Last Updated on January 3, 2020 by Danielle
LEGO sales and profit dip after more than a decade of growth due to excess inventory and trying to do too much.
2017 marked the first drop in LEGO’s sales and profit in more than a decade. Revenue declined by eight percent to $5.8 billion and profit plummeted seventeen percent, snapping their thirteen year streak of growth. In fact, sales dropped sharply by 17 percent in North America and Europe to roughly $1.73 billion. Overall, 2017 was described as a ‘challenging year’ by LEGO, as LEGO also slashed 1,400 jobs, roughly about eight percent of its workforce, in September due to declining sales.
In direct comparison, in 2015 LEGO drove six percent growth and in 2016 it had twenty-five percent growth, releasing hundreds of new sets.
So what exactly contributed to the decline in sales and profit? According to LEGO CEO Niels Christiansen, this decline predominantly affected established markets and was the result of a surplus of inventory. Matthew Hudak, a toy analyst from Euromonitor also noted a fact that simply cannot be ignored: “Households can have too many Lego products and may not want more each year.”
LEGO overproduced its bricks and it was forced to discount them in order to clear out space in its warehouses. LEGO had excess stock in both stores as well as its distribution centers. In turn, this made it more difficult for consumers to get ahold of new products. A spokesperson said, “There wasn’t enough room to get 2017 toys into stores, and the toy trade is driven by newness.”
Another factor contributing to the decline was that LEGO admittedly tried to do too much. LEGO expanded beyond the world of toys into film and video games and some of these ventures were a bust. Christiansen said that LEGO will focus its efforts on digital – that is, toys living in kids’ screens. He further elaborated: “We need LEGO focused on the right things. We must have strong and innovative products.”
Christensen said in a statement, “2017 was a challenging year and overall we are not satisfied with the financial results. We started 2018 in better shape and during the coming year we will stabilize the business by continuing to invest in great products, effective global marketing and improved execution. There is no quick fix and it will take some time to achieve longer-term growth.”
However, it is not all bad news in the world of LEGO. In fact, LEGO experienced double-digit growth in China and it recently announced efforts to green some of its LEGO products. Diving deeper into the issue at hand, the decline in established markets was not because of a dip in consumer sales, which remained steady – but due to the discounted pricing. Long-time fans may recall LEGO’s crisis in the early 2000s, which it successfully rebounded from before going on to deliver a stellar streak of 13 consecutive years of growth. LEGO will continue to fight for the top position in the toy industry.