LEGO to lay off 1200 in Denmark and USA

[Echo]

COPENHAGEN, Denmark - Lego Group said Tuesday it will end production at a U.S. facility and lay off 300 people there in early 2007, while some 900 of the toy maker's employees in Denmark will also be sacked over the next three years.

The production from Enfield, Conn.,, is to be moved to Mexico, the group said in a statement. Along with the 300 production layoffs, the distribution facility in Enfield will also be affected, Lego said, without providing details.

At Lego's headquarters in Denmark, up to 900 production employees will lose their jobs over the next three years as nearly a third of the domestic production will be moved to the Czech Republic, the company said.

Some Lego products, including the popular Lego Technic and Bionicle, will still be made at Lego's headquarters in Billund, 160 miles west of Copenhagen, which presently has a staff of 3,000 employees.

The production of the basic Lego bricks will be made by Flextronics, a Singapore-based electronics manufacturer, which operates factories in Mexico and in eastern Europe. Flextronics also is taking over Lego's factory in Kladno, in the Czech Republic, from Aug. 1.

"This is the last essential element in the restructuring of the group's supply line," Lego CEO Joergen Vig Knudstorp said in a statement. "We now see the contour of a new business model, where we go from traditional integrated model to a partnership model."

"This way we can achieve great financial advantages in a very difficult market," he added.

In 2005, the privately owned group posted a net profit of 505 million kroner ($86 million), compared with a net loss of 1.93 billion kroner in 2004.

Since its first reported loss in 1998 of 282 million kroner, the company whose colored plastic building blocks have been children's favorites for decades has been hit hard by increasing competition from electronic toy makers.

At the same time, Lego said that the bulk of the toys today are produced in low-cost countries, mainly in Asia.

In September, Lego said it was considering moving all or parts of its production to Eastern Europe or China, and said the restructuring plans could affect all of its production facilities.

A month later, Lego announced that it was closing a production facility in Switzerland and five European distribution centers, and moved those operations to the Czech Republic. That move affected 540 workers.

In 2005, the company sold off its four Legoland amusement parks in Billund, Denmark; in Windsor near London; in Carlsbad, California, and in Munich, Germany to the U.S.-based private equity group Blackstone Capital Partners.

Founded in 1932, Lego's name was invented by combining the first two letters of the Danish words "Leg godt" (play well) without knowing that that the word in Latin means "I assemble."

[snefroe]

thanks for the news! it's terrible that once again people have to be fired... let's hope they'll be able to expand again in a few years time

it seems however, for at least Belgium, that Lego is doing very well again, so i guess lego should be out of this crisis in the next few years...

[gylman]

But will the quality of the brick remain the same? That is the key concern. I presume TLC Is aware of this nd would not compromise with at least this aspect of their production, otherwise long term this will be the end of TLC. When we can no longer tell the difference between a Lego brick and MB or <shudders> Bestlock brick, then it's the end. Hopefully that day will never come.

Other than that, TLC should do whatever it takes to survive in this world.

[SuvieD]

I do think it is sad that they need to make this move. In one aspect it will be great to see LEGO make profit to cover any debts and to save up some for any future concerns. In another jobs are lost or moved, and it is possible like Gylman said for quality control or quality period to begin to slip.

As a consumer this is good in that it may mean slightly cheaper prices or at least non rising prices in the near future. It will be interesting to see if this will effect shipping time or customer service.

This is a smart move though. Toys can be a rough business and with more and more children playing video games and cell phones it is hard for toys to compete.

I just hope with all this that LEGO doesn't get greedy and start cutting corners on purpose just to turn a profit. Profit is good and the number one reason to be in business but not at the cost of customers and employees. Play well LEGO!

[snefroe]

But will the quality of the brick remain the same? That is the key concern. I presume TLC Is aware of this nd would not compromise with at least this aspect of their production, otherwise long term this will be the end of TLC. When we can no longer tell the difference between a Lego brick and MB or <shudders> Bestlock brick, then it's the end. Hopefully that day will never come.

Other than that, TLC should do whatever it takes to survive in this world.

well i'm not entirely sure what's going on in terms of quality. I mean, they're clearly outsourcing, so i guess that means it's up to lego to decide how much they're willing to pay for what flextronics produces. However, if they're not happy with the product, they can always look for another company that delivers a better product. what makes me sad, though, is that Lego more or less leaves Billund, except for bionicle, as if that's going to be in production for another 5 years... and technic, which is a very small market segment these days...

[natelite]

wow...that's exactly what i had predicted earlier this year when i joined the forum. i remember saying that they should relocate the production facility to somewhere cheaper in asia. from the news it seems they picked flextronic, a decent hi-tech singaporean company to run their production. do you think someone from lego came here and read my post? :-P haha, probably it was already suggested by consultants they hired to reorg the group.

i dont think there is a risk to the brick quality. afterall, they didn't just outsource to a "funny" company in china. they did go for a hi-tech singapore company. singapore is a first world country with a third world's operating cost. pretty high up there in terms of production quality and integrity (one of the least corrupted country, even higher than US). also, with them as the client they are in full control of the quality. if quality is poor, they have the ability to accept or reject a production lot. the only downside i can see from this is that they will have to export the technology to singapore. this is a risk in that eventually megabloks or best lock can also "steal" the technology by having flextronic make their blocks too (using the technology that lego created). but this can be countered easily by having exclusive contracts with flextronic. still, there will be unavoidable leaks (ie employees who quit to work for megabloks or bestlock).

some of that cheaper cost should be transferable to the consumer a few years down the line. we can enjoy buying cheaper sets maybe in 2-3 years time? here's to $50 for 1000 brick sets!

[Deinonychus]

Sounds like a solid move to me...I'm not the least bit worried ;-)

[Hobbes]

I read a preview of 4896 on 1000steine.com a few weeks ago. The conclusion was:

Design: A+

Quality: Terrible - not bad, but terrible...

I wouldn't go that far, but I've noticed a "difference" in brick quality with the last three sets I bought (the crane, the Heavy Loader and even the Dump Truck). The bricks still stick together very well, but they look more and more like MB. I just hope it's not a trend...

[snefroe]

I read a preview of 4896 on 1000steine.com a few weeks ago. The conclusion was:

Design: A+

Quality: Terrible - not bad, but terrible...

I wouldn't go that far, but I've noticed a "difference" in brick quality with the last three sets I bought (the crane, the Heavy Loader and even the Dump Truck). The bricks still stick together very well, but they look more and more like MB. I just hope it's not a trend...

did you see this lack of quality before as well?

I remember specifically these parts

they looked a bit ... transparent... as if you could see thru the plastic, but that was waaaaay before the crane...

[Hobbes]

did you see this lack of quality before as well?

I remember specifically these parts

they looked a bit ... transparent... as if you could see thru the plastic, but that was waaaaay before the crane...

I had those kinda-transparent wheel pieces with the Heavy Loader, too (see here), and with the big Dump Truck the fences around the cabin were a darker yellow than the rest of the pieces.

[JINZONINGEN73]

Brighter / Darker, Solid / Semi-Transparent... these are not new problems with Lego.

At least not since 2001 when I got in on them.

But it's UNDENIABLY been getting more frequent, which is annoying.

I recently bought 2 white Piraka sets. One was white, one was grey/off-white.

The silver parts... same thing.

And I bought them both at the same time. >__<

Sadly, I've been conditioned over the years to come to automatically expect this.

Mexico... I hope it works out. The only things I ever hear of children's items being made in Mexico is that their action figure bootlegs are made of HORRIBLY inferior plastic and that candy made there contains highly poisonous levels of lead.

Yeesh. Spooky.

As always, if Lego loses the trademark quality of their plastic, it's over for me.

And many others.

And them.

[Jipay]

Cheaper sets in the future ? Ahahaha, you are joking right ? Tell me you do X-D I don't think the prices will ever drop as long as people buy the sets ;-) ...

[KimT]

This is nothing new. They warned last year that they would outsource and that it would cost a lot of employees their jobs. This is actually doing what we already know. So don't panic it's all part of the greater plan to make LEGO survive and kick some megablocking big behind on their competition.

As for the quality I don't think they'll skip what they already do and buy machinery that produces lousy bricks. ;-)

KimT

[natelite]

yup, no worries from this customer. don't be racist just because things are made in asia.

i don't think machines determine the quality. it's the material and the process. from what i know the material mixing process is proprietary, and that will soon be sold to flextronic which will buy out their factories.

cheaper sets is as inevitable as time itself. there are 3 ways to improve profit. improve sales margin, improve asset turnover or increase leverage.

1. the firm is probably already leveraged enough and with a risky toy business (annual sales fluctuate a lot depending on demand), you can't increase leverage without running into serious risk.

2. there's only so much of sales margin you can make per set. they are already cutting cost by relocating to cheaper production centers. cutting sg&a and possibly tax will require them to sell out or relocate to an investor friendly country like us or uk.

3. asset turnover is probably the venue still unexplored. with the outsourcing of production to someone else, asset should be dramatically reduced (they only need some computers and maybe a few buildings to house the staff, etc). the other way to improve asset turnover is to produce more sales. and that can be achieve by reducing prices. toys are luxury goods and are more price sensitive. by reducing the incremental price, you can achieve more volume (i.e. sacrificing sales margin for higher asset turnover) thereby increasing profits.

if lego was ordinary household item like toilet paper or toothbrush, i would agree with you that they won't achieve anything by reducing price. there are still so many markets out there that lego can sell to, if only they were much cheaper.