Interview with Jorgen Vig Knudstorp
QUEST: Hello and welcome to MARKETPLACE EUROPE. I'm Richard Quest, this week reporting from Frankfurt's famous Christmas market. The buyers are out in force, spending money, no doubt, to help the powerful German economy. And even though in other parts of Europe, things may not be going too well, the signs are this Christmas that at least from the shoppers, it might be OK.</s>QUEST (voice-over): This week, Juliet Mann travels to Denmark, where she visits the makers of one of children's favorite toys, LEGO. And I go on the hunt for some special gifts with the help of one of the world's leading concierge services. (on camera): We know it's going to be an austerity Christmas. And that's got some chief executives seriously worried. And for good reason. So why, then, does the CEO of one toy company believe things will be all right? The CEO of LEGO has been talking to Juliet Mann and says providing that you are prepared, you have nothing to fear.</s>JULIET MANN, CNN CORRESPONDENT: We're here surrounded by all of these fantastic LEGO constructions. Has it been a good year for LEGO?</s>JORGEN VIG KNUDSTORP, CEO, LEGO GROUP: It's been another fantastic year for LEGO. This is our fourth year of double digit growth. So we're very happy.</s>MANN: Haven't you already done your planning, though, for Christmas?</s>VAN KNUDSTORP: Oh, we are all set for Christmas. That's already history. We started planning it two or three years ago. And yes, it's -- it's gone.</s>MANN: What about looking at the wider market? What changes have you had to make because of the current economic climate?</s>VAN KNUDSTORP: Yes. The current economic climate is definitely a major challenge. I think one of the major impacts it's having in the retail environment is the phenomenal growth of Internet retailing. And I think we just have to realize, we are living in a digital revolution. And it is going to change the market massively, both from a retail perspective, from how we operate your business, the level of data integration, interaction with retailers, our systems, the products we offer. Video games, for instance, it's a major category for us. And then, of course, how we are able to interact with customers and even within the company.</s>MANN: But if you were in a room with all of Europe's finance minister and you could give them a piece of advice, what would it be?</s>VAN KNUDSTORP: Well, my piece of advice would be face the truth. That's what I learned the hard way in our company. We were not facing the realities. The reality for us was also we were over indebted. And Europe is over indebted, as is, unfortunately, many other Western economies. And I think the beginning of solving that crisis is to say, yes, we are over indebted. We -- I'm sorry, we screwed up. We took on too much debt. let's reduce that. I heard in Mesopotamia what they did was when the king died, they wrote off all the debt and started all over again. I don't think we can do that, but I think we need to make a debt write-down. We all think we are richer than we are. Our pensions are vested in these companies who have taken on too much debt on behalf of governments and households. And we have to realize we're not as rich as we thought. But let's get it out. Let's start from a lower base of debt and then we can start being productive economies again. If we don't do that, we are going to be in a 10 year period of no growth.</s>MANN: So with all of this debt that we're saddled with, you're saying write it off because there's no hope of ever being able to pay it back?</s>VAN KNUDSTORP: I am saying not all of it, but what about a 20 percent cut, just telling us -- all of us, because it's you and me, it's not the banks, because we are shareholders in the banks through our pension schemes. So it's about all of us recognizing that we've lost a little bit of our wealth. We have anyway, we're just not facing the music.</s>MANN: You seem quite relaxed about the economic crisis. But you've thought about it quite a lot. What are the things, though, that are keeping you up at night, that -- that make you worry about the future for LEGO?</s>VAN KNUDSTORP: Yes. What really makes me quite worried about the economic crisis, at least in its impact on LEGO, is that I think we are moving from a 30 year period of just borrowing more and more money at the government level, but certainly also at the household level. And I think we have, in some ways, been able to benefit from that level of consumption. I think we are coming into a phase now where there will be deleveraging, there will be increasing raw materials costs. There will not be so much cheap labor available around the world. So I think we are coming into a different phase. And that's why we at LEGO have named our ability to scale our business and our ability to be adaptable as a business. That's the major challenge for the future. So we are stressing ourselves to be even more adaptable than we've been in the past, because I think it's going to be crucial to survival in these kind of times.</s>MANN: OK. Let's do it. That's good. That's great.</s>QUEST: You can't come to the Frankfurt Christmas market without buying and trying some bethmention (ph). It's a marzipan candy whose history goes back more than 100 years. Apparently, admirers used to send it to the object of their desire. If she kept it, you're in with a chance. If she sent it back, well, you knew to look elsewhere. Perhaps you should send some to the European Council.