Lego Case

Some of the biggest challenges facing LEGO were: shift away from traditional play, powerful retailers, increasing price pressure, loss of market share, bankruptcy concerns and loss of identity.

1. The shift away from traditional play: Competition in the toy industry was increasing and evolving in ways that did not favor LEGO. Electronic games- video-game consoles, hand-held games, websites and even mobile phones - were reducing the demand for traditional toys. It was hard to forecast how far the market would fall, though prognosticators estimated that electronics would essentially replace old-fashioned mechanical toys in the coming years. Also, children preferred to enter multimedia fantasy worlds at about the age of eight, and were losing interest in traditional toys at an earlier age, which shaved as much as four years off the projected duration of traditional toy play - Kids were getting older younger.

2. Powerful retailers: The retail sector was consolidating into mega-stores such as Wal-Mart and Carrefour which had an increasingly large share of total toy sales. This represented a power shift in favor of the retailers and away from the manufacturers, who previously were able to impose their product lines on customers. In this new retail environment, LEGO had to compete with other toy manufacturers for shelf space, often accepting marketing dictates or producing toys for retailers.

3. Increasing price pressure: Because of the new retail environment and the outsourcing of manufacturing to Asia, the toy industry faced strong downward pressure on prices. As the US dollar declined against the Danish krone, LEGO products became relatively more expensive in US, the company's most important market. LEGO added more toys to their product line, but did not sell more items overall, thus inflating manufacturing and delivery costs while not increasing revenues.