How LEGO went from near bankruptcy to being worth $13B

Not many toys can boast longevity like LEGO does.

The iconic Danish toy brand has been inspiring creativity and destroying unsuspecting feet since 1932. Transcending cultural and generational boundaries, the interlocking bricks are a global phenomenon.

However, there once was a time that we almost lost our beloved Legos to a changing world. But the brand went from near bankruptcy in 2003 to most valuable company in the world 18 years later. And its revival has been hailed as the greatest turnaround in corporate history.

LEGO is a super brand that can teach us a thing or two about using marketing to achieve true staying power.

Back in 1932, an abbreviation of the Danish words 'leg' and 'godt,' translating to 'play well,' is what gave us the household name we know and love today.

LEGO's product offerings include DUPLO sets for little ones as well as massive pop culture recreations designed for adults. And everything you could possibly think of in between.

LEGO’s an integral part of my childhood. My DUPLO zoo set was one of my most treasured possessions. I think I still have the tiger piece that I desperately clung on to through my early years.

But the dawn of the new millennium brought with it a seismic shift in the toy market, and LEGO faced stiff competition from emerging technology.

During the early 2000s, video games captured the attention of the younger generation.

The market was also becoming flooded with counterfeit LEGO bricks. And this damaged the brand’s reputation and exclusivity.

These factors wouldn’t have been nearly as detrimental if Lego hadn’t also tried to expand into the clothing industry. The brand tried making jewellery for girls and opened theme parks that cost (and lost) millions.

By 2003, LEGO was in big trouble. The company was in $800 million of debt with sales down 30%. An internal report revealed the company hadn’t added anything to value to its portfolio for a decade.

'We are on a burning platform,' LEGO’s CEO, Jørgen Vig Knudstorp, told colleagues. 'We’re running out of cash… [and] likely won’t survive.'

When LEGO hit rock bottom, CEO Knudstorp decided they need to go back to basics.

First, he initiated a comprehensive review of the company’s operations, product portfolio, and marketing strategies. He also halved the number of LEGO pieces produced, cut 1,000 jobs, and sold off the Legoland parks so they could focus on doing less.

Knudstorp realised LEGO had drifted too far from its core product – the interlocking bricks. Instead, they'd diversified to the point where they had diluted their identity.

So the company decided to put their focus back on to classic themes, such as City, Castle and Space, as they resonated strongly with its core audience. This re-established LEGO's identity as a brand that fosters creativity and learning through play.

The second phase of LEGO's revitalisation strategy was tapping into emerging markets like China and India.

To do this, the brand developed targeted marketing and distribution strategies to cater to these new audiences. They also opened offices, retail stores, and production facilities in each.

The expansion meant LEGO could establish a local presence and cater to their unique customer base in specific regions. And by adapting its products and marketing efforts to local taste, the brand saw significant sales increases.

LEGO also realised there was another significant demographic Lego had ignored. One that had real purchasing power--AFOLS (Adult Fans of Legos.)

So the brand began creating sophisticated sets with intricate designs and higher price points.

AFOLs were then given their own platform to submit design ideas and vote on new products, many of which became very successful. Nostalgia among parents led to sets themed around Home Alone, Ghostbusters and even The Golden Girls.

LEGO also had to learn to bridge the physical and the virtual in a technology-driven world.

LEGO began embracing digital and content marketing as crucial components of its strategy. The brand created an extensive online presence through social media platforms, directly engaging with fans and customers. They began sharing behind the scenes content, hosting contests, and showcasing fan creations.

The company also launched the Ideas Platform. This is a crowdsourcing initiative where fans can submit their designs for production as official LEGO sets. This innovative approach provids valuable product ideas and deepens the brand’s connection with fans.

In 2014, The Lego Movie grossed US$500 million. One year later, Brand Finance announced LEGO had ousted Ferrari as the world’s most powerful brand, with profits soaring from US$311.5 million in 2009 to US$1.9 billion in 2021.

Despite the present being full of exciting and mind-blowing tech, kids big and small still want to play with bricks. That’s a testament to LEGO’s ability to stay relevant over such an extended period.

The company is a true classic. An icon.

MIT’s Beth Stackpole identified three of LEGO’s successful tactics that, she says, any mature brand can utilise.

Respect what made you great.

Listen to your core customers.

And utilise a range of innovative approaches.

As she puts it, 'Through trial and error and several failed digital-only initiatives, LEGO discovered customers wanted digital experiences that complemented core offerings rather than replaced them.

Centring innovation around the brick-based construction experience through new stories, games and experiences is what drove customers back to the LEGO brand and returned the company to profitability.'

-Sophie, Writer