Jobs cuts at Lego Group are a ‘one-off, big move’, says Chairman

Key Points
  • Toymaker Lego announced plans to lay off 8 percent of its workforce as it reported a 5 percent fall in mid-year revenue.
  • Lego said it will cut approximately 1,400 positions, the majority of them before the end of 2017.
  • The company currently employs some 18,200 people.
Way we run the company has become too complicated: LEGO chairman
Way we run the company has become too complicated: LEGO chairman

World famous toy manufacturer Lego is set to cut its global workforce by eight percent in an attempt to simplify its business model, the Danish firm announced Tuesday. Despite the surprise announcement, the company's chairman however expects these layoffs to be a "one-off".

"We're very focused on making a smaller and more simple organization and also do a cleanup of our inventory positions in some markets. So ultimately for us that has been the aim and we will conclude all of that within this year," Jorgen Vig Knudstorp, chairman and former CEO of Lego Group told CNBC Tuesday.

"We will of course, this year and in future years, continue to be focused on our cost base and seek constant opportunities for optimization as we have done through the past 15 years."

"However, this is a sort of one-off, big move that really relates to 'do we operate in a simple way or as simple way as we should' and it is, what we're announcing today, is the totality of the effort addressing that problem."

At present, the Lego Group has approximately 18,200 people working for the company; however the toymaker expects to see most of the layoffs – a total of 1,400 positions – to take place by the end of the year.

The news of the layoffs come as the toymaker posted a five percent decline in revenue for the first half of 2017 – its first sales drop in more than a decade.

Here are some of the highlights:

  • Revenue fell 5 percent in the first half, to 14.9 billion Danish crowns ($2.38 billion), compared with 15.7 billion Danish crowns in H1 2016
  • Net profit came in at 3.4 billion Danish crowns, compared with 2016's H1 figure of 3.5 billion Danish crowns
  • Revenue declined in markets such as the U.S. and parts of Europe, while it grew double digit in places like China.
Lego to cut 8 percent of its staff as sales drop
Lego to cut 8 percent of its staff as sales drop

Commenting on the overall performance for the first half of 2017, the chairman explained how it wasn't the changing landscape of retail or media that was the key problem, but rather the business as a whole had become "too complicated".

"The way we do business, the way we do our marketing, the way we do our market management, but also how we run the whole administration of the company unfortunately has become too complicated as we've grown the company massively over the past 12 to 13 years."

"That's what's really hindering us in executing in a strong way – as we used to – and therefore we are finding it harder to grow in some of our very well penetrated and established markets."

'Person to blame for these poor outcomes is me'

Less than a month ago, the Lego Group announced that it was appointing a new chief executive, Niels B. Christiansen, just eight months after they appointed Bali Padda as the company's boss.

As market speculation emerged over the leadership change, Knudstorp – who was Lego's CEO for over a decade – said that the problems that the company needed to address was really his responsibility, rather than Padda's or anyone else's.

LEGO chairman: Person to blame for poor outcomes is me
LEGO chairman: Person to blame for poor outcomes is me

"Bali Padda came in in the past eight months and has prepared what we are announcing today. It's under his leadership that made these drastic decisions. I'm announcing it today, as I was the CEO for the prior 13 years and the fact that we have these problems that we need to address is really my responsibility."

"I feel 100 percent accountable for that, having created those problems over the earlier years. Bali has done a tremendous job of addressing that, he has completed that task."

Reflecting on the appointment of Danish industrialist Niels B. Christiansen, the chairman said the company was "very happy" to find somebody who could take a long-term view on the toy-making business and who was "appropriate" for the obstacles that the firm currently faces.

"Niels Christiansen is a very tenured, a very experienced CEO with an impeccable track record from running global businesses and we think he will be a great fit and do really well here. So we're actually satisfied with Bali's contribution."

"The person to blame for these poor outcomes is unfortunately me and I take full accountability for that today."