Case Analysis Lego A The Crisis
1. From early 1990s to 2004, the Lego Group, a long successful toymaker with a world-renowned brand, fell into the edge of bankruptcy. Compared with the highest revenue in 1999, the revenue in 2014 decreased by 35.6% while the net profit was negative, seven times less than that in 1999, the lowest in the past ten years. Its net profit margin and ROE were also the lowest. The gross margin and inventory turnover were all lower than its competitors. The strategic moves in the two main periods “growth period that wasn’t” (1993-1998) and the “fix that wasn’t” (1999-2004) lead to its poor performance.
External Analysis
Substitutes: High. Fad toys, electronic products, videogames, online activities could easily be substitutes of Lego products.
Threat of new entrants: Moderate to high. Rapid imitation and limited protection of intellectual property lowered entry cost.
Suppliers:
1) For raw material, suppliers such as chemical factories should have more bargaining power. Mold suppliers have more power than the company, if mold was not manufactured by Lego itself.
2) As Inferred from the case, Lego should have certain power over plastic injection - molding machine suppliers, as the business grows.
Buyers: Buyers have strong power over Lego products.
1) Retailers would have more power than Lego if Lego decided to cooperate with retailers instead of selling directly to consumers through online shop and Lego-owned retail stores.
2) It's a highly seasoned business. Consumers bought a large fraction during the holiday season, retail purchasing occurred mainly in the second half of the year.
Rivalry:
1) For retailing channels, the rivalry is low. As Lego sold directly to consumers through two channels online and self-owned retail stores.
2) Competition among its competitors heated up in recently years. Pressures from retailers became higher. Retail channels consolidated, and mass discounters featured toys more aggressively. Outsourcing to lower cost became popular in this
External Analysis
Substitutes: High. Fad toys, electronic products, videogames, online activities could easily be substitutes of Lego products.
Threat of new entrants: Moderate to high. Rapid imitation and limited protection of intellectual property lowered entry cost.
Suppliers:
1) For raw material, suppliers such as chemical factories should have more bargaining power. Mold suppliers have more power than the company, if mold was not manufactured by Lego itself.
2) As Inferred from the case, Lego should have certain power over plastic injection - molding machine suppliers, as the business grows.
Buyers: Buyers have strong power over Lego products.
1) Retailers would have more power than Lego if Lego decided to cooperate with retailers instead of selling directly to consumers through online shop and Lego-owned retail stores.
2) It's a highly seasoned business. Consumers bought a large fraction during the holiday season, retail purchasing occurred mainly in the second half of the year.
Rivalry:
1) For retailing channels, the rivalry is low. As Lego sold directly to consumers through two channels online and self-owned retail stores.
2) Competition among its competitors heated up in recently years. Pressures from retailers became higher. Retail channels consolidated, and mass discounters featured toys more aggressively. Outsourcing to lower cost became popular in this