Lego sales drop for first time in 13 years. The plan: Cut jobs and ‘reset the company’ – Los Angeles Times
Lego has decided it’s time to break down the blocks and start again.
After using new ventures such as films and new toy lines to build up sales since a near-bankruptcy in 2004, the company seems to have hit a peak. Its sales are now falling for the first time in 13 years, and it says it needs to simplify its operations.
That means cutting 1,400 jobs, or 8% of its global workforce.
The privately held Danish firm said Tuesday that it is preparing “to reset the company,” with a new chief executive due to take over in October.
“We will build a smaller and less complex organization than we have today, which will simplify our business model in order to reach more children,” Chairman Joergen Vig Knudstorp said.
Revenue dropped 5% in the first six months of the year to $2.4 billion, mainly as a result of weaker demand in key markets such as the U.S. and Europe, where sales had risen strongly for years. Profit slipped 3% to $544 million.
Classic toy lines, such as “Lego City,” did well, as did products associated with “The Lego Batman Movie.” Plus, the company receives licensing fees from the popular Warner Bros. films and video games that bear its name.
But revenue in other toy lines did not do as well, with investments in some new products not yielding the desired benefits.
Analysts said that although the revenue drop was disappointing, it had to happen at some point.
“You hit a peak,” said Jim Silver, the chief executive 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, and a September movie based on its “Ninjago” line could have kids asking for Legos.
Vig Knudstorp said that the long-term aim is to get sales growing again in Europe and the United States and that there were strong opportunities “in growing markets such as China.”
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 such as films.
“We have added complexity into the organization, which now in turn makes it harder for us to grow further,” Vig Knudstorp said.
He said that although 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 key.
“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 colored 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 Oct. 1.
Lego, which currently has 18,200 employees, does not release quarterly figures.
9:15 a.m.: This article was updated throughout with additional details.
This article was originally published at 5:45 a.m.