Lego, Denmark’s iconic and most successful export faces tough challenges

Denmark’s iconic and most successful export, Lego, has released its latest earnings report and it’s not looking good. The company has experienced severely dwindling worldwide sales, due to declining sales figures and reduced turnover for the first time in over a decade.

The latest figures for the Lego Group, the owner of Lego, are in. The privately held company has released its latest earnings report, and it is not looking good. For generations, the company has been considered a reliable powerhouse of turnover. This changed with a bang in 2017, when sales fell by 7% to 35 billion DKK ($5.575 billion US Dollars (USD)), compared to the previous year. What is worse is the stagnating net profit developments. The net profits for Lego have gone from a solid 9.4 billion DKK ($1.495 billion USD) in 2016 to 7.8 billion DKK ($1.242 billion USD) for 2017.

Image [Museum to Lego in Billund, Denmark. (Iwan Baan)] — [Museum to Lego in Billund, Denmark. (Iwan Baan)]

In a press release, the newly appointed CEO Niels B. Christiansen stated that “2017 was a challenging year, and we are not satisfied with the result although we ended the year in a better position. Sales grew in seven of the twelve largest markets and we have started 2018 with stocks at a healthy level.”

The Lego Group is seeing a decline in sales in all its markets except for the Chinese market, where Lego has recently made renewed, but costly efforts to become a household item within the growing Chinese middle-class. The company has known that it is facing trouble for quite a while.

In August of 2017, the first two quarters had already proven lackluster, with a 5% revenue shortfall. Then-CEO Bali Padda announced that month that he would retire in October of the same year and that Christiansen would be appointed the new CEO. With the succession plan already laid out, then-CEO Padda began implementing harsh measures deemed necessary to safeguard the future of the company. Padda kicked off by announcing a severe downsizing program, resulting in 1,400 people, or 8% of the employees, being laid off. The majority of the laid-off employees were notified the same day as the announcement.

Further, Padda announced that he would seek to invest the company out of its problems, focusing on increased production capabilities and organisational reforms. Thus, when Christiansen became CEO, the slaughter deemed necessary to protect Denmark’s iconic toy export was done, and the new CEO could reign with a clean slate.

Image Lego faced some controversy when it refused a bulk purchase from Ai Weiwei, a Chinese artist who is critical of the government [Photo by NetEase.com] — Lego faced some controversy when it refused a bulk purchase from Ai Weiwei, a Chinese artist who is critical of the government [Photo by NetEase.com]

The Lego Group was founded in 1932, with its products found in virtually every child’s room in the western hemispheres. The company was stricken in the aftermath of the dotcom crash in the early 2000s and came close to requiring a bailout from the Danish government. Instead, they managed to reverse the situation through a variety of new activities such as the production of children’s clothes, computer games and films as well as new versions of Lego. By 2012, the company had recovered to the point of being deemed world’s most valuable toy company, ahead of the American toy juggernaut Mattel, with a value of over $14.6 billion.

Analysts fear that the company’s recent investments in production and development might lead to the company going through a period of investing too fast and that the toy industry might not be able to catch up with the expenditures incurred by the company. After all, Lego is not alone in having a tough time in the toy industry at the moment. US Mattel and Hasbro have also had difficulties, partly because of the financial problems of the toy chain Toys R’ Us.

“There are no quick here and now solutions, it will take time to achieve sustained growth,” said Niels B Christiansen during the press conference.

John Sjoholm, LIMA CHARLIE NEWS

John Sjoholm is Lima Charlie’s Middle East Bureau Chief and founder of the consulting organization Erudite Group. He is a seasoned Middle East connoisseur, with a past in the Swedish Army’s Special Forces branch and the Security Contracting industry. He studied religion and languages in Sana’a, Yemen, and Cairo, Egypt. He lived and operated extensively in the Middle East between 2005-2012 as part of regional stabilizing projects, and currently resides in Jordan. Follow John on Twitter @JohnSjoholmLC

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