Lego Group, whose iconic plastic building blocks have entertained millions of children for more than 70 years, said Tuesday it will shed 1,200 jobs to remold itself in an era when kids prefer playing with electronic gadgets.
The Denmark-based company, which is one of the last to produce toys in the United States, plans to close its U.S. manufacturing plant and lay off 300 people there in early 2007. About 900 employees in Denmark also will be sacked over the next three years.
Poduction will be moved from Enfield, Conn., to Mexico, where costs are lower, the group said in a statement. The company’s 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 handled 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, beginning Aug. 1.
“This is the last essential element in the restructuring of the group’s supply line,” Lego chief executive officer Joergen Vig Knudstorp said in a statement. “This way we can achieve great financial advantages in a very difficult market."
Chris Byrne, a New York-based independent toy analyst, called Lego’s restructuring “an inevitable shakeout of doing business in a dynamic industry.”
Toy makers like Lego have struggled in recent years. Children are growing out of toys faster and are turning to cellphones and digital music players. Companies like Mattel Inc. and Hasbro Inc. have responded with their own versions of kid-friendly gadgets, but overall industry efforts have not reversed falling sales.
Sales of traditional toys fell 4 percent to $21.3 billion in 2005, down from $22.1 billion in 2004, according to the NPD Group Inc., a market research firm in Port Washington, N.Y.
Lego, which reported its first loss ever in 1998, has been hit hard in a variety of other ways. While sales of construction sets were one of the few hot spots — showing an increase of 16 percent in 2005 — the company in recent years has been hurt by cheaper versions from competitors like Mega Bloks from Montreal-based Mega Brands Inc., which has lower production costs. Lego said the bulk of the toys today are produced in low-cost countries, mainly in Asia.
Byrne also said that Lego had suffered as it started to offer too many types of products, like radio-controlled toys, chasing the latest fads. Under Knudstorp, who took the reins in late 2004, Lego has refocused on compelling construction toys and pared down operations.
One of Lego’s expected hot toys this year is Mindstorms NXT — a robotic kit that enables the user to create an even more powerful robot than the original Mindstorms introduced in 1998. It is due to be released this summer.
Those efforts have helped Lego’s profits. In 2005, the privately owned company reported a net profit of 505 million kroner ($86 million), compared with a net loss of 1.93 billion kroner ($327 million) n 2004.
“They are redefining themselves as a core construction brand,” said Byrne.
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; Windsor near London; in Carlsbad, Calif.; and in Munich, Germany to U.S.-based private equity group Blackstone Capital Partners
Lego, which began with carved wooded toys in 1932, got its name by combining the first two letters of the Danish words “Leg godt” (play well). In Latin, the word means “I assemble.”