Lego to cut 1,400 jobs and "reset company" amid sales drop

Danish toy maker Lego says it'll rebuild itself as a smaller organization amid slumping sales. 

The company plans to cut 1,400 jobs, or about eight percent of its global workforce, after reporting a decline in sales and profits in the first half of 2017.

The privately held company said Tuesday that its revenue dropped 5 percent to 14.9 billion kroner ($2.4 billion) in the first six months of the year, mainly as a result of weakness in established markets like the U.S. and Europe. Profits slipped 3 percent to 3.4 billion kroner ($544,000). The sales decline marks its first downturn in 13 years, according to The Wall Street Journal. 

It said it "now prepares to reset the company." The company, which employs about 18,200 people, said most of the job cuts would take place before year-end. Lego reiterated its goal to encourage creative play in children, and said it will work to find ways to blend digital and physical toys. The sales decline comes at a time when the toy maker is increasingly competing for children's attention with digital games on smartphones and other devices. 

"We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this," said Chairman Joergen Vig Knudstorp.

He said the long-term aim is to reach "more children in our well-established markets in Europe and the United States," and added there were "strong growth opportunities in growing markets such as China."

The company, he said, needs to simplify its business model to reduce its costs. Since 2012, the group has built an increasingly complex organization to support global double-digit growth. However, "in the process, we have added complexity into the organization which now in turn makes it harder for us to grow further," Vig Knudstorp said.

He told Denmark's TV2 that staff cuts would mainly affect administration and sales, not production.

Last month, the maker of the famous colored building blocks appointed Niels B. Christiansen, who headed thermostat-maker Danfoss for nine years, as its chief executive to replace interim British CEO Bali Padda. Christiansen will start Oct. 1. Based in western Denmark, Lego does not release quarterly figures. 

"We will find more opportunities to engage with kids and parents including innovative ways to blend physical building and digital experiences, such as our successful Lego Life social platform and Lego Boost building and coding set," Knudstorp said.