COPENHAGEN (AFP) - Have children lost their fondness for Lego's colourful plastic building bricks in this age of high-tech, interactive computer games and electronic gadgetry? It would appear so.
The Danish family business, started in 1932 in the wind-swept town of Billund, has never seen its sales plunge so low so fast and the group now expects to register only its fourth annual loss in 72 years -- and its biggest.
Company owner Kjeld Kirk Kristiansen, the grandson of founder Ole Kirk Christiansen, admits that Lego is in serious crisis as stiffening competition on the international toy market has pressed prices and profits.
Sales have fallen by 25 to 30 percent in the past two years and especially weak is the US market, Lego's biggest playground which accounts for 40 percent of sales.
Kristiansen announced this week that the company expects to report a pre-tax loss of about 1.5 to 2.0 billion kroner (202-269 million euros, 255-339 million dollars) this year.
Its name comes from the first two letters of the Danish words "Leg godt" or "play well" in English, but as children increasingly seem to be opting for shoot-'em-up computer and virtual reality games, playing "well" looks to be out of fashion.
And yet, just six years ago, when the world's fourth-largest toymaker after Mattel and Hasbro of the United States and Bandai of Japan was still immune to words such as "crisis" and "deficit", it aimed to be one of the five most recognized brands in the world in 2005 among families with children.
Shortly thereafter, in 1998, the company registered its first ever loss, followed by subsequent losses in 2000 and 2003.
According to educationalist and toy researcher Torben Hangaard Rasmussen, it may be difficult for Lego to regain the lost ground.
"The Lego bricks belong to the industrial era when children liked to build things, playing like builders in the grass. Nowadays, the most popular toys are inspired by the virtual world," a trend Lego has not picked up on, Rasmussen said.
Henrik Gjoerup, the head of BR, Denmark's largest toy store, said meanwhile that "children are starting to play at younger and younger ages, and replace their traditional toys with electronic gadgets and mobile phones by the time they are seven or eight years old."
"Lego's biggest problem is its product. And if there are fewer children in the world playing with Lego bricks, then the company has to find new ways to get children to play with the bricks or use this very strong brandname to develop new games," Denmark's financial daily Boersen wrote in a recent editorial.
Since the mid-1990s Lego has tried to diversify its brand. Among other things it built Legoland theme parks in England, the United States and Germany, in addition to the original one in Denmark, all of which are loss-making and which Lego is now considering selling.
It also signed a partnership with the Formula 1 Williams car racing team to get children interested in the sport, and launched a line of clothing under the Lego brand.
Facing tough competition from electronic games, Lego also jumped into the fray in 2002 and began producing videos and animated films based on its hugely successful Bionicle series, signing contracts with US companies Creative Capers Entertainment and Miramax Films.
It also launched games based on the Star Wars and Harry Potter films, which helped catapult sales in 2002 to a record 11.4 billion kroner (1.93 billion dollars, 1.53 billion euros).
But the diversifications ultimately proved insufficient to keep the company in the black. Weakened by its various forays and battered with another loss in 2003, Lego announced a major restructuring and vowed a return to its traditional product, the building brick.
In January, Kristiansen took matters into his own hands and fired the company's number two and the head of product development, saying he firmly believed in "little kids' eagerness to assemble."
Now, just nine months later and after injecting 800 million kroner of his own personal wealth into the company, he has decided to step down as chief executive officer, saying the company is on track to turn a profit in 2005-2006.
Vowing that the company would be trimmed down to focus on its core product, he handed over the reins to 35-year-old Joergen Vig Knodstrup, who has predicted "tough days" ahead for the group's 7,500 employees, with dramatic cost-cutting and a transfer of much of Lego's production to low-cost countries such as China.
10/24/2004 - 17:54 GMT - AFP