Plastic toy-block major Lego Co., stung by massive losses in 2003, will restructure and cut costs, the Billund, Denmark, company announced March 16.
In the next few weeks, Lego will eliminate 170 jobs, the majority in Denmark. By 2006, the firm aims to cut a total of 500 from its current payroll of about 8,000, Lego President and Chief Executive Officer Kjeld Kirk Kristiansen said in a news release.
Meanwhile, Lego's biggest rival, Montreal-based Mega Bloks Inc., anticipates expanding sales of its building blocks.
Lego had a loss of 1 billion Danish kroner ($164.7 million) on sales of DKr 8.5 billion ($1.39 billion) last year, the firm reported in preliminary financial results. In 2002, it earned DKr 428 million ($70.4 million) on sales of DKr 11.4 billion ($1.87 billion). An early casualty in the layoffs was former Executive Vice President and Chief Operating Officer Paul Plougmann. Lego streamlined its top managment team to nine from 14.
The restructuring will focus on nonproduction aspects, since the company already had trimmed its European production employee roster and consolidated European production last year. Lego Systems Inc.'s North American packaging operation in Enfield, Conn., was trimmed last year and probably won't be affected by the new cuts, said spokesman Michael McNally. Lego shifted injection molding from Enfield to Europe four years ago.
In contrast to Lego's performance, Mega Bloks saw its sales soar 16 percent in 2003 to US$219.7 million while profit, at US$28.8 million, jumped 43 percent. The firm expects strong growth for its plastic block-based toy sets, especially in Europe and Asia where the company is less well known than Lego, said Eric Phaneuf, director of financial and investor relations.
In North America, Mega Bloks helped erode Lego's market share of the construction toy market from 80 percent several years ago to 62 percent last year.
Mega Bloks probably will add a few injection presses in Montreal, but Phaneuf does not expect a major expansion. A lot of the company's international orders are filled by contract molders in China, he said.
Meanwhile, Lego will focus on its core building-block business balanced with story-based offshoots such as Lego Star Wars and Lego Harry Potter. It will spin off electronic game ventures to licensee partners. The firm plans to speed up development lead times, forge closer links with retailers and heavily promote its brand names. The firm said it will improve delivery reliability and simplify its global infrastructure with regional hubs in Enfield; Baar, Switzerland; and Tokyo.
Early this year, Lego said its 25 percent sales decline in 2003 represented a loss of market share in a sluggish toy industry. It aims to break even in 2004 and post annual sales increases of 3-5 percent thereafter.
