External: Internet: The internet boom boosts the toy industry to generate massive new products to substitute traditional toys such as what LEGO was offering. For instance, the video games, online world, many other various types of technology-based fad toys were more attractive to kids rather than LEGO's old-fashioned bricks. In addition, children of the new generation had less fixed times to patiently play traditional toys since they had more options of after-school activities to choose from. Price: The price competition was heating up as most toymakers were manufacturing in Asia to reduce labor costs whereas LEGO continued to rely on high cost production in Denmark. Gradually, LEGO's products lost its price advantage in the market, consumers (parents) were shifting to lower-priced similar toys for their kids. Retailers: Retailers were an increasing power to boost sales for toymakers; however, LEGO limited their potentials and development; treated them with below average gross margins. Internal: In order to restore LEGO's profitability, the new CFO Poul Plougmann was appointed to fix the company's financial hardships. What he had changed was dramatic; however, it did not allow LEGO to gain sufficient profits. Management system: Plougmann changed LEGO's entire management system, one astonishing point was that he moved around managers very rapidly, managers might only stay in one position for less than a year before he was replaced by someone else or transferred to another division. This strategy made leadership a mission impossible to run in a long term, a manager may have a good idea of leading his/her team, but before he/she implemented the innovative ideas into reality, he/she was replaced to another unit. This inconsistency in management system won't make LEGO's leadership a smooth support for generating profitability. Lay-offs: The "restructuring program" laid off employees, executives with the purpose to cut costs. This was a double-edged sword in that many experienced workers and top executives might be among the people who left. LEGO-owned retail stores: The company-owned retail stores carried a mission to promote the brand name and meet customers in the right place. While incurred additional costs and human resources expenses in managing these stores. Star Wars Theme: The new Star War theme products was originally a money maker especially during the times when movies were showing, however, when there was not any new Star War films released, those theme products account for half of the sales loss. Slow Inventory turnover: The buyers and retailers were frustrated that a very slow inventory turnover of LEGO's products. LEGO had a hard time to balance supply and demand of its toys.
“Growth period that wasn’t” (1993-1998) From 1993-1998, LEGO used its brand name to invest in a number of new projects, including watches, LEGO Media, theme parks, children's clothing, etc. Although those new line of business fitted what LEGO's development goals, however, LEGO failed to analyze if it really had a competitive advantage in those markets, especially when competed directly with companies like Walt Disney. The top management team was confident that LEGO's brand image was popular enough to step into these new markets, but in fact, this movement led LEGO fell into fields that it was not good at. Moreover, LEGO's expansion neglected where its traditions were. It added too much complexity to its current product lines, furthermore, LEGO's designers added more components to its previous products. This complexity of new and current products made manufacturing costs rise up.
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