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In lugnet.dear-lego, Frank Filz writes:
> My comments about culture were relating to what kind of play kids do, not
> about how we shop.
d'Oh! Sorry. I must be confused. :-) I took your sentence that went
"I strongly suspect that unless something happens to change our culture,
that the in-store purchase of sets will be the the bulk of the market"
to mean that, in the absense of a cultural change, the way we shop wouldn't
change -- that online sales would still take the back seat to retail sales.
> My thought is that bulk sales will be such a small percentage of the
> buisiness. Unless they charge ridiculous prices for bulk bricks, I don't
> see the proffit margin being that much higher on them.
I'll go out on a limb and say that it could be 2x more profitable for LEGO
to sell bulk bricks direct-to-consumer than for them to sell pre-packaged
sets direct-to-consumer. That is, I'm saying that I believe that the profit
margins on bulk bricks could be twice that of pre-packaged sets. If they do
it right, I believe it could be even higher. In fact, if they price bulk
elements no cheaper than they already are in sets, they'll get it for free.
And people will buy it. And they'll be happy, because it's LEGO and because
they're getting it cheaper than they would if they had to buy multiple copies
of some set and wind up with extra pieces. The challenge they're going to
face is price wars with consumers who buy multiple copies of sets on deep
discount and devalue the price of elements.
> One potential problem I see with more and more on-line ordering is whether
> the distribution network can handle it.
First, the distribution network will grow to handle it! Second, as the USPS
delivers fewer and fewer bills and personal letters each year (business lost
to e-cards, PayPal, e-mail, etc.), they have an excellent business opportunity
to make up for this in the parcel delivery business. (And they're seen this
coming for years and have put plans into place.)
> The distribution network for traditional stores very much depends on a lot
> of the same stuff going to the same place. If everyone is getting the same
> goods direct to the home, I think the packing density will drop (look at the
> packing density of your S@H orders vs the packing density of how Wal-Mart
> gets the sets),
Yup -- but what shows up on the Wal*Mart shelves has to be pretty. It has to
look attractive -- has to attract a buyer, get you to want to buy it. With
online stuff, it only has to look good in the online catalog. What shows up
at your doorstep is something you've already purchased -- it doesn't have to
look nice. It just has to look nice enough or work well enough that you buy
more again soon.
Secondly, with bulk bricks, LEGO doesn't need to waste time and money
designing and printing pretty cardboard boxes that go around the bricks.
Don't forget that half of a LEGO box these days is air -- and that air is
shipped to Wal*Mart. It wastes space horribly. But it's still profitable
enough that they can afford to do it.
--Todd
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