DANISH TOYMAKER LEGO, known for its iconic coloured plastic bricks, has said that it would cut 8% of its global workforce after a drop in sales in the US and Europe.
The company recorded a 5% decline in turnover in the first half of the year to 14.9 billion kroner (€2 billion), with net profit down by 3%.
The privately held Danish firm has said that it “now prepares to reset the company,” with a new CEO due to take over in October.
“We will build a smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children,” said Chairman Joergen Vig Knudstorp.
It is expected to cut 1,400 jobs.
Revenue drop
Revenue dropped 5% in the first six months of the year, to 14.9 billion kroner (€2.01 billion), mainly as a result of weaker demand in key markets like the US and Europe, where sales had risen strongly for years. Profits slipped 3% to 3.4 billion kroner (€456 million).
Classic toy lines, such as Lego City, did well, as did products associated with The Lego Batman Movie.
But revenue in other lines did not do as well, with investments in some new products not yielding the desired benefits.
Analysts said that while the revenue drop was disappointing, it had to come at some point after years of growth.
“You hit a peak,” said Jim Silver, the CEO and editor in chief of toy review site TTPM.
“Nothing keeps going up like that.”
Silver said the company grew rapidly as it launched new products, such as its Lego Friends line aimed at girls. The Lego Movie, which was released three years ago, helped, too.
Looking ahead, Silver said Lego has some bright spots: Its Star Wars sets are selling well.
But the traditional toy industry is as a whole coming off a strong few years driven by innovation and a boom in interest in collectables.
Long-term aim
Vig Knudstorp said the long-term aim is to get sales growing again in Europe and the US and noted opportunities “in growing markets such as China”, where sales were up by double digits so far this year.
The company, he said, needs to simplify its business model to reduce costs. Especially since 2012, the group has been adding new businesses as it embarked on ventures like films.
“We have added complexity to the organization which now, in turn, makes it harder for us to grow further,” Vig Knudstorp said.
He said that while Lego will try to engage kids and parents through online products, such as digital social platforms and coding sets, the physical plastic toy blocks remain the focus.
“The brick is the heart of our business,” Vig Knudstorp said.
He told Denmark’s TV2 station that staff cuts would mainly affect administration and sales, not production.
Last month, the maker of the famous coloured building blocks appointed Niels B Christiansen, who headed thermostat-maker Danfoss for nine years, as its chief executive to replace interim CEO Bali Padda Christiansen will start on 1 October.
Lego, which currently has 18,200 employees, does not release quarterly figures.
With reporting by AFP
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