The mystery of Lake Louise's missing water

Unexplained absence of 510,000 cubic metres of water from resort's distribution system 'an embarrassment for Canada'

by Dawn Walton

The Fairmont Chateau Lake Louise taps into the iconic emerald-blue lake in Alberta that shares its name for everything from supplying its laundry room and watering its gardens to ensuring the ice buckets are filled.

That water distribution system has lost almost 510,000 cubic metres of water – the equivalent of 33,630 tanker trucks or 204 Olympic-sized swimming pools – pulled from the lake since 2003, according to records that the hotel submits to Parks Canada, which oversees all operations in Banff National Park.

That's almost as much water as Ottawa allows the hotel to draw each year from the postcard-perfect lake that thrives on glacial runoff in Canada's oldest national park.

Brad Cabana, a former member of Parks Canada's advisory development board, rang alarm bells about the water losses for more than a year before he resigned. He said he received little explanation – or assurances the problem has been fixed.

“This is not a slough in Saskatchewan,” said the former mayor of Elstow, Sask., who lives in the Rocky Mountain resort town of Canmore, Alta. “This is a UNESCO World Heritage Site. I'm trying to save something that can't speak for itself. I want to hold people accountable.”

Parks Canada doesn't monitor levels at Lake Louise because it is always changing, affected by the seasons and dependent on rain as well as the melt from Victoria Glacier above it. But evidence suggests the main glacier is under pressure.

“It's definitely melting away,” said Gerald Osborn, a professor of geoscience at the University of Calgary who has studied glaciers.

Although the icepack loss has not been calculated recently, scientists say glaciers in the Rockies are declining and at a more rapid pace.

“It's a natural recession, but it is augmented by the man-made effects,” Prof. Osborn said.

The impact of global warming is a problem for huge regions, including Western Canada, that rely on glaciers for water for their homes, businesses and farms.

Mr. Cabana noticed what he considered a large water-loss rate at Lake Louise in February, 2008, when the hotel presented his board with a $7-million plan to upgrade its water-treatment plant and build a huge new reservoir.

Records eventually showed that one-fifth of the lake water drawn by the hotel's treatment plant (which is used by the hotel and the nearby Deer Lodge and Parks Canada washrooms) has been disappearing from the metered distribution system.

Over the years, the hotel has installed low-flow toilets and shower heads, tap aerators and taken other high-tech conservation measures. Since 2001, water consumption has dropped 36 per cent.

While experts say even well-run water systems have an 8- to 12-per-cent loss or leakage rate, average annual losses at the hotel ranged from 6.9 per cent to 33.4 per cent. There has been an average annual loss of 21 per cent between 2003 and today.

The board rejected the upgrade, but it went ahead with Parks Canada's blessing. Mr. Cabana pursued the issue, but recently quit the board in frustration. He continues to hunt for answers.

“Apart from where the hell is the water going and what the hell are people doing about it, it's certainly an embarrassment for Canada,” he said.

The advisory development board, which has seven volunteer members, was set up in 1998 to let Canadians be involved in deciding what projects go ahead in Banff, Yoho and Kootenay national parks in Alberta and British Columbia. It's supposed to make sure permit applications receive “consistent, fair and transparent reviews.”

When Mike McIvor of the Bow Valley Naturalists, a Banff-based conservation group, attended the board's first public hearing, he was impressed by the tough questions. But soon, he said, the board turned pro-development, and its recommendations could be overruled by the park superintendent.

“We came to call it the approval development board,” Mr. McIvor said.

“We stopped participating because we thought the role of the board had been reduced to choosing what colour should be on the bathroom walls,” he said.

Interested in conservation issues, Mr. Cabana joined the advisory board in January, 2008.

The next month, the waterworks upgrade at Lake Louise was presented. According to the hotel, which has roots dating back to 1890 and some water pipes that are a century old, the project was needed to meet new federal and provincial regulatory rules for drinking water and to ensure enough storage capacity in the event of a disaster such as a fire. The new reservoir would hold 1,450 cubic metres of water, more than three times as much as the existing one.

During the presentation, records showed that the hotel had been consuming well below its annual permit of 525,653 cubic metres of water.

The board was told water consumption had dropped between 2003 and 2006 and ranged from 267,809 to 346,533 cubic metres. During the same period, water production ranged between 357,803 and 384,989 cubic metres.

(Water that is produced, but not clocked by consumption meters, is not paid for. The hotel pays only for water it uses.) A chart showing the growing gap between the amount of water produced and the water consumed by the hotel and other facilities jumped out at Mr. Cabana and some other board members.

“Where is this water going?” he recalled asking. “They could not answer me.”

Three of six board members voted against the proposal, in part over concerns about adding a new water project to what seemed like a faulty system. Questions about aesthetics were also raised. The tie defeated the project. But a Parks Canada superintendent, satisfied that the concerns were addressed, later gave it the green light.

“We asked that aesthetics be improved and that's why it was approved,” explained Pam Veinotte, Parks Canada's field unit superintendent for Lake Louise, Yoho and Kootenay.

“There will always be a level of discrepancy in any municipal water system between withdrawal and usage. That doesn't necessarily mean there's been a loss of water. It's often a result of unmetered water usage,” she added.

Mr. Cabana asked for the water balance sheets for 2007 and 2008. Unlike the numbers in the presentation to the board, the charts he was given were vague. This week, he was offered more complete – and in some cases different – figures for those years, as well as the first eight months of 2009.

There were seven months between 2003 and today when water from the treatment plant didn't vanish. But during those years, the system could not account for 509,208 cubic metres of water. Mr. Cabana figured that would be like nearly 33,630 tanker trucks loaded with 4,000 gallon drums.

Last February – one year after the project was approved – Mr. Cabana tabled a motion to find out what measures had been taken to locate the sources of the losses and fix the problem.

A month later, Parks Canada received a letter from Jackie Budgell, the hotel's environmental systems manager, who attributed the discrepancy to non-metered water consumption for irrigation, annual fire-hydrant testing and cleaning the plant filters. She also suggested that some meters might be inaccurate.

Harsh winters sometimes burst water lines and cause leaks, Ms. Budgell said. One hydrant line ruptured in the winter of 2006 and could not be fixed until spring, she said. As well, non-metered hydrants were used during a big landscape project between 2003 and 2006. She assured Parks that the discrepancy between the water production and consumption was not because of leaking pipes or other causes.

“The most important fact is that we have continued to reduce our production and consumption since 1995,” she wrote.

But those explanations didn't wash for Mr. Cabana.

The hotel estimates that cleaning the filters accounts for 2.5 to 3.2 per cent of the water consumed, and includes it on the balance sheet, therefore that can't be the cause, he said. Water losses tend to be greatest between September and March, not during the prime summer landscaping season when new plants and trees would need heavy watering, he added. And, large water losses continued after the major landscaping project was completed, he said.

“Estimates are often difficult,” said Ms. Veinotte of Parks Canada.

Hotel spokeswoman Alicia Chelsom said an environmental assessment concluded that as long as the hotel stays below its permit, there's no ecological risk.

“We draw well below that number, so even if there is a slight difference between our production and consumption numbers, there is no risk for environmental damage. Also, any water that would leak from the distribution system would run back into the ground and return to the water table,” she said.

Chris Huston, leader of asset operation for water services for the city of Calgary, called monthly water losses ranging from 20 to 42 per cent “huge.”

“There's something going on there,” he said.

It could be as simple as inaccurate meters. The system could be over-pressured, which is pushing water through leaks faster. Theft can also be a factor. But in most cases, he explained, leaks are to blame.

“It could be water running underground and they don't even know it,” Mr. Huston said.

Back in the 1980s, Calgary lost 30 per cent of its water, about 140 million litres per day. The city launched an aggressive water-main replacement program and water loss dropped dramatically. While about 1,500 water mains used to break in a year, now fewer than 400 do.

“It's a major issue across North America – the state of infrastructure,” Mr. Huston said.

At an advisory board meeting in May, 2009, Mr. Cabana quit, citing concerns about “environmental negligence.” Neither Parks Canada nor the board, he said, appeared to have any intention to hold themselves or the hotel to account.

“It remains a shock to my system that the very organization entrusted with protection of our national parks, and thereby their ecosystems, would allow such a systemic abuse of perhaps the most recognized symbol of our country,” he wrote in his resignation letter.

At the meeting, the board gave the hotel until the end of the year to show how the new system, which went into operation in June, was working. (It includes new meters and a new irrigation system.) So far, the water-loss rate has ranged from 3 to 28 per cent.

Parks Canada said it needs more data to find out whether it has a handle on its water losses.

Joe Obad, associate director with the Water Matters Society of Alberta, an independent organization focused on watershed protection, said when talking about a Canadian icon like Lake Louise there should be no questions about where the water is going.

“What I would like to see is that every drop coming out of that lake is accounted for,” he said.

Mr. Cabana has enlisted the help of Wild Rose Conservative MP Blake Richards, who has the Environment Minister's office looking into the issue.

“Water is a pretty valuable resource and you want to make sure it's being used properly,” Mr. Richards said.

Parks Canada has been directed to get to the bottom of it.

Meanwhile, Parks Canada is undertaking a mandated facelift under federal legislation. It will look at what, if anything, it should do with the many committees, such as the advisory development board, that offer Ottawa advice. Boards could be disbanded or merged.

Mention Mr. Cabana's name around the lake and people tend to bristle. When asked about his water crusade, Ms. Veinotte offered a diplomatic response.

“We really appreciate the efforts of a number of private citizens to sit on advisory groups and I think that these advisory groups have served us well in the past and many will serve us well into the future,” she said.

Mr. Cabana would still like to see an independent audit, wonders how far back the losses go and doubts the water-plant upgrades will help. So what happened to Lake Louise's water?

“That's a question I wish I had the answer for,” he said.



Walmart's Latest Move to Crush the Competition

By Sean Gregory

Walmart loves to shock and awe. City-size stores, absurdly low prices ($8 jeans!) and everything from milk to Matchbox toys on its shelves. And with the recession forcing legions of stores into bankruptcy, the world's largest retailer now apparently wants to take out the remaining survivors.

Thus, the company is in the beginning stages of a massive store and strategy remodeling effort, which it has dubbed Project Impact. One goal of Project Impact is cleaner, less cluttered stores that will improve the shopping experience. Another is friendlier customer service. A third: home in on categories where the competition can be killed. "They've got Kmart ready to take a standing eight-count next year," says retail consultant Burt Flickinger III, managing director for Strategic Resources Group and a veteran Walmart watcher. "Same with Rite Aid. They've knocked out four of the top five toy retailers, and are now going after the last one standing, Toys "R" Us. Project Impact will be the catalyst to wipe out a second round of national and regional retailers."

Though that's bad news for many smaller businesses that can't compete, Walmart investors have clamored for this push. Despite the company's consistently strong financial performance, Wall Street hasn't cheered Walmart's growth rates. During the 1990s, the company's stock price jumped 1,173%. In this decade, it's down around 24% (Walmart's stock closed at $51.74 per share on Sept. 3). "Walmart is under excruciating pressure from employees and frustrated institutional investors to get the stock up," says Flickinger.

Many analysts believe that the store-operations background of new CEO Mike Duke will keep investors quite happy. Though the recession finally caught up to Walmart last quarter, when the company reported a 1.2% drop in U.S. same-store sales, Walmart was a consistent winner during the worst days of the financial crisis, as frugal consumers traded down. While most retailers are shutting down stores, Walmart has opened 52 Supercenters since Feb. 1. Joseph Feldman, retail analyst at Telsey Advisory Group, estimates that each store costs Walmart between $25 and $30 million. In order to continue the momentum that it has picked up during the retail recession, over the next five years the company plans to remodel 70% of its approximately 3,600 U.S. stores.

So what does a Project Impact store look like? One recent weekday afternoon I toured a brand new, 210,000-sq.-ft. Walmart in West Deptford, N.J., with Lance De La Rosa, the company's Northeast general manager. "We've listened to our customers, and they want an easier shopping experience," says De La Rosa. "We've brightened up the stores and opened things up to make it more navigable." One of the most noticeable changes is that Project Impact stores reshape Action Alley, the aisles where promotional items were pulled off the shelves and prominently displayed for shoppers. Those stacks both crowded the aisles and cut off sight lines. Now, the aisles are all clear, and you can see most sections of the store from any vantage point. For example, standing on the corner intersection of the auto-care and crafts areas, you can look straight ahead and see where shoes, pet care, groceries, the pharmacy and other areas are located. And the discount price tags are still at eye level, so the value message doesn't get lost.

"They are like roads," De La Rosa says proudly. "And look around, the customers are using them. We've already gotten feedback about the wider, more breathable aisles. Our shoppers love them."

The layout is also smarter. "You can kind of guess where everything is going to be," says Sharon Tilotta, 73, a shopper in the West Deptford store. The pharmacy, pet foods, cosmetics and health and beauty sections are now adjacent to the groceries. In the past, groceries and these other sections were often at opposite ends of the store, which made it more difficult for someone looking to pick up some quick consumables to get in and out of Walmart. "Under Project Impact, Walmart is providing more of a full supermarket experience within its walls," says Feldman. "The biggest complaint against them has always been that it takes a long time to get through everything. This definitely improves efficiency." De La Rosa also points out the party-supply section. Favors, wedding decorations, cards and scrapbooks are all in one area. "In the past, these products would be in three different places," he says.

And although Walmart won't admit to targeting specific competitors — "We're just listening to what our customers want," De La Rosa says — it's clear that, under Project Impact, Walmart will make major plays in winnable categories. The pharmacy, for example, has been pulled into the middle of the store, and its $4-prescriptions program has generated healthy buzz. With Circuit City out of business, the electronics section has been beefed up. Walmart is also expanding its presence in crafts. Sales at Michael's Stores, the country's largest specialty arts-and-crafts retailers, have sagged, and Walmart sees an opportunity. Stores are chock-full of scrapbooking material, baskets and yarns. "Look, they're selling the stuff that accounts for 80% of Michael's business, at 20% of the space," says Flickinger. "It's very hard for any company to compete with that."

Apparel, one of Target's traditional strengths, gets a prominent position at the center. The color palettes of the shirts and dresses are brighter and more appealing than they've been in the past. "Walmart has figured out fashion for the first time in 47 years," Flickinger says. "They've gone from a D to an A-minus." Briefs and underwear have been shuttled to the back. "That's a smart move," Flickinger says. "People know to come to Walmart for the commodity clothing. Now, they have to walk past the higher margin, more fashionable merchandise to get what they need."

Of course, Project Impact isn't perfect. You'd think that if Walmart was going to open a massive new store with a cutting-edge layout, the company would at least put a sign up. In West Deptford, it's easy to miss the entrance to the Walmart — which is buried in the back of a parking lot — while driving along a main thoroughfare. And of course, customers will always nitpick. One elderly shopper complained about a shortage of benches in the store (she needed a rest). Another had a more esoteric, yet legitimate, gripe. "Their meat is leaky," says Jeff Winter, 30, a West Deptford shopper. "And instead of giving you a wet wipe to clean it off, they give you a dry towel. How's that going to prevent E. coli or whatever?"

What analysts really want to see from Project Impact, however, is a faster pace of implementation. "The biggest hurdle facing Walmart is the speed with which they can roll this out," says Feldman. As more Project Impact stores pop up, the existing stores appear worse by comparison. For example, while the merchandise at the Project Impact store outside of Philadelphia really speaks to that particular market — there's tons of Eagles and Phillies gear — at one regular discount store outside New York City, Minnesota Twins and Seattle Mariners pajama pants wasted away on the racks. There were plenty of associates staffing the electronics section at the Project Impact store; at the discount store, five frustrated shoppers waited in line for help from a customer-service rep. Soon, it was closer to 10.

What about the friendly service? In West Deptford, the associates were sunny and bright. At the New York–area discount store, not so much. "You'll notice we've been in the store for two hours, and no one has even said hello to us," Flickinger says after he and I toured that store. He's right, we weren't feeling any love. But if Project Impact keeps picking up momentum, many more Walmart salespeople, and shareholders, should be smiling.



A skull that rewrites the history of man

It has long been agreed that Africa was the sole cradle of human evolution. Then these bones were found in Georgia...

By Steve Connor

The conventional view of human evolution and how early man colonised the world has been thrown into doubt by a series of stunning palaeontological discoveries suggesting that Africa was not the sole cradle of humankind. Scientists have found
a handful of ancient human skulls at an archaeological site two hours from the Georgian capital, Tbilisi, that suggest a Eurasian chapter in the long evolutionary story of man.

The skulls, jawbones and fragments of limb bones suggest that our ancient human ancestors migrated out of Africa far earlier than previously thought and spent a long evolutionary interlude in Eurasia – before moving back into Africa to complete the story of man.

Experts believe fossilised bones unearthed at the medieval village of Dmanisi in the foothills of the Caucuses, and dated to about 1.8 million years ago, are the oldest indisputable remains of humans discovered outside of Africa.

But what has really excited the researchers is the discovery that these early humans (or "hominins") are far more primitive-looking than the Homo erectus humans that were, until now, believed to be the first people to migrate out of Africa about 1 million years ago.

The Dmanisi people had brains that were about 40 per cent smaller than those of Homo erectus and they were much shorter in stature than classical H. erectus skeletons, according to Professor David Lordkipanidze, general director of the Georgia National Museum. "Before our findings, the prevailing view was that humans came out of Africa almost 1 million years ago, that they already had sophisticated stone tools, and that their body anatomy was quite advanced in terms of brain capacity and limb proportions. But what we are finding is quite different," Professor Lordkipanidze said.

"The Dmanisi hominins are the earliest representatives of our own genus – Homo – outside Africa, and they represent the most primitive population of the species Homo erectus to date. They might be ancestral to all later Homo erectus populations, which would suggest a Eurasian origin of Homo erectus."

Speaking at the British Science Festival in Guildford, where he gave the British Council lecture, Professor Lordkipanidze raised the prospect that Homo erectus may have evolved in Eurasia from the more primitive-looking Dmanisi population and then migrated back to Africa to eventually give rise to our own species, Homo sapiens – modern man.

"The question is whether Homo erectus originated in Africa or Eurasia, and if in Eurasia, did we have vice-versa migration? This idea looked very stupid a few years ago, but today it seems not so stupid," he told the festival.

The scientists have discovered a total of five skulls and a solitary jawbone. It is clear that they had relatively small brains, almost a third of the size of modern humans. "They are quite small. Their lower limbs are very human and their upper limbs are still quite archaic and they had very primitive stone tools," Professor Lordkipanidze said. "Their brain capacity is about 600 cubic centimetres. The prevailing view before this discovery was that the humans who first left Africa had a brain size of about 1,000 cubic centimetres."

The only human fossil to predate the Dmanisi specimens are of an archaic species Homo habilis, or "handy man", found only in Africa, which used simple stone tools and lived between about 2.5 million and 1.6 million years ago.

"I'd have to say, if we'd found the Dmanisi fossils 40 years ago, they would have been classified as Homo habilis because of the small brain size. Their brow ridges are not as thick as classical Homo erectus, but their teeth are more H. erectus like," Professor Lordkipanidze said. "All these finds show that the ancestors of these people were much more primitive than we thought. I don't think that we were so lucky as to have found the first travellers out of Africa. Georgia is the cradle of the first Europeans, I would say," he told the meeting.

"What we learnt from the Dmanisi fossils is that they are quite small – between 1.44 metres to 1.5 metres tall. What is interesting is that their lower limbs, their tibia bones, are very human-like so it seems they were very good runners," he said.

He added: "In regards to the question of which came first, enlarged brain size or bipedalism, maybe indirectly this information calls us to think that body anatomy was more important than brain size. While the Dmanisi people were almost modern in their body proportions, and were highly efficient walkers and runners, their arms moved in a different way, and their brains were tiny compared to ours.

"Nevertheless, they were sophisticated tool makers with high social and cognitive skills," he told the science festival, which is run by the British Science Association.

One of the five skulls is of a person who lost all his or her teeth during their lifetime but had still survived for many years despite being completely toothless. This suggests some kind of social organisation based on mutual care, Professor Lordkipanidze said.


Historian says creating new Saskatchewan cities has 'great significance'

By Jennifer Graham

The last time two Saskatchewan towns became cities in the same year, Premier Walter Scott was walking the halls of the newly completed provincial legislative building, agricultural was the driving force of the economy and most of the province's nearly 500,000 residents lived in rural areas.

It was 1913 when North Battleford and Weyburn became the province's newest cities.

Nearly 100 years later, Saskatchewan is doing it again, announcing last week that the towns of Meadow Lake and Martensville have reached city status.

"There's a great significance to yet another city in Saskatchewan because in the national consciousness, Saskatchewan is a place that time forgot - of rural roads, country elevators, wheat fields," says Bill Waiser, a professor in the history department at the University of Saskatchewan in Saskatoon.

"What people don't realize today is that Saskatchewan is essentially an urban province. More people in Saskatchewan live in urban centres than they do in the countryside."

For years, Saskatchewan was a place people loved to leave.

After reaching a high of more than 1,032,000 people in 1987, the province's population started to drop. It fell to below 992,000 in 2006 before things started to turn around.

Saskatchewan's population was at 1,027,092 in June, according to figures released by Statistics Canada. Most of the growth came from people moving to Saskatchewan from other provinces.

Waiser says two out of every three people in Saskatchewan live in urban centres - most in Regina and Saskatoon.

The historian, who penned the book "Saskatchewan: A New History," says people need to get away from the images of Saskatchewan as one big wheat field or as a small town where most people are engaged in agriculture.

"That's not the real Saskatchewan of today," Waiser says.

"The fact that Martensville is becoming yet another in the list of cities in Saskatchewan reflects the fact that there's this growing urbanization in Saskatchewan, that people are moving off the farms into the cities where they can get better services."

"Yes, Saskatchewan has that feel of a rural province because of the grid roads, the country elevators, the grain fields, but that rural population is becoming increasingly smaller as the urban population grows."

In fact, Waiser says a lot of smaller communities will likely see their numbers decline and might eventually disappear.

Such hamlets, villages and towns were put on the map a century ago to service the agricultural community so that producers didn't have to haul their crops too far. But Saskatchewan's economy has expanded into areas such as mining and oil and gas. Agriculture's contribution has declined, taking with it the need for all the small rural centres, says Waiser.

In Saskatchewan, a community must have a population of 5,000 or more to get city status.

Martensville has seen its population grow because of its proximity to Saskatoon, the province's largest city. Martensville is just 20 minutes north of Saskatoon, but it doesn't want to be seen as a bedroom community.

"We want our own identity," says Martensville Mayor Giles Saulnier.

Saulnier says the city is trying to move forward and grow with the Saskatchewan economy. He insists the personable image that makes small town life appealing won't change.

"It's the people. It's walking down the street and saying hello to your neighbour and that will continue to happen because everybody wants to lend a helping hand in Martensville," says Saulnier.

"It's a sign of what we are as a community."

Premier Brad Wall says two towns becoming cities in the same year is evidence that Saskatchewan is growing even during the recession. The growth in Meadow Lake is being driven by many factors, including agriculture, energy exploration and the potential of oil sands development.

But the situation is not all rosy.

Saskatchewan was the only province to experience a sizable deterioration in the job market in August, losing 3,200 jobs, according to the latest Labour Force Survey released by Statistics Canada. However, the province still boasts Canada's lowest unemployment rate at five per cent.

Waiser admits there are challenges with a shifting population and the current economy, but he says people should look forward to what Saskatchewan is going to do.

"It's not going to be an easy road ahead of us, it's going to be bumpy, but I suggest that Saskatchewan will find its own solutions to the challenges that it faces and that the rest of Canada should be watching closely."



Turning to Tie-Ins, Lego Thinks Beyond the Brick


FROM the outside, there is nothing playful about the drab, two-story Lego Idea House here, where designers gather in whitewashed rooms to dream up new toys. But upstairs, behind a series of locked doors accessible only to employees with special passes, is a chamber that might as well be toy heaven for kids — and more than a few adults.

Multicolored Lego creations in every imaginable size and shape spill from the shelves, from Indiana Jones’s biplane to Darth Vader’s fighter. Boxes stamped “confidential” hold potential future blockbusters, like Buzz Lightyear, the hero of the “Toy Story” animated films, as well as a police station bustling with miniature cops and robbers.

“It’s our way of looking at the world,” says Soren Holm, the head of Lego’s Concept Lab. “We have happy criminals; even they are smiling. The sun is shining every day.”

While that may be true of Lego’s toys, until recently it was hardly the case for Lego’s bottom line. But five years after a near-death experience, Lego has emerged as an unlikely winner in an industry threatened by the likes of video games, iPods, the Internet and other digital diversions.

Even as other toymakers struggle, this Danish maker of toy bricks is enjoying double-digit sales gains and swelling earnings. In recent years, Lego has increasingly focused on toys that many parents wouldn’t recognize from their own childhood. Hollywood themes are commanding more shelf space, a far cry from the idealistic, purely imagination-oriented play that drove Lego for years and was as much a religion as a business strategy in Billund.

Just as the toys are changing, so is the company. Jorgen Vig Knudstorp, 40, a father of four and a McKinsey & Company alumnus who took over as Lego’s chief executive in 2004, made it clear that results, not simply feeling good about making the best toys, would be essential if Lego was to succeed.

“We needed to build a mind-set where nonperformance wasn’t accepted,” Mr. Knudstorp says. Now, “there’s no place to hide if performance is poor,” he says. “You will be embarrassed, and embarrassment is stronger than fear.”

But the story of Lego’s renaissance — and its current expansion into new segments like virtual reality and video games — isn’t just a toy story. It’s also a reminder of how even the best brands can lose their luster but bounce back with a change in strategy and occasionally painful adaptation.

Founded in 1932 on the principle of “play well,” or “leg godt” in Danish, by a local carpenter, Ole Kirk Christiansen, this privately held company had a very Scandinavian aversion to talking about profits, much less orienting the company around them.

Mr. Christiansen’s family still owns Lego and its business may still be fun and games, but working here isn’t. Before Mr. Knudstorp’s arrival, deadlines came and went, and development time for new toys could stretch out for years; in 2004, the company racked up a $344 million loss.

Now, employee pay is tied to measuring up to management’s key performance indicators (K.P.I.’s, in Lego-speak). And cost-saving touches are encouraged when it comes to designing new toys.

That has helped to lower development time by 50 percent, with some new products moving from idea to box in as little as a year. Mr. Knudstorp’s bottom-line-oriented team, meanwhile, has shifted some manufacturing and distribution from Billund to cheaper locales in Central Europe and Mexico.

Nevertheless, Lego hasn’t entirely shed its Scandinavian sense of social mission when it comes to making toys. It kept quality high and never moved any manufacturing to China, avoiding the lead paint scare and grabbing market share when rivals stumbled amid multiple recalls.

Now, with profits swelling and the turnaround firmly in place, Lego is preparing for a future that moves well beyond the basic brick but carries big risks as well.

Last month, it opened its first “concept store” in Concord, N.C., where parents can bring children for birthday parties and classes with master builders; another concept store is set to open near Baltimore this fall. It’s all part of a broader retail expansion that will give Lego 47 retail stores worldwide by year-end, up from 27 in 2007.

In 2010, the first board game designed by Lego will go on sale in the United States, while its new virtual reality system, Lego Universe, will make its debut on the Web, with children able to act out roles from Lego games and build toys from virtual bricks.

Video games — yes, Lego is there, too — are increasingly important to the company, as are Lego’s legions of adult fans, who can now buy kits to build architect-designed models of Frank Lloyd Wright’s Fallingwater and the Guggenheim Museum. What’s more, the company is in talks with Warner Brothers about a mixed live-action and animation Lego-themed movie that would move the company and its Lego brand even further into the Hollywood orbit.

“Developing a movie doesn’t come cheap,” says Soren Torp Laursen, a 23-year Lego employee who heads its North American operations. “But five years ago, we were in the midst of a crisis, and now we’re in a growth phase. We are definitely taking bigger risks than we previously did.”

WHILE that shift has disappointed purists and prompted worries from experts that some of what has long made Lego special may be in jeopardy, it’s paying off, at least in the short term.

Amid a 5 percent drop in total United States toy sales last year and the industry’s worst holiday season in three decades, according to Sean McGowan, an analyst at Needham & Company, Lego’s sales surged 18.7 percent in 2008. And despite a worsening global recession, Lego powered through the first half of 2009, with a 23 percent sales increase over the period a year earlier. It earned $355 million before taxes last year, and $178 million in the first half of 2009.

The numbers are all the more impressive given the sales declines this year at the two biggest toymakers, Mattel and Hasbro.

“I was stunned when I heard how strong Lego’s performance was,” says Mr. McGowan, who has covered the toy industry for 23 years. “How could an $80 Lego set sell better than a $10 action figure?”

The answer is as multifaceted as one of Lego’s most complicated brick creations — and, like the best children’s stories, contains elements of luck, hard work and the loss of innocence.

SOREN HOLM looks down at the machine gun atop Indiana Jones’s jeep and winces. By the standards of video games like Grand Theft Auto and of other childhood attractions, it’s mild stuff.

But here in Billund, toy weapons have always been a touchy subject. “I can tell you there’s been a lot of debate about how far we can take it,” Mr. Holm says. Right down to Indy’s gun? “Oh, yes,” he says slowly. “Oh, yes.”

Since Lego overcame its initial hesitation about rolling out a “Star Wars” series a decade ago because the word “war” would appear on the box, the company has grown more comfortable with conflict.

“We’ve opened up slightly,” Mr. Holm says. After all, he adds, “when you give boys a bunch of bricks, they build a gun.”

In fact, Lego has opened up more than slightly. Whether it’s the Star Wars Assassin Droids Battle Pack or the Indiana Jones Ambush in Cairo set — featuring a pistol-wielding Indy against a scimitar-swinging local — many of Lego’s most popular toys today seem inspired by the special effects and violence of the big screen.

In the United States, Lego’s biggest market and the biggest toy market in the world, games with themes like “Star Wars” and “Indiana Jones” were among the reasons Lego sales jumped 32 percent last year, well above the global pace. But experts like Dr. Jonathan Sinowitz, a New York psychologist who also runs a psychological services company, Diagnostics, wonders at what price these sales come.

“What Lego loses is what makes it so special,” he says. “When you have a less structured, less themed set, kids have the ability to start from scratch. When you have kids playing out Indiana Jones, they’re playing out Hollywood’s imagination, not their own.”

Even toy analysts who admire the company and its recent success acknowledge a broad shift. “I would like to see more open-ended play like when we were kids,” says Gerrick Johnson, a toy analyst at BMO Capital Markets in New York. “The vast majority is theme-based, and when you go into Toys “R” Us, you’d really be challenged to find a simple box of bricks.”

Lutz Muller, an independent toy analyst in Williston, Vt., who has long followed the industry, estimates that 60 percent of Lego’s American sales are linked to licenses, double the amount five years ago.

And the coming “Toy Story” sets have retailers salivating, as Disney prepares to release the latest movie in the hit series next June. “ ‘Toy Story’ is a fit made in heaven,” raves Jerry Storch, the chief executive of Toys “R” Us, which has increased the shelf space allotted to Lego in recent years.

Nevertheless, acquiring licenses to make toys linked to hot Hollywood properties like “Toy Story” carries risks. “It’s a slippery slope,” Mr. Johnson says, and today’s hit can quickly turn into tomorrow’s dud, adding volatility that Lego never faced in the past.

Indeed, unlike the Cabbage Patch Kids or Atari or the Beanie Babies, it was Lego’s seeming aloofness from the market that helped it endure, rather than ending up in the back of the closet like those toys of yesteryear.

For longtime Lego executives like Mr. Laursen, it’s a delicate issue, and his own comments echo Lego’s ambivalence over creativity and hallowed Lego traditions versus the appeal of more profitable, Hollywood-influenced toys.

He says that “we’re definitely more commercially oriented” and notes that licenses play a bigger role in the American market than overseas. But he says that “we’ve never sacrificed our values, and have never been a fundamentally profit-oriented company.”

In fact, he says that there is often a long debate about values when acquiring new licenses, and that “we’re far from always agreeing to take on new ones.” He won’t specify which movies or themes Lego has passed on, but says that “there are many licenses out there that represent a level of violence that is not suited to Lego and doesn’t fit with the trust of parents.”

As Lego ventures deeper into video games and virtual reality with Lego Universe, the question of violence, not to mention commercial temptations, will become only more charged.

One answer, Mr. Laursen says, is to make “violence not explicit, but humoristic.” For example, when a minifigure “dies” in a “Star Wars” or “Indiana Jones” video game, he dissolves into a pile of bricks and then springs back to life, cartoon style.

“We think kids really want to have this good-against-evil play; they want this fighting against each other,” says Charlotte Simonsen, a Lego spokeswoman. “But we want to do it with a wink.”

Analysts add that the recession has proved to be an unexpected boon for Lego, as parents favor spending more time at home with traditional toys instead of going out to the movies or taking trips with the children.

Even parents who won’t let video games in the house, like Alyson Richman Gordon of Huntington Bay, N.Y., say Lego has retained its innocence, especially when it comes to toys built around the traditional bricks. “It echoes back to a bygone era,” she said. “And I find as a parent that I’m drawn to things from my own childhood that inspired my creativity.”

Lester Munson, a father of two in Alexandria, Va., agrees, even though he sees a difference between the Legos of his own childhood and those favored by his 8-year-old son, Jonas. “The most exotic thing I could build when I was a kid was an ambulance,” he says. “Now Jonas can build the Death Star.”

“I still like Legos, and I’m 41,” he says. “Instead of watching TV or playing computer games, the kids are building something, and Jonas and I will build stuff together. The pieces and the sets are a lot cooler than they were 30 years ago, and if the price you have to pay is these tie-ins, that’s fine.”

IT’S not only children who fight over toys. John Barbour, a former top executive of Toys “R” Us, recalls “a series of truly frustrating meetings” with Lego officials in Billund and New York at the beginning of the decade, which climaxed when Mr. Barbour bluntly told them that Toys “R” Us cared more about the Lego brand than they did.

The most popular toys would run out, he recalls, and Lego was simply unable to ship more or manage the complex process of producing the plastic pieces for its most complicated sets.

That began to change in 2004, after Mr. Knudstorp took over in Billund and Mr. Laursen arrived at Lego’s regional headquarters in Enfield, Conn. Besides reaching out to top retailers and cutting costs, they untangled a supply chain that churns out 29 billion pieces a year.

The changes also filtered down to the ranks of Lego’s toy designers, says Paal Smith-Meyer, head of Lego’s new-business group. The number of different bricks or elements that go into Lego toys has shrunk to less than 7,000 from roughly 13,000, and designers are encouraged to reuse parts, so that a piece of an X-wing fighter from the “Star Wars” series might end up in Indiana Jones’s jeep or a pirate ship.

That’s very different from when Mr. Meyer joined Lego a decade ago. Though creating a mold to make a new plastic element might cost 50,000 euros. on average, he recalls that 90 percent of new elements were developed and used just one time.

Nowadays, Mr. Meyer says, “you have to design for Lego. If you want to design for yourself, go be an artist.”

For those would-be Lego artists out there, the company has created a Lego Certified Professional program, selecting adult Lego enthusiasts who don’t work directly for the company but whose creations are aimed at Lego’s vast population of adult fans as well as museum and gallery shows.

It’s part of another broad new effort at Lego — reaching out to those adult fans, who maintain thousands of Web sites and blogs, like GodBricks, which features Lego creations inspired by different faiths, and the Brothers Brick, which showcases all things Lego, whether a life-size Lego house, news, or advice on how to shine up yellowing bricks (hydrogen peroxide).

“There’s a huge community of people that treat Lego as an art form rather than just a toy,” says Andrew Becraft, a technical writer at Microsoft who created the Brothers Brick blog. His site pulls in 125,000 unique visitors a month, and Lego officials estimate that 915,000 people worldwide attended Lego conventions and other events in the first seven months of 2009. Five to 10 percent of Lego toys are snapped up by adults.

In the past, Mr. Knudstorp says, “we considered the adult fans like vintage cars, a bit bizarre.” But he called on another longtime Lego executive, Tormod Askildsen, to work with adult fans. Now Mr. Askildsen journeys to Lego conventions organized by adult enthusiasts, while working with 44 Lego “ambassadors” from 27 countries, seeking advice about new toys and heading off public anger when older lines, like Lego’s 9-volt train sets, are phased out.

Ultimately, Lego came up with a new, profitable train set, after inviting the 9-volt enthusiasts to two workshops in Billund to brainstorm and help design it. “If you rock the boat, people will notice,” Mr. Askildsen notes. “They were fighting furiously for us not to give it up, but we were able to turn tension into opportunity.”

The same might be said for Lego as a whole, as it navigates the fiercely competitive toy market and ventures into movies and virtual reality while clinging as best it can to the more innocent, Scandinavian values that made it so popular in the first place.

“In the end, you’ve got to go where your consumer is going,” Mr. Barbour says. “And the reality is that themes and movies are what kids want. There’s no point in developing the best product in the world if you can’t put it on the shelf.”