World famous toymaker LEGO is slated to cut its global workforce by 8% to simplify its business model, the Danish firm announced. The global toy giant currently employs some 18,200 people, and is expected to cut 1,400 jobs before the end of 2017.
In Singapore, the company has an estimated 300 employees. Meanwhile it has a small team of about less than 50 staff in Malaysia. Marketing has reached out to both LEGO Singapore and Malaysia for further comments on how this latest announcement would affect the regional staff movement. Sources close to Marketing said the job cuts are going to roll out in phases, in a bid to simplify the business and is a part of a global alignment.
In fact, most recently, LEGO moved its chief commercial officer Loren I. Shuster from its Asia Pacific (APAC) office in Singapore to London. Shuster (pictured) will take on a whole new role as LEGO's chief people officer from November 2017 onwards. Prior to LEGO, Shuster was Google's managing director of brand solutions for APAC. He was also the country director for Google Singapore and emerging markets since 2011.
With Shuster's new role well underway, each of the regional head from APAC, China, United States and European markets will also now report directly to its new CEO Niels B. Christiansen. According to the group, this latest management shake-up is largely aimed at streamlining and reducing red tapes on reporting lines, as well as regaining momentum within the company.
Meanwhile, in a press statement LEGO said it would also provide the affected staff members with redundancy packages which reflect their service to the organisation, including support in transitioning to new positions or new opportunities outside of the group.
“We are very sorry to make changes which may interfere with the lives of many of our colleagues. Our colleagues put so much passion into their work every day and we are deeply grateful for that. Unfortunately, it is essential for us to make these tough decisions,” LEGO group chairman Jørgen Vig Knudstorp, said.
The news of the job cuts come as the toymaker reported a 5% decline to DKK$14.9 billion (US$2.38 billion) in revenue on-year for the first half of 2017, also its first sales drop in more than a decade. Operating profit was DKK$4.4 billion, down 6% compared with the same period in 2016. This was due to lower revenue and increased costs associated with investments in production capacity and organisational capabilities made to support higher expectations of revenue which failed to materialise, LEGO said in a press statement.
Banking on the rising Chinese and Asian toy markets
Despite the revenue decline in its established markets such as the US and in parts of Europe, revenue of its growing markets such as China has grown by double digits.
"We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this [...] We are working closely with our partners and we are confident that we have the long-term potential of reaching more children in our well-established markets in Europe and the US. We also see strong growth opportunities in growing markets such as China,” Knudstorp said.
During the first half of the year, some of its best-performing themes were homegrown classics such as LEGO City, LEGO Friends, LEGO DUPLO and LEGO Technic, while the LEGO Batman movie products also saw a great response from consumers.
Meanwhile, a latest report by Euromonitor International published in June 2017 also pointed out that Asia Pacific overtook Western Europe in 2014 to become the second largest region for traditional toys and games sales globally. This was spurred on largely by China, which has seen a rapid increase in traditional toy purchases as incomes have risen, and parents have started to view traditional toys as an important tool in child development.
Its report also cites that China will continue to lead the region's toy growth, as the recent end to the one child policy increases child population growth and toy demand. Interestingly, it also points out that the top players within traditional toys and games are generally gaining market share in the region, in particular Mattel and LEGO.
Hitting the reset button
Meanwhile LEGO said it now recognises the increasingly complex organisation has "made it harder" for the group to grow.
"As a result, we have now pressed the reset-button for the entire group. This means we will build a smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children. It will also impact our costs," Knudstorp said. In some markets, the reset entails addressing a clean-up of inventories across the entire value chain, and the work is well in progress.
The group also said that "pressing the reset button is one of two elements". The second element is how to return to growth. Thus, it is doing this by exploring adjustments to its successful formula for product development and marketing, in order to achieve its ambition to reach more children around the world with LEGO play experiences that stimulate playful learning.
Knudstorp said: “We believe our most important contribution to society is through creative LEGO play experiences, as play is critical for children’s learning and development [...] 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. We have a powerful and loved global brand, a strong business and are confident we can reach more children around the world.”