Times are tough in Toyland, where restructuring is not always the solution - even for Lego, writes Frank McNally
Even as Denmark celebrates the bicentenary of Hans Christian Andersen with a year-long programme of events, the survival of another national treasure is in doubt. Once upon a time, Lego was an unquestioned Danish success story, loved by children everywhere. Now the people of the kingdom fear for the toy's future, and a fairy-tale ending is not guaranteed.
The Lego brand-name began life in the 1930s with a range of wooden ducks. They weren't particularly ugly. But it took the postwar development of plastic studded bricks to transform the company into one of the swans of the toy industry, with a global wing-span. Unfortunately, recent changes in the marketplace have threatened to turn it back into a duck, and a lame one at that.
The company replaced its chief executive - a grandson of the founder - last year, and shed 1,000 jobs worldwide as part of a plan to reverse record losses. But restructuring is not a simple prospect, even for Lego. Sales have continued to disappoint, and figures posted this week showed that net losses for 2004 doubled to €255 million when redundancy costs were included.
Lego's problems are to some extent the problems of the toy industry in general. Children are getting older, younger. Computer games stalk Legoland like a horrible, fire-breathing dragon. Meanwhile, US supermarket giants such as Wal-Mart are squeezing margins so much it hurts. Even retail specialists such as Toys-R-Us have considered the possibility that toys may not be them after all, and they should get into something else.
Times are tough in Toyland, and Lego is not the first children's classic to feel the pinch. Barbie's mid-life crisis has been well documented, as competition from younger, hipper rivals drives her to increasingly erratic behaviour, including last summer's disastrous split from lifelong boyfriend Ken for a doomed affair with an Australian surfer.
But Lego has also contributed to its own problems. Some of the brand's attempts to stay contemporary have been a success, such as putting microchips in bricks so they can be used to make computer-controlled robots. The sci-fi Bionicle range has also been a big seller. On the other hand, the company has been sidetracked unprofitably into areas including video games and even clothing.
Andersen could have warned them of the dangers of over-reaching. "Two words!" he might have said: "Clothes. Emperor." Like many businesses, Lego is now discovering that in a volatile market, the safest option is a return to bricks and mortar; or at any rate bricks. The former chief executive (and still the company owner) Kjeld Kirk Kristiansen admitted as much last year: "We must realise we have gone too far from what built this company - a universal product idea that is as contemporary as ever," he said, as Lego attempted to go back to the future.
The universal market for the toy remains the three to seven-year-old boy. (Small girls play with Lego only long enough to be influenced for life by the quintessentially Scandanavian use of primary colours, which many years later will cause them to spend all their spare time in Ikea stores.)
Inevitably, a tour of the internet reveals that boys much older than the core group are among the toy's most enthusiastic fans, and a Lego version of The Texas Chainsaw Massacre is one of many uses not envisaged by the manufacturers to which the toy has been put.
To their credit, the manufacturers have ruled out adding realistic weapons, however popular, to the Lego range. And their philosophy has prevented them making other changes too. Despite some relocation of jobs to eastern Europe as part of the cost-cutting, the company still insists on producing most of the bricks at its Danish headquarters in Billund, for quality control.
This is also the site of the original Legoland. But the people of Billund have every reason to fear a Legoless future. When the company cut 400 jobs there back in 1999, the local council had to increases taxes by 2 per cent.
A happy-ever-after ending may be too much for them to hope for. The success of the back-to-basics approach will decide whether, even in the short term, they can keep the wolf from the door.