Danish toymaker to cut 1,400 staff, revamp business as decade-long sales boom ends

Lego said it would lay off eight percent of its staff and revamp its business after reporting its first fall in sales in more than a decade on Tuesday.

The report of a 5-percent decline in mid-year revenue came a month after Lego abruptly removed its chief executive, suggesting the company is facing its biggest test since flirting with bankruptcy in the early 2000s.

The Danish toymaker said it could not promise a return to growth in the next two years, a jolting acknowledgment for a group widely admired for embracing the digital era and tying up lucrative franchises from Harry Potter to Minecraft.

“We have now pressed the reset-button for the entire group,” executive chairman Jorgen Vig Knudstorp said, acknowledging the business had grown too complicated.

He would seek a return to a leaner and more efficient organization to respond to “losing momentum … which we think could ultimately lead to stagnation or even decline.”

Lego said revenues had disappointed in its core markets of the United States and Europe, after a decade of double-digit growth and launches spanning Lego sets, video games, movie franchises and smartphone applications.

Sales related to its Star Wars line declining slightly in the first half of the year, the company said.

It marked a sharp reversal for a company that managed to expand and respond to rising demand in Asia when Knudstorp was CEO, even as the global toy market shrank after the 2008 financial crisis.

Bali Padda tool over as chief executive in January, but the Briton was removed just eight months later and replaced by Danish industrialist Niels B. Christiansen.

Sales between January and June stood at 14.9 billion Danish crowns ($2.38 billion), still topping My Little Pony producer Hasbro Inc’s (HAS.O) sales of $1.82 billion and Barbie doll maker Mattel Inc’s (MAT.O) $1.71 billion.

Last year, revenue growth slowed from 25 percent in 2015 to just six percent.

Lego said it will cut approximately 1,400 positions – including up to 600 at its headquarter in Billund, Denmark – the majority of them before the end of 2017. The company currently employs some 18,200 people.

“We’ve been through a decade of very high growth and during those years we have invested a great deal,” Knudstorp said, noting that the company added more than 7,000 new positions between 2012 and 2016.

“What we have unfortunately recently seen is that despite the continued high level of investment, these have not materialized into a good harvest,” he said.

The unlisted company said in March that mid-single-digit growth rates were more realistic for the years to come, but those expectations were revised downward on Tuesday.

“We are not saying specifically whether we will grow the next two years or not,” Knudstorp said.