Danish toy group Lego (DK-7190 Billund; www.lego.com) intends to switch its entire Swiss production to its site at Kladno in the Czech Republic, probably in the first half of 2006. The distribution centres in Germany, France and Denmark are to be relocated to Prague. This move, which will involve wide-ranging alignments within the European organisation, will affect some 600 Lego employees.

Closure of the Swiss facility at Willisau alone will lead to the loss of 239 jobs. “The high level of costs in Switzerland has naturally played a key role in the decision to switch production to eastern Europe, and maximum savings can only be achieved by relocating entire units,” said Lars Altemark, senior vice president for the global supply chain.

The future of Lego´s mould-making plant at Steinhausen / Switzerland (68 employees) is also highly uncertain. In view of the increasingly short production time from the idea through to the finished product, demand for new moulds for the world-famous plastic building bricks varies greatly. This was why the plant could no longer be run at optimum capacity, the company said, adding that it was impossible to compete with low-cost producers in eastern Europe and China. In future, more moulds are to be bought in from external suppliers. A new owner is to be sought for the moulding facility in the coming months. If a buyer is not found, Lego plans to close the plant at the end of January 2006.

The company´s entire Swiss production is expected to relocate
to Eastern Europe in the first half of 2006. (Photo: Lego)

Changes are also in store for distribution. From the beginning of 2006, the Lego group will have only one European distribution centre – operated by logistics provider DHL Solutions, also based in the Czech Republic. The current distribution centres at Billund / Denmark and Hohenwestedt and Flensburg / Germany, Dunkerque and Lyon / France, are expected to close between January 2006 and March 2007. The closures will affect 301 employees, including 213 employed by Lego.

The toy maker, which was highly successful throughout the world for many years, has experienced a massive slump in sales over the past few years as demand for traditional toys has been outstripped by that for “Gameboys” and other consumer electronics. Lego claims to have won back market shares in the first half of 2005; however, net sales rose only 2% to DKK 2.5 bn (around EUR 336m). While the group was still in the red, with a loss of DKK 202m, it considerably improved its profitability compared with the first half of 2004, when it made a loss of DKK 639m.

To improve the group´s financial situation, Lego recently sold all four of its “Legoland” leisure parks for EUR 375m to US private equity giant Blackstone (New York / USA; www.blackstone.com). The US company intends to set up a new entertainment group involving both Lego and the Kristiansen proprietor family. It remains to be seen just how successful the rescue plan will be. This would seem to be the last chance to save the traditional company from a complete sellout.