COPENHAGEN: Danish toy maker Lego, known for its iconic coloured plastic bricks, said on Tuesday that it would cut eight percent of its global workforce after a drop in sales in the US and Europe.
The company recorded a five percent decline in turnover in the first half of the year to 14.9 billion kroner (2.0 billion euros, $2.3 billion), with net profit down by three percent to 3.4 billion.
Operating profit fell by six percent to 4.4 billion kroner due to “lower revenues and increased costs”.
The world-renowned brand has strongly diversified in recent years, moving into areas such as video games, a hit movie that will have several sequels, cartoons and Legoland amusement parks.
“In the process, we have added complexity into the organisation which now in turn makes it harder for us to grow further,” Lego chairman Jorgen Vig Knudstorp said in a statement.
The company would be turned into a “smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children,” he added.
However, this would mean slashing 1,400 jobs around the world before the end of 2017. Lego currently employs around 18,200 people.
Lego’s announcement comes only months after it in March posted record revenues in 2016 which jumped by six percent from 2015 to 37.9 billion kroner, for a net profit up two percent to 9.4 billion.
And according to this year’s report by Brand Finance, a global and independent business strategy consultancy, Lego is “the world’s strongest brand”, especially with the “both critical and commercial successes” of The Lego Movie (2014) and the Lego Batman Movie (2017).
Niels Lunde, chief editor at the Danish business daily Borsen, said Lego’s speedy growth has made it fall into a “classic trap”.
“Lego has been growing very fast for 12 years and when a company grows so fast, it has a tendency to develop a complex bureaucracy, slow decision-making and a distance from customers,” Lunde told AFP.
The company said its revenue dropped in established markets such as United States and Europe, but grew by double digits in China, where it says it sees “strong growth opportunities”.
“We are very sorry to make changes which may interfere with the lives of many of our colleagues,” Knudstorp said.
“Unfortunately, it is essential for us to make these tough decisions,” Knudstorp said.
Lego said it would provide the sacked colleagues “support in transitioning to new positions or new opportunities outside” the group.
The brand announced on August 10 that it had appointed a new CEO to replace Briton Bali Padda, who held the job for just eight months.
Niels Christiansen, 51, most recently the head of industrial technology company Danfoss, will take over the position on October 1.
Lego’s colourful toy blocks have proved resilient to the rise of digital devices which is battering the traditional toy industry, but the company has also been adept at using different channels to engage with children.