Lego Faces Headwinds Following 2017 Mid-Year Results

The Lego Group reported a revenue decline of 5% in the first half of 2017, prompting Lego to reduce its global workforce by 1,400 employees as the company adjusts to one of its first revenue declines in over a decade. This decline is in line with 2016 results as the US, which represents the largest construction toys market with over USD 2 billion in value sales 2016, entered negative territory in the year with 1.6% annual sales decline in construction toys. Lego has seen very rapid sales growth over the past decade with only one product, meaning it would inevitably have to slow down and hit a wall. In addition to already stagnating sales in key markets, Lego’s decline in the first half of 2017 compared to the first half of 2016 is not too surprising considering that the first half of 2016 still would have seen big demand for Lego Star Wars products following the release of The Force Awakens in 2015. Additionally the proliferation of smartphones within developed markets is also adding quite a bit of competition for the attention of a lot of children.

Lego now has to focus on bringing mature markets like the US and Western Europe back to growth while balancing other growth priorities. Developing markets, such as China where results continue to be positive, could be one avenue as could marketing its toys directly to childless adults or even possibly looking into extending the Lego brand into new areas outside construction toys. Lego continues to have strength in its positioning as an educational tool, so being able to leverage this will be critically important. Also, despite the small reported impact of Lego Batman on toy sales, the company would still benefit from developing entertainment ecosystems that span films, cartoons, and video games, as well as toys, around its product lines.