The Lego brand of interlocking building blocks has long been a family favorite but despite being quite the household name, the Danish toy company has announced plans to cut 1,400 jobs as a result of a long, rare decline in sales and profits through the first half of 2017. This is about 8 percent of the workforce.
The still privately held company holds strong, though, saying that a new CEO will help to prepare a reset for the company. With revenues down 5 percent—to 14.9 billion kroner (approximately $2.4 billion)—in the first part of the year, it is obvious that weakness in the core US and Europe markets is likely to continue.
In light of the announcement, Chairman Joergen Vig Knudstorp comments, “We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this. We are simply not executing well enough on our activities across the business, on product development, marketing, sales.”
He goes on to say that the long-term focus, of course, will be to reach more children in these core markets as well as add new focus on “strong growth opportunities in growing markets such as China.”
To accomplish this, then, the company also said it will need to simplify its business model as a foundation for cutting costs. Vig Knudstorp comments that the company has been getting more and more complex since 2012, as an effort to support double digit growth in the global market.
“In the process,” he says, “we have added complexity into the organization which now in turn makes it harder for us to grow further.”
Knudstorp served as CEO for Lego between 2004 and the end of 2016. A former kindergarten teacher and consultant for MCKinsey, Knudstorp is actually the first person not within the controlling family to take the helm of the company. Indeed, he took over after Lego sales already started the sharp slowing and the company took on more debt (to the point of near bankruptcy). Acknowledging his own responsibility, Knudstorp tried to simplify the product line by stepping back from periphary merchandise (branded clothing, movie franchise, etc) and focus on the core product: the plastic block.
2017 First Half Financial Highlights (compared to first half 2016)
- Revenue down 5 percent to DKK 14.9 billion compared with DKK 15.7 billion
- Operating profit down 6 percent to DKK 4.4 billion compared with DKK 4.7 billion
- Net profit down 3 percent at DKK 3.4 billion compared with DKK 3.5 billion
- Cash flow from operating activities was DKK 4.6 billion compared with DKK 3.9 billion