What a difference a year makes. Following record-breaking revenue in 2016, The LEGO Group has announced a major company downsize that will affect approximately 1,400 jobs.
The move is a result of a 5% revenue decline in the first half of 2017. Revenue fell to US$2.4 billion (DKK 14.9 billion) versus US$2.5 billion (DKK 15.7 billion) in the same period a year ago. The decline was felt the most in the company’s established US and European markets. The emerging Chinese market, however, continues to grow for LEGO, with revenue rising by double digits.
LEGO also experienced a 6% decline in operating profit to US$70 million (DKK 4.4 billion) compared with US$75 million (DKK 4.7 billion) in the first half of 2016. The drop was attributed to lower revenue and higher costs associated with investments in production capacity and organizational capabilities made to support the company’s higher revenue expectations, which failed to materialize.
To address the declines, LEGO Group chairman Jørgen Vig Knudstorp has announced a simplified organizational structure that includes an inventory clean-up across LEGO’s entire value chain in select markets. As a consequence, around 8% of LEGO’s total global workforce will be cut, the majority before the end of the year.
LEGO, under its brand-new CEO Neils B. Christiansen, will look to rebound by focusing on play experiences that stimulate playful learning and encourage children to problem-solve, collaborate, discover and imagine. And to engage with more kids and parents, the company will look for ways to leverage how it blends physical building and digital experiences, similar to its successful LEGO Life social platform and LEGO Boost building and coding set.
Despite the company’s difficult year, its best-performing brands for the period include LEGO City, LEGO Friends, LEGO DUPLO, LEGO Technic and products based on The LEGO Batman Movie.