In an interview, the chairman of Lego, Jorgen Vig Knudstorp, said it would take about two years for the business to return to growth, and he said that the job cuts, which equate to around 8 percent of the company’s total work force, were necessary because Lego had become an unwieldy operation.
“A bit of bureaucracy has sneaked into what was quite an entrepreneurial organization,” he said. “It has crept in on us and we want to root it out.”
Mr. Knudstorp added in a statement on the company’s website that the “reset” was necessary because the “added complexity” of the organization had made it harder for it to grow. The cuts will be made by the end of the year, the company said.
Lego had pulled itself out of a slump more than 10 years ago with an overhaul of the company. Since then, it has been growing apace, but its popularity has long been built off its classic collections, like the Lego City, Duplo and Technic lines.
As the company has faced increased competition from other construction toy makers like Mega Brands, as well as a wider array of entertainment available for children, it has sought to sign licensing deals and other agreements to attract new forms of revenue.
The company now has deals to produce a range of licensed products, including brands like Harry Potter and Star Wars, and has had impressive success with its efforts in the film industry in a partnership with Warner Bros. Entertainment. “The Lego Movie” was a surprise hit in 2014, collecting $469.2 million from a film that cost $60 million to make, but this year’s follow-up, “The Lego Batman Movie,” was less successful, earning $311.8 million. The company is gearing up for a third film, “The Lego Ninjago Movie,” which will be released this month.
Analysts, however, had warned that the company’s ambitions in the film industry and its hopes of profiting from the associated merchandise could end up hurting it, partly because children do not make emotional attachments to characters in a market that is so oversaturated with movie-related toys.
And when children do go shopping for toys, Lego often misses out on impulse buys, said Lutz Muller, an analyst focused on toys at Klosters Trading Corporation. “The buyers have a fixed amount of shelf space,” Mr. Muller said. “They say to Lego, ‘You already have all this shelf space in the construction aisle, we can’t give you more shelf space in the action figure aisle.’”
Lego’s more established markets were expected to run out of steam eventually, said Matthew Hudak, senior toys and games analyst at Euromonitor International, a market researcher. And Lego will still have to grapple with mobile devices becoming a much bigger competitor for the attention of a demographic that can be fickle in its tastes, he said.
The key will be to make sure that whatever children are doing on their mobile devices has some link to the toys being sold by Lego. “At the end of the day, they still have to try and keep themselves within the popular licenses,” Mr. Hudak said. “All companies are competing with smartphones. So it’s about partnering with the right ones.”
Lego has also tried to lean heavily on faster growth in China, expanding its office in Shanghai to 200 employees this year, up from 80 in 2014.
“In a market like China, where there’s an emerging middle class that’s becoming urbanized, moving into cities, it presents a growth opportunity,” Mr. Knudstorp said.
That has come as toy sales in Europe have fallen off — from $45 billion in 2014 to $40.5 billion last year — while sales in the Asia-Pacific region grew to $65 billion in that same period, from $57 billion, according to Euromonitor.
The company has done well marketing its products as educational tools, said Mr. Hudak, and tapping into the aspirations that middle-class parents in China have for their children. Lego sells a range of learning products, including its latest robotics kit, Lego Boost, which is intended to teach coding to children ages 7 to 12. “Parents are starting to afford this more and they’re using toys as more developmental tools,” Mr. Hudak said.