Following record losses, Lego is going to lay off close to one thousand employees.

Le Monde, March 2, 2004

The Danish manufacturer will shift back the focus of its production onto its core historic toys.

Stockholm, from our correspondent

Is the Danish manufacturer, Lego, having difficulties to understand XXIst century kids ? The Billund based Lego firm is getting ready for another wave of layoffs, following its third year in the red, in 2003, out of the last 5 years, announced Charlotte Simonsen, a firm spokeswoman, monday March 1st. The group is considering laying off about 1000 employees, i.e. 12% of its world payroll.

The record loss expected for 2003 amounts to 1,4 billion danish crowns (about 188 million euros) before taxes, according to the company latest forecasts. This follows losses in 1998 and 2000, that had already caused layoffs. From about 9000 employees in 1998, the payroll went to 7500 in 2000. But, said the firm spokeswoman, "since then, we hired again, and in 2003 the firm had 8500 persons - including 3000 in Danemark - on payroll. Today's reduction will bring the figure down to 8000."

Annual sales in 2003 collapsed by 25% in value to 8,5 billion danish crowns, according to official Lego sources. "We adopted a strategy based on growth, on an increase of our market shares, and on entirely new products", said the owner and general manager of the firm, Kjeld Kirk Kristiansen, when the firm published a first warning in January. "This strategy did not yield the expected results. When the map no longer corresponds to the field, one ought to change the map." Change the map, and change the men. The operating manager, Poul Ploughmann, among others, was relieved from office, in January, and the general management shrunk from 14 to 9.

BIRTH AND FAILURE

The forced departure of Mr Ploughmann signals the relinquishing of the new strategy selected at the end of the 90's. At the time, the well know small plastic bricks and articulated figurines had been judged insufficient to cater the new tastes of young consumers.

Strategists, therefore, had launched a range of new products. This was the birth - and the failure - of Lego Explore, that comprised elaborated interactive products, very expensive in terms of R&D and marketing. To launch Bionicle, a game taking its inspiration from mythology and traditional arts from the Pacific and targeted to the 7 - 16 years old (Le Monde, 17 July 2001), the company had signed partnerships with several multinational firms (Nestle, McDonald's, Universal), had created an animated version available on game consoles, and had distributed millions of CD-ROM worldwide. At the time, the objective of the recovery plan - called "Mindstorm" - was to double the sales turnover within three years. Bad calculation : with the world toy market in a slump, only the firm historic products doubled their sales figures.

For Mr Kristiansen, this disastrous adventure is a reminder that Lego is essentially tied to the early youngsters. The group, he now argues, belongs to the youngest, with whom it is still very popular. Lego ranks sixth, behind Disney or Fischer Price, in the ranking of the best known brands in the world, according to a poll conducted by Young and Rubicam among the less than 11 years old in the US, Germany, UK and France.

The Danish group, therefore, will return to construction games for pre-school kids. The Duplo cubes will be reintroduced, and a giant brick for the 1 to 3 years old, the Lego Quatro, is to come. Mr Kristiansen announced last January that the firm expects to be back in the black in 2004.

Lego will finalise its layoff plan this March. The group might also reduce the payroll in its four Legoland amusement parks (Billund, Danemark ; Windsor, UK ; Carsbad, California, and Günzburg, Germany). In 2003, the attendance fell to 5,5 millions visits, down from 5,6 millions in 2002.

Boris Lévy

Ref : new development