Privately held The LEGO Group announced plans to axe 1,400 jobs, or about eight percent of its global workforce, after revealing that sales have fallen for the first time in a decade.
The Danish toymaker said revenue in the first six months of 2017 fell five percent to 14.9-billion kroner (US$2.4 billion). The decline was mainly a result of mixed results, with core markets such as the U.S. and parts of Europe declining, while in growing markets like China, revenue was up.
Profits, meanwhile, were down three percent year-over-year at 3.4 billion kroner (US$544,000).
“We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this,” said Jørgen Vig Knudstorp, chairman of The LEGO Group.
“We are working closely with our partners and we are confident that we have the long-term potential of reaching more children in our well-established markets in Europe and the United States. We also see strong growth opportunities in growing markets such as China.”
Management noted that over the past five years, The LEGO Group has built an increasingly complex business for the sake of supporting double-digit growth worldwide. As a result, the added complexity has made it more difficult for the company to continue growing. To that end, Knudstorp has said that they are now prepared, “to reset the company.”
“This means 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. It will also impact our costs,” he explained. “Finally, in some markets the reset entails addressing a clean-up of inventories across the entire value chain. The work is well under way.”
Resetting the company with a more streamlined approach translates into a reduction of the global workforce, with 1,400 positions to be jettisoned before the end of 2017. The job cuts will mostly affect administration and sales, not production. It was not said if or how many of those job losses would take place in the U.S.
“We are very sorry to make changes which may interfere with the lives of many of our colleagues,” said Knudstorp. “Our colleagues put so much passion into their work every day and we are deeply grateful for that. Unfortunately, it is essential for us to make these tough decisions.”
The reorganization falls at the feet of Niels B. Christiansen, the newly appointed chief executive officer, who will replace interim CEO Bali Padda. Christiansen will take the helm of The LEGO Group on October 1.
“LEGO Group Revenue Declined Five Percent In First Half of 2017,” The LEGO Group, September 5, 2017.