Lego A/S said sales of its plastic toy bricks slowed sharply in the first half of the year, marking its first revenue decline in 13 years and triggering plans for 1,400 job cuts.
The Billund, Denmark based toy maker said half-year sales fell 5% from the year-ago period, after a big marketing push to bolster growth in large but mature markets like the U.S. failed to bear fruit. Like rival Mattel Inc., the privately held company is grappling with competition from smartphone apps and videogames. While it has been modernizing its toys for the digital age--including rolling out programmable robots--sales growth for its bedrock brick toy sets has waned.
"We are simply not executing well enough on our activities across the business, on product development, marketing, sales," said Lego Brand Group Chairman Jørgen Vig Knudstorp. Lego Brand oversees the Kirk Kristiansen family's 75% stake in Lego, as well as interests in Legoland theme parks and an education business.
The disappointing six months is the latest setback amid a bumpy corporate restructuring effort at Lego aimed at coping with the rapid shift in toy buyers' tastes. That included the surprise decision last month to replace the company's current chief executive--who has been in the job just a little over eight months.
Mr. Knudstorp said the company needed to slim down to cope with what he described as a new normal of slower growth. He said Lego's structure was built for the double-digit sales growth it enjoyed for much of the last decade.
The structure is now overly complex, he told journalists Tuesday. That makes it tough to implement marketing strategies and has slowed the company's ability to react to new trends. In an interview, he said a new product currently goes through an average 20 different teams before being ready for global launch. He said the heft also made it difficult to connect with retailers.
"The car has gone off road and landed in a ditch and now we have to pull it out and get it back up to speed again," he said.
Mr. Knudstorp, who served as CEO from 2004 until the end of 2016, acknowledged his share of the blame for the recent trouble. A former kindergarten teacher and McKinsey consultant, Mr. Knudstorp was the first person outside Lego's controlling family to lead the company. He took over after Lego sales had slowed sharply and heavy debt threatened bankruptcy.
He refocused the company on its iconic brick sets, and scaled back on the array of watches, clothing, dolls and other merchandise the company had rolled out. Initially, he also cut jobs, outsourced manufacturing and simplified the company's management structure.
More recently, though, he boosted staff to keep up with booming demand--and the expectation it would continue to boom. Between 2012 and 2016, Lego added 7,000 new employees, he said. "This investment has not materialized into a good harvest," he said.
To pivot this time around, he said Lego will cut about 8% of its 18,200 workforce by the end of the year. Between 450 and 600 of the cuts will come from its headquarters in Billund. The company will also simplify its management structure and reporting lines.
The recent travails are in contrast to Lego's go-go growth around the world earlier this decade. Sales have been bolstered by a bevy of movie-themed toy sets and licensing revenue tied to popular films, as well as strong sales in mature markets like the U.S. and Europe and new markets like China. Riding that wave, Lego has challenged Barbie-maker Mattel for the title of world's largest toy maker by sales.
Despite that run, Lego's revenue growth has been slowing since 2015, after demand for its bricks slowed. On Tuesday, the toy maker said revenue for the six months to June 30 fell to 14.9 billion Danish kroner ($2.38 billion) from 15.7 billion kroner.
The results present a big challenge for incoming CEO Niels B. Christiansen, who Lego last month appointed to the top job. Mr. Christiansen, 51-year-old, is the former boss of Danish industrial group Danfoss A/S. He will replace current Chief Executive Bali Padda next month. (oct)
During his nine years heading Danfoss, Mr. Christiansen is credited with making operations more efficient and agile, investing in research and development and digital capabilities, and boosting sales organically and through acquisitions. (Mr. Christiansen isn't related to Lego's controlling Kristiansen family.)
Lego traces its roots to 1932 when a Danish carpenter began making wooden toys in his workshop in Billund. The company remains in family hands, with a 75% stake currently controlled by Kjeld Kirk Kristiansen, a grandchild of the founder.