Too many bricks in the wall? Lego slashes inventory

Sales slowdown in Europe and North America leads to write-down

Lego heads photo via Shutterstock

Reassuringly expensive plastic brick maker Lego was forced to write down a load of stock in 2017 – a move that rocked its bottom line – as it produced blocks that some customers clearly didn't want to build with.

The Danish-based toy maker reported an 8 per cent slide in revenue for the calendar year to DKK 35bn (£4.21bn) – the first time since 2004 that sales have shrank.

In its annual financial statements, Lego said revenues in two of its most established markets, North America and Europe, saw large declines that were tempered by double-digit growth in China.

Operating profits crashed 17 per cent DKK 10.4bn (£1.25bn), and net profit fell by the same percentage to DKK 7.8bn (£940m).

CEO Niels Christiansen noted that "revenue in our established markets declined, primarily due to actions we took to clean up inventories. This decline impacted our operating profits."

A spokeswoman for Lego said it was forced to sell off excess stock on the cheap after it ended up with "too much" left in warehouses.

"There wasn't enough room to get 2017 toys into the stores, and the toy trade is driven by newness," she told the BBC.

In its annual report, Lego said "overall, management is not satisfied with the financial results", but pointed to improvements towards the end of the year.

Sales increased in seven of Lego's 12 largest markets, but Christiansen noted that there was "no quick-fix and it will take some time to achieve longer-term growth".

The CEO only started with Lego in October – having been appointed in the summer – shortly after the company decided to cut headcount by 8 per cent.

As the annual report highlighted, Lego had previously increased staff numbers to "support global double-digit growth" – however, in September 2017, it began a redundancy programme as part of a bid to streamline complex organisational structures.

The firm ended the last calendar year with some 17,534 employees, down from 19,061 at the end of previous fiscal.

Lego forecast sales to rise by low single digits in 2018, saying that this would be possible with continued focus on innovation, increasing growth in established markets and a continued push into China. ®

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