• by Thom Forbes  @tforbes, September 6, 2017

Just as its products have gotten much more complex than they were a generational ago, so also has Lego’s organizational structure. The family-controlled company based in Billund, Denmark, said yesterday that it is eliminating 8% of its workforce — about 1,400 jobs — around the world even as it announced that revenue had dropped 5% so far this year.

“After building up sales aggressively since a near bankruptcy in 2004 through new ventures like films and new toy lines, the company seems to have hit a peak. Its sales are now falling for the first time in 13 years and it says it needs to simplify its operations,” writes the AP’s Jan M. Olsen in a story published by the Fort Wayne, Ind., Journal Gazette.

“During the past five years, the Lego Group has built an increasingly complex organization to support global double-digit growth,” writes Lego’s Roar Rude Trangbæk in a news release announcing the company’s first-half interim results.

“In the process, we have added complexity into the organization which now in turn makes it harder for us to grow further. As a result, we have now pressed the reset-button for the entire Group,” says Lego Group chairman, Jørgen Vig Knudstorp.

“Lego last month replaced its British chief executive, the first non-Danish person to run the toy company, after just eight months. The company said that at 61, Bali Padda was never expected to be in the position long term and said that the decision was not down to performance,” writes Angela Monaghan for the Guardian. Knudstorp had been CEO previously.

Lego, whose toys are sold in 123 countries, “said the pullback was especially notable in mature markets such as the United States and parts of Europe,” reports James F. Peltz for the Los Angeles Times. 

“Lego’s revenue growth rate had started slowing in 2016 but “this drop really was surprising and caught the industry off guard,” CFRA Research analyst Keith Snyder tells Peltz. “Lego has been the golden child of the toy industry the last four years.”

Indeed, Lego could not have asked for a better review of a new product line than the one recently written by Tom's Guide online editorial director Avram Piltch published on Space.com.

“For today's generation of children, learning how to program is even more important than studying a second language. Though there are many robot kits on the market that are designed for this purpose, Lego Boost is the best tech-learning tool we've seen for kids,” Piltch writes.

But as much as Lego has kept pace with the technological bent of toys today, distractions from competitors run broad and deep.

“More children use mobile devices for entertainment, leaving Lego to battle not just its traditional rivals like Mattel and Hasbro, but technology companies like Sony and Microsoft, the owner of ‘Minecraft,’ and video game giants like Nintendo and Activision Blizzard,” writes Amie Tsang for the New York Times.

“… Its struggles mirror the challenges facing toymakers that are seeking new revenue streams as growth slows in traditionally lucrative markets. Mattel, the maker of Barbie and Hot Wheels, went as far as to poach a Google executive to be its CEO in a bid to reshape itself,” Tsang continues.

The LAT’s Peltz points out that Lego’s licensed brands have been boffo in Hollywood. 

“Warner Bros. in 2014 kicked off a film franchise with ‘The Lego Movie,’ a surprise hit that grossed $469 million in worldwide ticket sales and received stellar reviews for its irreverent humor. The recent spinoff ‘The Lego Batman Movie,’ released in February, wasn’t as big but was still a commercial and critical success with $312 million in box-office revenue,” he writes.

Jim Silver, the CEO and editor-in-chief of toy review site TTPM, also points out some positives to the AP’s Olsen. “Its ‘Star Wars’ sets are selling well. And a September movie based on its ‘Ninjago’ line could have kids asking for Legos,” Olsen writes.

But Lou Ellerton, associate director at the brand consultancy Mash, suggests that the company just has too much going on for its own profitability. 

“Lego has tripled its workforce and more than tripled the number of lines they offer [over recent years]. Realistically, there is a limit to how much people can buy at any one time. There has been so much licensing they are over-extended,” Ellerton tells the Guardian’s Monaghan.

Like that massive tub of bricks your 6-year-old has dumped on the family-room floor, ambitions must be scaled back to move forward.