Lego cemented its status as a vaunted turnaround story with the success of the “Lego” movies which – fun fact – were produced by Treasury Secretary Steve Mnuchin.
But after nearly a decade of expansion, the company announced Tuesday that it will be cutting 1,400 jobs as it 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 cuts, the company’s first in 10 years, would be tantamount to letting 8% of its workforce go. The move came after Europe’s largest toymaker said Tuesday that sales in the first half fell 5 percent 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.”
According to Bloomberg, Lego is suffering its biggest crisis since 2003 and 2004, when the maker of colorful plastic bricks reported record losses. After a turnaround led by Knudstorp that transformed the struggling brand into the world’s most-profitable toymaker, sales have slumped anew as children spend more time on digital devices. Predictably, the shift has created tumult in the C-suite amid rapid executive turnover.
The company, which is controlled by the family of Danish billionaire Kirk Kristiansen, 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 has said he’s taking responsibility for creating an organization with “too many layers and overlapping functions,” a move that prevented the company from realizing its “growth potential.”
Retailers have started to complain about the weak Lego sales, which are 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.
According to Bloomberg, Knudstorp declined to comment on the performance of the Lego Batman products, though he said they made “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,” he said. Knudstorp said brands that Lego invented, including Lego City, Lego Friends, Lego Duplo and Lego Technic, were the best performers in the period. Still, the company’s net income in the first half declined by 3 percent to 3.4 billion kroner.