Rebuilding Lego, Brick by Brick

STRATEGY+BUSINESS—Despite its extraordinary hold on the imagination of children around the world, the Billund, Denmark, company was in trouble. The Lego Group had lost money four out of the seven years from 1998 through 2004. Sales dropped 30 percent in 2003 and 10 percent more in 2004, when profit margins stood at –30 percent. Lego Group executives estimated that the company was destroying €250,000 ($337,000) in value every day.

How could such a seemingly successful toymaker lose that much money? Some observers speculated that the Lego Group had overdiversified its product line with moves into such areas as apparel and theme parks. Others blamed the exploding popularity of video games or pressure from low-cost producers in China. Read article.