here is that maybe these sales were artificially high over the past few years and now they're just evening out and plus what do you expect it's their first bad year of the past 13 it might be a little soon to panic the only thing that has me a little worried is this guy you're in the gun store I know I said that terribly but he's the guy that usually gets the credit for saving the company he took over a CEO in 2004 when things were at their worst implemented all those changes we talked about and got them back on track he continued as CEO until January of 2017 when he moved on to be a member of the board of directors at that time they named a new CEO that didn't make it through the year and now it's someone else I'm not suggesting necessarily that this has anything to do with their decline in 2017 but you can see how it might look like that let me know in the comments your thoughts on Lego I can't imagine anyone thinks they're a bad toy but should they be as big as they are maybe they're on their way back down in 2017 was just the beginning what do you think any thoughts you have about their rise or fall or rise again and possibly their fall again leave them in the comments I'd like to hear what 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the description thank you for watching [Music]

Channel: Company Man

Views: 896,249

Keywords: LEGO, Toys, Business, Companies

Id: Gw35zejdwDU

Length: 12min 21sec (741 seconds)

Published: Wed Dec 12 2018