LEGO Group’s disappointing 2017 attributed to excess stock

A spokesperson for the LEGO Group has blamed the company’s disappointing performance in 2017 on excess stock.

The LEGO Group’s annual report, released this morning, confirmed that revenue and profit were both down in 2017 as sales in the US and Europe slumped. The BBC is reporting a statement from a LEGO spokesperson, attributing the sales drop to excess stock:

“There wasn’t enough room to get 2017 toys into the stores ,” she said, explaining how this is a problem because having new toys on shop shelves is important.

The inventory manufactured to meet optimistic forecasts must have been sold at reduced prices, as the article goes on to explicitly mention discounted stock.

…the declines in established markets were not caused by declining consumer sales, but rather the value of those sales.

“During 2017, revenue in our established markets declined, primarily due to actions we took to clean up inventories,” CEO Neils B Christiansen said in a statement, explaining the LEGO Group’s response to the issue.

It can be surmised from these reports that the decline in sales in the US and Europe is being at least partially attributed to excess stock being discounted. This is a significant change to a decade ago, when the LEGO Group struggled to keep up with demand for product. Now, the company is in the opposite position of having plenty of capacity to manufacture stock for the North American and European markets, but is having to discount it in order to move the inventory.

This seems unlikely to be the whole story, as the summary of which LEGO products were successful, found in the annual report, omits some well known brands:

Core product lines continue to do well, and among the top selling lines in 2017 were themes like LEGO® City, LEGO NINJAGO, LEGO Creator and LEGO DUPLO. LEGO Star Wars performed in line with expectations.

For some time now, the LEGO Group has highlighted the success of the core home-grown play themes, suggesting that Disney, Marvel, DC and Minecraft are not delivering the same sales success that these more traditional themes are. Another factor that must have impacted sales in 2017 was the disappointing sell through of Star Wars products across the board, with a great deal of inventory making it to clearance. Industry chatter suggests that the LEGO Group still has a significant amount of Rogue One inventory to sell through.

Despite the disappointing results, the CEO remains confident that the situation can be turned around. “We started 2018 in better shape and during the coming year we will stabilise the business by continuing to invest in great products, effective global marketing and improved execution. There is no quick-fix and it will take some time to achieve longer-term growth.”