Lego to cut 1,400 staff as decade-long sales boom ends
Lego to cut 1,400 staff as decade-long sales boom ends
The Danish toymaker announced a 5-percent decline in mid-year revenue a month after abruptly removing its chief executive, suggesting it is facing its biggest test since flirting with bankruptcy in the early 2000s.
Lego said it could not promise a return to growth in the next two years, a jolting acknowledgement 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, robotics and smartphone applications.
Sales related to its Star Wars line declined 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.
Knudstorp, took the top job aged 35 in 2004, a year after Lego flirted with bankruptcy, and set about reviving Lego’s core business. That included firing consultants and hiring new designers to come up with higher-margin products that were up to date but still looked like Lego, an abbreviation of the Danish “leg godt,” meaning “play well.”
Bali Padda took over as chief executive in January, but the Briton was removed just eight months later and replaced by Danish industrialist Niels B. Christiansen.
“I am very much accountable for the situation and for the results we’re sharing today,” Knudstorp said.
Sales between January and June stood at 14.9 billion Danish crowns ($2.38 billion), still topping My Little Pony producer Hasbro Inc’s sales of $1.82 billion and Barbie doll maker Mattel Inc’s $1.71 billion.
Last year, revenue growth slowed from 25 percent in 2015 to just six percent.
Lego said it would 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 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.
“We have now realized that we have built an increasingly complex organization to a degree that makes it difficult for us to realize our growth potential,” he added.
“What we have unfortunately recently seen is that despite the continued high level of investment, these have not materialized into a good harvest.”
The unlisted company said in March that mid-single-digit growth rates were more realistic for the years to come, but revised those expectations downward on Tuesday.
“We are not saying specifically whether we will grow the next two years or not,” Knudstorp said.
EU to respond to any US auto tariff move: report
- Trump threatened to impose 20 percent tariff
- Shares in carmakers slip on trade war fears
PARIS: The European Union will respond to any US move to raise tariffs on cars made in the bloc, a senior European Commission official said, the latest comments in an escalating trade row.
US President Donald Trump on Friday threatened to impose a 20 percent tariff on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.
“If they decide to raise their import tariffs, we’ll have no choice, again, but to react,” EU Commission Vice President Jyrki Katainen told French newspaper Le Monde.
“We don’t want to fight (over trade) in public via Twitter. We should end the escalation,” he said in the comments published on Saturday.
The European Autos Stocks Index fell on Friday after Trump’s tariff threat. Shares US carmakers Ford Motor Co. and General Motors Co. also dropped.
“If these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US Build them here!” Trump tweeted.
The US Commerce Department has a deadline of February 2019 to investigate whether imports of automobiles and auto parts pose a risk to US national security.
US Commerce Secretary Wilbur Ross said on Thursday the department aimed to wrap up the probe by late July or August. The Commerce Department plans to hold two days of public comments in July on its investigation of auto imports.
Trump has repeatedly singled out German auto imports to the United States for criticism.
Trump told carmakers at a meeting in the White House on May 11 that he was planning to impose tariffs of 20 or 25 percent on some imported vehicles and sharply criticized Germany’s automotive trade surplus with the United States.
The United States currently imposes a 2.5 percent tariff on imported passenger cars from the EU and a 25 percent tariff on imported pickup trucks. The EU imposes a 10 percent tariff on imported US cars.
The tariff proposal has drawn sharp condemnation from Republican lawmakers and business groups. A group representing major US and foreign automakers has said it is “confident that vehicle imports do not pose a national security risk.”
The US Chamber of Commerce said US auto production had doubled over the past decade, and said tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”
German automakers Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States. BMW is one of South Carolina’s largest employers, with more than 9,000 workers in the state.
The United States in 2017 accounted for about 15 percent of worldwide Mercedes-Benz and BMW brand sales. It accounts for 5 percent of Volkswagen’s VW brand sales and 12 percent of its Audi brand sales.