The LEGO Group

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The LEGO Group

founded: 1932

Contact Information:

headquarters: dk-7190
billund 7190 denmark phone: +45-75-33-11-88 fax: +45-75-35-33-60 url: http://www.lego.com

OVERVIEW

The LEGO Group, one of the largest toy manufacturers in the world, is owned and managed by the Kirk Kristiansen family in Billund, Denmark. The company operates in 30 countries and has 50 companies worldwide. The company's main business is the manufacturing, development, marketing, and distribution of the LEGO toy system. Its products are sold in more than 130 countries, and an estimated 300 million children have played with LEGO bricks.

LEGO built its leadership position in the construction-toy industry by making children its vital concern. According to a company press release, "Our basic business concept and the foundation for all LEGO products and activities is that we take children and their needs seriously."

The company sees its fundamental task as one of stimulating children's imaginations and creativity, and encouraging them to explore their own world. This corporate mission has allowed LEGO to develop a wide range of products around its basic construction-toy theme. These include products incorporating robotics; media products, such as software, music, video, books, and film for children; educational products for kindergartens and schools; and lifestyle products such as clothes, watches, bed linen, and puzzles.

LEGO also operates two theme parks, one in Bil-lund, Denmark, opened in 1968, and one in Windsor, England, opened near London, in 1996. A third park is scheduled to open in Carlsbad, California, near San Diego, in 1999.

COMPANY FINANCES

Although LEGO is a private company, its annual report is available on the company's web site. For 1997, LEGO reported revenues of 7.6 billion Danish kroner (DKK), or approximately $1.12 billion. Revenues came mainly from sales to retailers and distributors, licensing income, and revenue from LEGOLAND parks, among other sources. That was a 1-percent increase over 1996 revenue of DKK 7.5 billion or $7.28 billion.

Financially, 1997 was not a good year for LEGO. Revenues were up, yet net income for 1997 was only DKK 171 million ($25.3 million), compared with net income of DKK 699 million ($103.4 million) for 1996.

Sales in 1997 stagnated overall compared with a 4-percent increase in 1996. However, the company enjoyed substantial increases, zero growth, and declines in various markets.

ANALYSTS' OPINIONS

Many analysts believe LEGO to be a financially stable company, and the company's expansion in many areas of its business seems to indicate this is true. Also, the company's workforce has increased by more than 50 percent over the past seven years.

With all of its success, LEGO, critics say, still has need for growth. Competition with other toy manufacturers is fierce. The average German family bought six LEGO sets per year per child compared to U.S. figures of 2 or 3 sets per year per child. Many analysts see LEGO's plans to develop new theme parks as a competitive edge. The company plans to open a new theme park every three years starting in 1999. LEGOLAND in Denmark counted 1.3 million visitors in 1996, and LEGOLAND Windsor, near London, had 1.4 million visitors that year after opening in March 1996. Compared to Disneyland's 13.0 million per year, these numbers may seem low, but analysts saw them as promising. LEGO's goal is 1.8 million visitors per year at each of its parks.

HISTORY

In 1932 Ole Kirk Christiansen, a Danish carpenter, went into business with the intent of building houses. Feeling the impact of the depression in the 1930s, most people were not able to afford such luxuries. He looked for other possibilities with his business and began building wooden toys. Combining two Danish words, "Leg Godt" which means "play well," he derived the name LEGO for his company.

By the late 1930s, LEGO produced many different types of wooden toys, including vehicles, animals, and Yo-Yos. In 1947 LEGO began producing plastic toys, which included baby rattles, toy tractors, small dolls, and animals. In 1949 the company introduced Automatic Binding Bricks, which were plastic building bricks. By 1955 the "LEGO System of Play" was introduced. These sets included small molded vehicles and figures along with town maps.

In 1958 Godtred Kirk Christiansen, son of the company founder, invented a new system for coupling the plastic bricks. He developed the tubes placed inside LEGO bricks that made the bricks stick together better. This discovery also increased the nearly endless number of ways bricks could be combined.

The first sales company outside of Denmark was established in Germany in 1956. By 1960, sales companies branched out to include France, Great Britain, Switzerland and Sweden. LEGO entered the U.S. market around 1974 and opened a factory and sales office in Connecticut.

In 1980 the company established its Dacta division to work on educational products for schools. The Dacta line includes complex sets that challenge students to build working machines and solve problems using math and logic.

FAST FACTS: About The LEGO Group

Ownership: The LEGO Group is a privately owned company. It is owned and managed by the Kirk Kristiansen family in Denmark.

Officers: Kjeld Kirk Kristiansen, Pres. & CEO; Mads Ovlisen, Chmn.; Niels Christian Jensen, Exec. VP Marketing & Product Development

Employees: 9,400

Principal Subsidiary Companies: The LEGO Group owns 50 companies in 30 countries, including Lego Systems Inc. in the United States.

Chief Competitors: LEGO competes with other toy manufacturers and specifically with construction-toy manufacturers, including: Tyco Toys Inc.; Rivtik; Tandem Toys; PEDLO; GOMPLA; and K'Nex Industries.

Continuing to grow over the years, LEGO was ranked as one of the world's top 10 toy manufacturers in 1996, being the single European company on the list. All of the other top 10 toy companies were American or Japanese. In 1997 it introduced a record 103 new products at the annual American International Toy Fair in New York City.

STRATEGY

LEGO's strategy is to provide a wide range of creative experiences, construction toys, educational materials, lifestyle products, family parks, and media products for children all over the world. The development of these products and activities is guided by the company's vision of "Idea, Exuberance, and Values" and the shared belief that children are of vital concern to LEGO.

The company's goal is for the LEGO logo and name to be known among families with children as the strongest brand in the world. While the company's core business area is the development, production, marketing, and distribution of the LEGO toy system, it is also exploring several new product areas. In order to remain competitive, it has increased the rate of new product introductions and lessened the time it takes to develop an idea into a finished product. In 1997 the company introduced more than 180 new products, equal to almost half its entire product line.

INFLUENCES

The Great Depression in the 1930s forced Ole Kirk Christiansen to be flexible with the times. Originally planning to build houses, Christiansen quickly changed his plan to manufacture wooden toys. The invention of plastics allowed LEGO to be the first company to buy a plastics injection-molding machine in 1947. This offered greater selection, capabilities, and strength in the toys LEGO manufactured.

LEGO grew to become one of the top toy manufacturers in the world. With this growth, however, came greater demands. By the 1990s, the company faced fierce competition from companies like K'Nex Industries and Ritvik, maker of Megablocks. Large stores selling toys, such as Wal-Mart and Toys 'R' Us, began to require more selection and faster shipment. LEGO had to shift its strategy to focus on marketing and production.

The company also had to develop new products in a timely fashion. Between 1995 and 1997, the number of products on the market less than one-year-old increased from 48 to 60 percent. In order to get these new products to market faster, LEGO had to reduce total production time significantly, in some cases cutting this time in half. LEGO also had to maintain good relations with big name buyers like Target, Wal-Mart, Toys 'R' Us, and Kmart, which, combined, accounted for nearly two-thirds of all toy sales. LEGO began giving regular invitations to these companies to tour its Enfield, Connecticut, plant in order to foster good relations.

CHRONOLOGY: Key Dates for The LEGO Group

1932:: Ole Kirk Christiansen sets up a firm to manufacture stepladders, ironing boards, and wooden toys in Billund, Denmark
1934:: The company takes on the name LEGO
1947:: LEGO is Denmark's first company to buy a plastic injection-molding machine for toy making
1949:: The company introduces plastic Automatic Binding Bricks
1953:: Automatic Binding Bricks are renamed LEGO Bricks
1955:: The first LEGO System of Play sets are introduced
1958:: The current LEGO stud-and-tube coupling system is patented
1967:: The DUPLO brick is invented for smaller children
1974:: LEGO figures are introduced and are the biggest selling product to date; LEGO enters the U.S. market
1980:: Dacta is established to build educational products for schools
1988:: The first official LEGO World Cup building championship is held in Denmark
1992:: The world record is set for toy rail construction—1,788 feet of LEGO rails and three model locomotives
1996:: LEGO is the only European company ranked in the world's top 10 toy manufacturers
1997:: Introduces a record 103 new products at the International Toy Fair

LEGO's marketing division had to make some adjustments as well. To compete with other toy companies, LEGO began offering coupons with sets purchased at a price of $14 or higher. The company also extended an invitation to consumers to join the LEGO Builders Club, which offers coupons and a LEGO magazine. Part of LEGO's goal in doing so was to raise membership by 50 percent by the end of 1997.

CURRENT TRENDS

LEGO is accelerating the rate at which it introduces new products. In 1997 it introduced 103 new products at the American International Toy Fair in New York and more than 180 new products during the year. While some of these new products were variations on existing products, many were brand new. Some of the new products incorporate the latest technology, including a "smart" brick with an imbedded computer chip, CD-ROM games, and robotics.

Over the past couple of years, LEGO has made a substantial investment in developing digital products. For many years it has collaborated with the Media Lab at the Massachusetts Institute of Technology (MIT) to lay the foundation for such products as LEGO Mindstorms, a child-friendly programming language, digital LEGO bricks, and CD-ROM titles, among other new products.

LEGO is committed to offering a wider variety of stimulating experiences for children through such diverse offerings as its theme parks and interactive educational exhibits. After opening in March 1998 at The Children's Museum of Indianapolis, the LEGO Ocean Adventure will travel to other children's museums in the United States for one year. It is an interactive, educational exhibit that allows children to immerse themselves in an imaginary ocean environment where they encounter life-size LEGO sharks, dolphins, and other sea creatures. The exhibit provides a wide variety of hands-on activities and unlimited play possibilities for children. Four interactive stations, including a research submarine and a rover building area, are part of the exhibit.

With cutbacks in educational spending in the United States, LEGO closed the U.S. branch of its Dacta division in 1997 and moved its functions to Denmark. The move was part of a global reorganization of Dacta to improve operational efficiency. Overall, Dacta sales in North America, France, and Scandinavia increased during 1997. The company decided to focus on a smaller number of professional institutional suppliers to improve market contact with its educational customers.

In early 1998 LEGO announced an agreement with Lucas Licensing Ltd. under which LEGO will have exclusive rights to manufacture, market, and distribute Star Wars construction toys. With a new Star Wars movie scheduled for release in the United States in May 1999, LEGO planned to introduce its first assortment of LEGO building sets based on the original Star Wars trilogy in early 1999. It was the first such licensing agreement for LEGO.

PRODUCTS

LEGO Media International, a division established in 1996, introduced its first computer game in October 1997 called LEGO Island. Developed in collaboration with Mindscape, one of the world's largest CD-ROM producers, LEGO Island was the biggest-selling computer game in the United States and ranked high on the world's top 10 list of software for children. Three more CD-ROM titles are planned for 1998.

Mindstorms, a new LEGO system that features a building brick with an imbedded microchip, was introduced for 1998. The RCX brick, as it is called, allows children with the help of a personal computer to build and program robots that move and act on their own. Using RCX and traditional LEGO bricks, children build their creature, then use RCX code, a child-friendly programming language, to develop a program. Then they download the program from their computer to the RCX using a special infrared transmitter. Unlike many other LEGO products, Mindstorms is aimed at children, ages 11 and older. However, the company is working on other robotics projects for children as young as 6.

LEGO first presented its Mindstorms technology at the Museum of Science and Industry in Chicago, where the first LEGO Mindstorms Learning Center was opened in late 1997. At the Learning Center, children can create their own robots and vehicles using programmable LEGO elements and LEGO's specially developed software.

Other new product introductions in 1997 included many new items in LEGO's PRIMO Baby line. A new Dinosaurs theme surrounded newly released toys in the LEGO DUPLO Preschool line. The LEGO SYSTEM line included additions such as Divers, Fright Knights, U.F.O., Aqua Raiders, and Robo Force. Many new pieces and characteristics accompanied these new products, including domed pieces for constructing futuristic under-sea adventures; extra large, curved pieces for making round, space-centered models; heat-activated stickers; and fiber optics capabilities.

LEGO SCALA, a product line designed especially for girls, featured new additions in 1997 to the flexible doll's house system, which allows girls to arrange the various elements however they desire. The dolls—a father, two mothers, three teenage daughters, and a baby—have flexible limbs and are able to hold things in their hands.

CORPORATE CITIZENSHIP

Annually, LEGO gives an international prize (LEGO Prize) of DKK 1 million to people and/or establishments that strive to improve the living conditions of children. This prize is one in which no applications are taken. Since 1985, 24 individuals, institutions, and establishments in 17 countries have been awarded the LEGO Prize.

LEGO itself has won several awards including the ACITT 1994 Awards, First Prize; Gold Award 1996 Worlddidac Foundation; Best Education Product MacUser 1994 Awards; Presidents Citation International Technology Education Association; Teacher's Choice Learning 91; New Product Awards for The Nursery & Creche '95; 10 Best Children's Educational Products for the Dr. Toy; and Parents' Choice Award 1995.

IF THEY COME, THEY WILL BUILD IT?

As of spring 1999, America will have a hot new vacation destination for tourists: Legoland, yes, Legoland, will open up in Carlsbad, California. It will feature rides, shows, restaurants, and Lego, Lego, Lego. At the heart of Legoland will be Miniland, where approximately 30 million Lego bricks will be used to create various kinds of displays. This will be the third Legoland theme park worldwide, and the estimated construction cost is in the neighborhood of $130 million. And here you thought Legos were just fiendish toys randomly scattered by small children to cripple barefoot parents in the middle of the night.

GLOBAL PRESENCE

Based in Denmark, LEGO products are manufactured and marketed throughout the world. There are LEGO factories in 5 countries: Denmark, Switzerland, the United States, Brazil, and Korea. In 1997 the company's products were sold in more than 130 countries. The company's first computer game, LEGO Island, was marketed in 8 different language versions: English, German, French, Danish, Spanish, Portuguese, Korean, and Japanese.

In declining order, the company's top 10 international markets in 1997 were Germany, the United States, the Benelux countries—Belgium, Netherlands, and Luxembourg—France, Great Britain, Japan, Austria and Hungary, Italy, and Canada.

EMPLOYMENT

In 1997 the number of full-time positions with the company rose to 8,671 from 8,167 in 1996. Of those, 4,260 positions were in Denmark and 4,411 in other countries. Including temporary positions, the company employed 9,867 people worldwide in 1997. The LEGOLAND parks organization accounted for more than 10 percent of LEGO employees worldwide.