Lego is set to undergo an extensive staff cuts after its seeing the first drop in global sales for more than a decade. As much as 1,400 jobs will be affected before the end of 2017.
The Danish toy company said it was suffering from weaker demand in established markets such as the US and parts of Europe. It also admitted that the organisation had grown to be too complex over the past five years to support further global growth. While the decision to conduct immense layoffs of about 8 percent of its global workforce is a tough one, Lego saw the need for the company to press ‘the reset button’, The Guardian reports.
In an official statement, the chairman of the group Jørgen Vig Knudstorp said, “We are very sorry to make changes which may interfere with the lives of many of our colleagues. 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.”
Based in Billud, Denmark, Lego has five main office hubs in Billund, Enfield in the US, London, Singapore, and Shanghai. It also has factories in Mexico, Hungary, Czech Republic, China and Denmark.
Knudstorp said that despite growth opportunities in China in the first half of the year, Lego needs to address the falling sales in established markets of US and Europe. He also said that the business was having overly complex structure that resulted from rapid growth over the past five years. Owing to this circumstance, Knudstorp sees it harder for them to grow further.
“This means we will build a smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children. It will also impact our costs. Finally, in some markets the reset entails addressing a clean-up of inventories across the entire value chain. The work is well under way.”
Enjoying a decade of growth from franchise deals based on popular Hollywood films, Lego had over-extended its product offering, said Lou Ellerton, associate director at the brand consultancy Mash. Over recent years, Lego has tripled its workforce and more than tripled the number of lines they offer.
Meanwhile, considering today’s competitive business environment, there were similar but cheaper products out there that might not have famous-licensed names, but were essentially toy building blocks. Today’s parents are more conscious of the value of money they spend to purchase toys, Ellerton continued.
Frederique Tutt, a global toy industry analyst at the consumer research group NPD, said that despite the sales slumo, Lego remains the number one manufacturer in terms of toy sales in Europe and in the UK in 2017 so far.
“Lego’s pole position with toy buyers is proof of its universal appeal,” Tutt said. “The brand has innovated year after year and built up a loyal fan base, enabling it to compete effectively in a thriving toy market.”