Comeback Story: Lego passes Ferrari as most powerful brand

  • News
  • April 11, 2017
  • The Register team
Comeback Story: Lego passes Ferrari as most powerful brand

In a surprising turn of events, the Lego company has gone from significant operating losses to becoming a more powerful brand than Ferrari. 

In 2003 Lego reported a profit loss of NZD$346 million, the group's financial situation was struggling and were billions of dollars in debt. Lego's bank stopped providing them loans in 2004. 

Just over a decade ago the brand sales were dropping a rate of 26 percent a year. Now, after a series of job cuts and the ending of the family's management of the company, the business has rebuilt itself into the world's most profitable toy maker ahead of Barbie's Mattel and even car company Ferrari.

Shortly after, the former company president, Kjeld Kirk Kristiansen, stepped aside, ceding control to a hand-picked management team led by Jørgen Vig Knudstorp, who was then replaced by Bali Padda start of this year. 

Vig Knudstorp, Lego chief executive, said the growth of the plastic brick company show now slowing as they went back to core basics.

"We think we are changing children's lives forever when they play with Lego. We think this was another year where we got great affirmation of that."

Lego even has its own Youtube channel as it sails along keeping up with consumer demand for entertainment across all platforms. 

Lego's recovery had been fuelled by its investment in quality and design. Lego teamed up with some of the world's other most powerful brands – Star Wars, Harry Potter and Batman franchises – to extend the brand's reach and customer base.

Now, 19 billion Lego elements are produced and sold each year. Not to mention the income that is generated by its five Legolands.

Vig Knudstorp acknowledged that with the rise of technology they have to put in the extra work to compete for children's attention.

“We need to constantly become better, or otherwise there will be someone out there who will catch up to us," he said.

Lego, which is derived from the Danish "leg got" meaning "play well", is also benefiting from "a considerable amount of excitement" prompted by the 2014 Lego Movie and subsequent spinoffs. 

The Lego superhero movies have made a combined total of USD$229 million in profit. 

Lego is sold in more than 130 countries around the world, but Vig Knudstorp admits that "we're not really there" in many of the world's less wealthy nations.

Despite this cautious optimism, Lego is a more powerful brand than Ferrari, Visa, and Nike, according to the 2017 report from brand valuation agency, Brand Finance.

The Lego comeback is an example of a company thriving after staying true to its core values. The company considered a rebrand in 2005 but decided against it, which in turn ended up being their smartest move.

After his employment as CEO, Vig Knudstorp refocused the company’s product line and sold businesses he deemed unessential. The company is now exptected to continue on its successful route with the employment of Bali Padda. 

Lego is valued at $14.6 billion, based on the average enterprise value-to-earnings multiples of competitors Mattel and Hasbro Inc., according to data compiled by Bloomberg.

Mattel, which makes Barbie is worth just under that at $14.4 billion.

And Ferrari, the luxury car maker, falls short of both valuing at about 12.4 billion.

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