Catastrophic year for Lego empire as children chose computers over bricks

For decades its colourful blocks have delighted children who have fashioned them into fantastic castles, dolls' houses and strange monsters.

But cracks are appearing in the Lego empire. The global toy brand devised by a carpenter from Denmark is having difficulty competing in a world where children are growing up more quickly. Fifty years ago the plastic bricks faced little competition; these days children are wooed by electronic toys such as computer games.

Lego is finding it tough. The company is expected to post a financial loss for 2003, only the the third loss in its history, with warnings of job cuts and fears that the sales slump will prove difficult to reverse.

Poul Plougmann, Lego's chief operating officer, said: "The trend throughout the year was unexpectedly bad, nearly catastrophic.

"All the signs of Christmas sales, for toy manufacturers throughout the world, show an attitude of growing reticence by customers. I have not heard anything positive about trends in the retail trade."

The company is due to publish its financial results within the next few weeks and they are expected to reflect a series of downbeat statements issued last year. Analysts blame the poor performance on a worldwide slump in toy sales and an increasingly competitive market dominated by computer games.

The company says that while once children would be hooked on Lego for years, they now discard its bricks earlier in favour of more complex toys. Lego has tried to keep up to date, launching a range for girls in 1994, a computer game in 1997 and interactive websites and robotic figures in recent years. It has opened theme parks in Windsor, California and Germany, and last year launched a shoe range in an attempt to keep the brand in the public eye.

Despite these innovations, it posted the first loss in its 70-year history in 1998 and in 2000 was hit by debts of £86m, prompting the company to cut its workforce by 20 per cent.

The company then negotiated lucrative product tie-ins with the Harry Potter and Star Wars movies, as well as Bob the Builder and Disney. More than one million Hogwarts Castle Lego sets were sold when the first two Harry Potter films came out, helping the company back into profit in 2001 and 2002. But with no film about the boy wizard last year and constant fears about an impending recession, sales have slumped. A further 200 job losses were announced at its Danish headquarters last year, with warnings that more cuts could be made this year.

Other construction toys are eating into its market share, particularly in the US, which accounts for 40 per cent of sales.

The company was founded by Ole Kirk Christiansen in 1932 in the Danish village of Billund. He began by manufacturing step-ladders and ironing boards, with wooden toys as a minor sideline.

By 1934, Christiansen decided to concentrate on toys, and named the company Lego, from the Danish words "leg godt", meaning "play well". He later discovered that in Latin, lego means "I put together."

Lego bricks were launched in 1949 under the name Automatic Binding Bricks, and soon became a worldwide phenomenon.

A Lego set is now sold somewhere in the world every seven seconds and 20 billion pieces are manufactured every year. The bricks have been turned into everything from spaceships to likenesses of the Mona Lisa. Six bricks of the eight-stud size can be combined in 102,981,500 different ways, according to Lego.

Although the company has gone from a cottage industry to a global brand, it has remained a family concern.

The current president and chief executive is Kjeld Kirk Kristiansen, 53, grandson of Ole. He is worth some $2bn thanks to Lego and is determined to keep the brand alive. He said: "By 2005, our goal is for the Lego brand to become the world's strongest brand among families with children.

"I see the brand encompassing more action, more fun, and more excitement than ever before.That's why I picture it as the world's strongest brand among families with children. Maybe not the biggest, but the best."

Despite its problems, Lego is still the fourth biggest toy retailer and sixth most recognised brand in the world. It was named toy of the century by Fortune magazine and the British Association of Toy Retailers last year, and the Bionicle range was named toy of the year in 2003.

Lego's latest attempt at reinvention aims to keep children loyal to the little plastic figures and studded bricks for longer. A new slogan encourages children to "play on" as well as to "play well".

Toy sales plummet amid recession fears

Toy manufacturers and sellers say they have suffered one of the worst years on record in 2003. Fears of a global recession and the lack of a toy craze have hit profits hard.

A spokeswoman for the British Association of Toy Retailers said: "It has been a dismal year and Christmas has not improved that. The constant talk about recession and interest rates going up has dampened sales.

"Parents have been buying their children one big thing rather than lots of toys and games, so they may get a computer game and nothing else." She added: "There was no big craze or 'must-have' toy this Christmas. We didn't have a situation where products were flying out of shops.

"What was incredible was that there were special offers and 'buy one, get one free' deals in toy shops even in the run-up to Christmas. That is unheard of. You don't normally have to cut your prices before Christmas and yet that is what people were doing."

The British toy market is worth £2bn a year, with 50 per cent spent on Christmas presents in the last three months of the year. Retail analysts are still compiling the Christmas 2003 statistics, but they are expected to make depressing reading.

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Ashley Thompson, aged six, does not play with Lego. "I don't like Lego at all, I think it's really boring," he said. "My friends don't really play with it - they prefer dinosaurs. I like dinosaurs and football best."

Luckily for Ashley, from Chichester, Sussex, none of his family bought him Lego this Christmas. "I got a telescope and a self-inflating whoopie cushion. I also got Mousetrap, which is much more exciting than Lego," he said. Both of Ashley's older brothers played with Lego when they were younger and the Thompson household contains boxes of the game. But Ashley has not been tempted to start building.

His older brother Jonathan was given Star Wars Lego for Christmas, but even though Ashley is a Star Wars fan, he was not interested. Instead he was outside on Christmas morning perfecting his goal-scoring techniques with his new football. He said: "Wayne Rooney is my favourite footballer. If you could get Lego with him in it I think it would be better. I might play with it then."

Jack Rees insists that he keeps his Lego tidy, but his father, Tom, says darkly: "We don't go into his room barefoot in case of a Lego-related injury".

Jack, 11, from Oxfordshire, likes recreating scenes from his favourite films with Lego. "I like the Lego sets that are based on movies because you can give the films different endings or new characters," he said. "My Star Wars Lego is the best - I've got a new Millennium Falcon spaceship, and it's huge. The top lifts off and you can play with all the characters inside. The Star Wars sets are my favourite but any set based on a film is good."

Jack did not get any Lego for Christmas this year but was given lots last year. Jack likes Lego better than the rest of his friends do. "I usually play Lego with my brother, who really likes it, rather than my friends who aren't as keen," he said.

Jack has been playing with Lego for the past six years. He said: "I've got Lego all over my room at the moment, but I always tidy it up."

Rebecca Armstrong