Over the course of nearly a century of expansion and development all around the world, children and adults alike have come to know and love the process of creating new worlds and structures with LEGO bricks. Whether you spent time intricately building some of the more famous sets, like Hogwarts Castle or the Star Wars Millenium Falcon, or you just had normal LEGO bricks and let your imagination take over, you probably have some childhood memories associated with the brand. So how did a small carpentry business from the tiny town of Billund, Denmark, grow into the world’s biggest toy company? Read on to learn how the LEGO Group found globalisation success despite several episodes of financial struggles and expansion errors.
Origins and history
The LEGO Group was founded by Ole Kirk Kristiansen in Billund, Denmark in 1932. At the time, Billund was a small, humble town with fewer than 300 residents. However, after the LEGO factory was established in the 1930s and as a result of the continued growth that followed, the town’s economic status rapidly developed. Billund, now with just over 7,000 residents, is home to Denmark’s second-largest airport and has transformed into a hub for tourists who want to learn about the LEGO company’s history and visit the original LEGOLAND amusement park.
While the brand was officially created in 1932 and named LEGO in 1934, its story started some years earlier. Ole Kirk Kristiansen bought a carpentry business in Billund in 1916, planning to build houses in the summer and sell furniture in the winter. He did this successfully for a few years, despite an accidental fire in 1924 that burned down his workshop and family home.
After rebuilding both structures, Kristiansen hoped for more profits from his business. However, by the early 1930s, the global economic crisis had reached the Danish farmers, who could no longer afford to pay for Kristiansen’s services. As a result, he turned to producing goods that were cheaper to manufacture – in this case, children’s toys made of wood.
Although this was not a particularly profitable venture while Billund was in the throes of the 1930s Great Depression and the Nazi occupation of the 1940s, Kristiansen had found a passion for building toys. He liked encouraging children’s early development by producing toys like trucks and pull-along animals that promoted thought and creativity. This inspired him to come up with the name “LEGO” in 1934, which is a portmanteau of the Danish words “leg godt” or “play well.”
Now, over 90 years later, the LEGO Group has more than 900 retail locations worldwide, including stores and franchises, as well as 11 LEGOLAND theme parks. How did the business achieve such significant growth after a difficult start?
Building initial success
Several factors played a key role, including Kristiansen’s focus on producing only the highest quality toys possible, the transition to using plastic instead of wood and the creation of a clear company vision and purpose.
The LEGO Group’s motto is “det bedste er ikke for godt,” literally meaning “the best is not too good,” but officially translated into English as “only the best is good enough.” This set a very high standard for quality, and it all started with Ole Kristiansen. According to the LEGO company website, Kristiansen used beechwood that had been air-dried for two years and kiln-dried for three weeks. Then, it was cut, sanded, polished and painted with three coats of varnish or paint.
The story goes that his son, Godtfred, once tried to cut corners in the production process by only giving the company’s wooden ducks two coats of varnish instead of three. Upon learning this, his father chastised him, telling him to give them the last coat immediately and teaching him a lesson about the importance of quality. The elder Kristiansen proceeded to carve out wooden signs of the company motto and hang them around the factory so that employees would never be tempted to compromise on the quality of LEGO toys.
This was evidently a lesson learned for Godtfred, as when he eventually took charge of the LEGO Group in the 1950s, he always ensured that every single brick was built to the proper specifications – so much so that any of the bricks created back then should still fit together with today’s LEGO bricks. When new automation and machinery started to increase the efficiency of production, Godtfred created a quality control department to ensure that the company would continue to live up to its own motto.
The transition to plastic bricks
The LEGO company began working with plastics in the late 1940s when Kristiansen purchased an injection moulding machine after seeing one demonstrated in Copenhagen. This coincided with supply issues that the company was facing, as high-quality beechwood was becoming harder to find.
Around the same time, Kristiansen and his son, Godtfred, were sent plastic blocks from a British company. They redesigned them, developing what would eventually become LEGO self-locking bricks. They called these Automatic Binding Bricks, giving them an English name as an homage to the Allied forces who had liberated Europe in 1945. They would be renamed “LEGO Mursten” (LEGO bricks) a few years later to more resolutely establish the brand.
But not everyone was immediately convinced by the idea of transitioning from tried-and-true beechwood to plastic. Godtfred believed that wood was a stronger material and that plastic would not be able to replace it. However, because of Kristiansen’s belief in the potential of these new plastic bricks, they continued developing and selling these over the following decades.
Throughout the 1950s and 1960s, the popularity of LEGO plastic bricks grew across Western Europe. Meanwhile, the company’s wooden toys were never sold outside of Denmark. Eventually, after a third major fire (the first having occurred in 1924 and the second in the early 1940s) in the wood warehouse in 1960, Godtfred accepted that the company’s future would need to rely entirely on plastic and that they could not return to producing wooden toys.
The 10 characteristics of the LEGO brand
Once Godtfred had decided that all efforts would be put towards producing plastic LEGO bricks, he focused his full attention on developing a clear goal and vision for the company. Despite Godtfred agreeing with his father that plastic was the right choice, his brothers, who were also working in key positions within the company, disagreed so strongly with his decision that they left the company entirely. As a result, in 1960, Godtfred became the sole owner.
As part of his plan for the company’s future, he developed the following 10 characteristics in 1963, which highlighted the goals of the brand moving forward:
- Unlimited play possibilities
- For girls, for boys
- Enthusiasm for all ages
- Play all year round
- Stimulating and harmonious play
- Endless hours of play
- Imagination, creativity, development
- More LEGO, multiplied play value
- Always topical
- Safety and quality
The next few decades of expansion that followed the 1960s came with plenty of struggles for the LEGO company. It was ultimately its adherence and return to these principles that helped the company to adjust, adapt and overcome the challenges it faced. These characteristics are still very much relevant today and have become a core part of the LEGO company’s production strategy and vision.
Early expansion in the Nordic region, Western Europe and the USA
As a Danish company, the LEGO Group followed the same path as many other companies from the Nordic region and initially expanded into neighbouring Scandinavian and Nordic countries. Sales began in Norway in 1953 and Sweden and Iceland followed in 1955.
The elder Kristiansen viewed Germany as the gateway to the rest of Europe, as it was the global centre of toy production. As a result, this was the natural next step for the company. Although there was initial pushback from the purchasing managers at German department stores, Kristiansen managed to convince the toyshops closest to Denmark, in northern Germany, to sell LEGO products. The LEGO Group’s first foreign sales office was set up in Germany in 1956.
Kristiansen was right about Germany: the LEGO company saw rapid expansion across the rest of Europe, opening sales offices in Switzerland, the Netherlands, Austria, Belgium, Italy and Portugal from 1956 to 1958. What’s more, the first LEGOLAND, an amusement park dedicated to LEGO products, opened in Billund in 1968.
In 1961, the LEGO Group licensed the American luggage company Shwayder (later Samsonite) to sell LEGO products in the USA. This helped the company get its foot in the door, and by 1973, it was able to buy back the rights to sell LEGO products from Samsonite, set up LEGO USA and build a factory in Enfield, Connecticut.
The 1970s and 80s were a time of rapid expansion. The toy industry saw changes in production brought on by automation and the modernisation of machinery. This made the manufacturing process more efficient than ever. The 1970s also saw more discussion about product safety, including the impact of toy materials on the environment, and the LEGO Group joined various organisations working towards a European standard for toy safety.
Over these very productive years, the company also released a multitude of new products, including building sets for older audiences to expand their customer base and engage those who might have played with LEGO toys as children. The focus during this period was on themed sets, such as LEGO Space, LEGO Castle, LEGO City and LEGO Pirates. The classic LEGO human figures, known as Minifigures, were also released during this time.
The difficult decades: 1990s and 2000s
By the 1990s, the third generation of the Kristiansen family (or Christiansen, as it was later spelt) was in charge. Under Godtfred’s son, Kjeld, the LEGO company experienced incredible growth, so much so that he even wondered if it would be possible to slow sales to better keep up with demand. Instead, they churned out new products at an incredible rate, including a line of LEGO-themed children’s clothing.
However, a combination of factors soon began contributing to a growing crisis at the company. As a result, the LEGO Group suffered its first financial loss in 1998. To resolve this, Poul Plougmann was hired, but his attempts at cutting costs through layoffs and streamlining processes did not accomplish much. The company continued to spiral downward, with unprofitability taking it close to bankruptcy by 2004.
What were the issues faced by the LEGO company? There was a lower demand for toys at this time in general, and LEGO products were beginning to be seen as expensive compared to other companies. Additionally, LEGO patents for their plastic bricks had expired in 1988, meaning other companies had started producing essentially the same product and selling it for a lower price. It had also strayed very far from its original products, now producing video games and action figures. Even lifelong customers were moving to other brands.
Finally, the company itself couldn’t keep up with the speed at which it had created and sold its new products, often without taking time to determine whether the new product would be profitable in its intended market. It also couldn’t keep its inventory stocked appropriately. This added complexity to company processes was the source of the financial problems, and it meant that the company had to return to their core values of quality, creativity and connection with their customers.
Jørgen Vig Knudstorp took over in 2004, prioritising slow progression and reconnection with old LEGO customers. He noticed that the unchecked innovation was a problem, so he implemented measures to ensure that no new products were created that hadn’t first been researched extensively to understand how they would impact the company’s profits. He also did away with several of the new products introduced under Plougmann, which helped the company return to its simple core values and get back on its feet.
The role of localisation in the LEGO Group’s international expansion
As the toy company scaled up, a key part of its journey was finding a balance between standardisation of the product and brand, so that it was recognisable all over the world, and adaptation, so that each LEGO customer felt important and appreciated.
The LEGO Group is an example of a company whose product is universally understood. Almost any child in the world, no matter the language they speak or their cultural background, can build with LEGO bricks. As former LEGO CEO Jørgen Vig Knudstorp put it, “You put LEGO bricks in the hands of children in China, Afghanistan, South Africa, America or Germany, the play is the same, the idea is the same.”
While this might suggest that localisation is not necessary for the product itself, packaging, instructions, safety manuals and similar documentation must be adapted to new audiences. Moreover, even the products change depending on regions and cultural traditions or celebrations, such as the Chinese New Year and Dragon Boat Festival sets from 2019. The company’s key move in this aspect was expanding its staff and hiring people from diverse backgrounds, rather than relying entirely on Danish product designers.
Moreover, localisation has been essential to the LEGO marketing strategy and, in turn, its ability to give more children access to LEGO toys. Examples include the different structures that are built as advertisements in each country and store, often having a connection to that location or culture. For example, a new store opened in 2019 in Beijing featured LEGO replicas of the Great Wall of China and the Forbidden City. Claus Flyger Pejstrup, Head of LEGO Retail at the time, explained that “LEGO stores are a great tool for building brand awareness and emotional connection with our fans.”
The idea of localising for marketing purposes started with Godtfred, who in the late 1950s, as the company was on the brink of several decades of successful international expansion, emphasised that LEGO bricks should not be marketed as Danish: “Germans should preferably perceive them as German, French shoppers as French, etc.”. By building cultural landmarks such as those in the Beijing store, the LEGO Group ensures that it is making a personal and familiar connection with customers that encourages them to engage with the brand.
Importantly, even if those customers don’t buy a product, they still form a connection with the brand, which builds recognition of the LEGO brand around the world. This is an example of how the company has succeeded in making its product and brand more of an experience, rather than just something you buy and take home. Think about the memories you associate with LEGO products. They tend to revolve around much more than just the bricks, as perhaps you played with siblings, friends or your parents, and you built imaginary and creative worlds that you may still remember to this day.
Because of the nature of the product as something that anyone can universally experience, the emotional and nostalgic connection to childhood and the smart localisation of its stores and marketing materials, the LEGO brand has built very close connections with customers, so much so that many people are not just customers but fans and advocates of the brand.
The company hit another familiar stumbling block in 2017 with a downturn in profits. It had expanded rapidly to keep up with high demand in the US and Europe, and when this demand declined, the company found itself too large, with too many products and employees to sustain. Layoffs and product scale-backs in Western markets helped, while expansion into new global markets meant that the LEGO Group was back on its feet by 2018.
The LEGO Group already has factories in Denmark, Hungary, the Czech Republic, Mexico and China. Expansions have been announced for the China factory, along with new factories in the USA and Vietnam. Currently, the company is looking to expand into the Indian market and invest in e-commerce to ensure that it remains able to compete with companies like Amazon. Finally, the leaders of the LEGO company have pledged to use sustainable materials in all products and packaging by 2030. They also ended the company’s partnership with Shell, the oil company, following Greenpeace protests in 2014. Hopefully, this marks a new era of sustainable and consistent growth in the company’s history.
There is no doubt that what has saved the LEGO brand over these past 90 years is its constant adaptation to new developments, guaranteeing the longevity of the brand. From the shift to using plastic over 70 years ago to confronting the growth challenges of the 1990s and 2000s, the LEGO brand has consistently found a way to remain relevant in everyone’s lives. However, it will be interesting to see how the toy company grapples with the inevitable issues it will face in the future, like the decline of the toy industry due to technology. Additionally, whether it will be able to successfully enter new markets where copycat toys are perhaps more affordable for local people remains to be seen.
As has been the case for the past 90 years, the company’s success will depend on its ability to adapt to new circumstances, quickly pivoting in a different direction when things go wrong. Not only has it learned from previous mistakes, but it has ensured that “LEGO” is more than just a brand or a product – it is a memorable experience. If this continues, it will remain a classic brand for many years to come.