Lego plans to cut 1,400 jobs as the Danish toymaker struggles with weak demand for a new line of "Batman" play sets that's contributing to its worst downturn in more than a decade.
The company said it would reduce its workforce by 8% after a decade of rapid expansion more than doubled it to the current level of about 18,200. The move came after Europe's largest toymaker said Tuesday that sales in the first half fell 5% to 14.9 billion kroner.
"We're losing momentum and we're losing productivity," Chairman Jorgen Vig Knudstorp said on a conference call. "We have built an increasingly complex organization. This could ultimately lead to stagnation or decline."
The sales decline and job cuts deepen the Billund, Denmark-based company's biggest crisis since 2003 and 2004, when the maker of colorful plastic bricks reported record losses.
The downturn is ominous for any analog brand hoping to become a new growth story in a reshaped media and tech environment, not least because Lego seemed to have pulled it off so well. After a turnaround led by Knudstorp that turned Lego into the world's most profitable toymaker, sales have slumped anew as children spend more time on digital alternatives, prompting rapid turnover in the executive suite.
Lego, which is controlled by the Danish billionaire Kirk Kristiansen family, promoted Chief Operations Officer Bali Padda to succeed Knudstorp as CEO as of Jan. 1, but said last month that he'll be replaced Oct. 1 with Niels B. Christiansen, the former boss of Danish engineering giant Danfoss A/S. Knudstorp said Tuesday he's taking responsibility for creating an organization with "too many layers and overlapping functions," so that the company "can't realize its growth potential."
Retailers have also pointed to the sagging appeal of Lego products. In June, Toys R Us CEO David Brandon said the Danish toymaker's sales were suffering from "significant weakness in demand." "The Lego Batman Movie," an animated film featuring the superhero and the company's bricks, hasn't generated the toy sales that Toys R Us or Lego expected, he said.
The second spin-off from the original "Lego Movie," "The Lego Ninjago Movie," comes out later this month.
Knudstorp declined to comment on the performance of the Lego Batman products, except that they had "a positive contribution" to first-half results. Lego's Star Wars product line "remains one of our top categories globally, but it has slightly declined for us this year," the chairman said.
Knudstorp said brands that Lego invented, including Lego City, Lego Friends, Lego Duplo and Lego Technic, were the best performers in the period. Nonetheless, net income in the first half declined by 3% to 3.4 billion kroner.
-- Bloomberg News