Lego has run into a behemoth of a competitor — screen time.
With kids increasingly opting for digital gadgets, the Lego Group, one of the world's most profitable toymakers, is streamlining its business, eliminating some products and cutting 1,400 jobs — about 8% of its total headcount — to offset falling sales.
An educational toy brand beloved by millions of kids and parents worldwide, Lego, known for its distinct plastic bricks that can be morphed into all kinds of shapes and structures, is a staple in childhood collections in the United States and Europe.
But digital distractions and cheaper alternatives -- such video games, free apps and Minecraft -- are now bountiful and sales in the developed markets are falling. Demand in China is still robust, but it isn't sufficiently making up for sluggishness in the mature markets Lego has spent decades developing.
"In established markets, such as the United States and in parts of Europe revenue declined, while in a growing market, such as China, revenue grew by double digit," the company said Tuesday, revealing that revenue declined by 5% worldwide in the first half of the year.
Budget-minded parents also have complained for years that Lego toys are pricey, a reputation that was solidified by the emergence of Chinese-made knock-offs and some of its own new releases. The Lego Millennium Falcon, which will be on sale next month, is priced at a staggering $800.
The Danish company conceded that its restructuring will need to include developing more products that "blend physical building and digital experiences."
Earlier this year, Lego introduced Lego Boost, which combines building blocks and software coding tools to build robots and other toys. And the Boost line and its Lego Life social network are emblematic of the types of new digital toys the company wants to increasingly develop to reinvigorate sales, it said.
"We have now pressed the reset-button for the entire group," Lego Group Chairman Jørgen Vig Knudstorp said. "This means we will build a smaller and less complex organization than we have today ... We are very sorry to make changes which may interfere with the lives of many of our colleagues.”
Lego didn't specify where the job cuts are.
In recent years, Lego has pursued multiple partnerships with other media companies, such as Disney, to co-brand and market its brick toys, a strategy that has churned double-digit sales growth.
But as sales grew, Lego has "added complexity into the organization, which now in turn makes it harder for us to grow further," Knudstorp said.
"In some markets the reset entails addressing a clean-up of inventories across the entire value chain," he said.
Lego didn't reveal details on which products may be cut. But the clean-up could mean fewer products at retail stores, Lego said.
The company doesn't plan to close any stores.
"The brick is the heart of our business and children of all ages love it," Knudstorp said.
In the first half of the year, Lego's revenue totaled about $2.39 billion, down from about $2.52 billion a year ago.
Net profit fell 3% to $544.7 million.
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