Subject:
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Re: Are *we* part of TLG's problem?
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Newsgroups:
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lugnet.general
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Date:
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Sun, 24 Oct 2004 05:31:39 GMT
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Viewed:
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970 times
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In lugnet.general, Chris Gray wrote:
>
> I've been reading the recent articles about The Lego Group's financial
> problems. Its sad to see a company with a long history of good practices
> in trouble.
>
> But, it has occurred to me that we AFOL's might be part of the problem.
> What do we do? Well, we buy lots of Lego - often far more than parents
> would ever buy for their children, and certainly far more than kids could
> ever buy for themselves. But, and here is the big thing, we do our best to
> buy most of our Lego on sale. We do that because we want lots of it, and
> because it is expensive.
A lot of you do that, but a lot of us still buy new sets at new set prices
(okay, I'm guilty of taking advantage of a few conveniently timed sales to pick
up brand-new releases at 20% off a few times, but...). Besides, once a store
buys the sets, they wouldn't typically get any money back from the supply end
unless they were returning the product. TRU has been noted for doing this with
peg-warmer action figures now and then, just because their system doesn't allow
them to receive new stock (which would sell) when they've still got pegs full of
the old stock, but any global sale price that they'd announce would affect both
old and new stock. Now, with LEGO product, each set can be individually
clearanced, so they can just knock down prices on a few old sets when they know
they've got new stock coming in.
Very few stores are going to want to let their stock run completely dry in
preperation for the next wave of stock (well, except Wal-Mart, where a number of
storefronts have let their LEGO stock trickle down to nearly nothing in prep for
the regular toy aisle shuffle), so even if you buy a bunch of sets at regular
price, they're still going to clearance a bunch when it comes time to make room
for the next wave, because they're going to hit their reorder point that much
sooner and more often due to you buying sets earlier at full price.
So, if you're buying the set on sale, TLC got about the same amount of money as
they would have if you'd bought it at the same store when it first hit the
shelf, depending on fluctuations in the currency exchange rates and quantity
discounts.
> I know that there is a large markup on Toys, so stores have quite a bit
> of ability to sell at reduced prices without losing money.
The rule of thumb for retail merchandise in general is that 50% of the retail
price goes to the manufacturer and shipper(s), and 50% goes to the owner of the
shelf you got it from.
> But, I'm thinking that the stores don't absorb all of that reduced price.
The short answer is that yes, they do.
> I'm thinking that Lego takes some of the hit too.
Not directly, but if you're sitting around just waiting for sets to go on sale
before you'll buy them, then that means less product gets ordered total, so TLC
loses out on that much more profit. That's where they take their hit.
> Consider also the recent sale items available at Shop@Home. Sure, this is
> old stock that Lego needs to sell off, but they are most certainly making
> less money from the reduced prices (some as much as 50% off).
Well, when they've got sales on Direct Sale merchandise, yes, it affects their
bottom line in a way that a Wal-Mart sale doesn't, but as long as they run
seperate books, TLC got their profit while LEGO Direct might only break even
(well, unless you start counting the cost of warehousing, and the long-term loss
of interest-earning potential of the capital invested in the product in
question). But the truth is that when they get down to a 50% clearance price,
they've generally sold well more than enough to make up for it, and keeping it
in stock at full price would probably cost them more money in the long run than
selling it at half off.
> I only need to look at what happens here in Edmonton to know that this
> can't be good for someone, and I'm guessing that Lego itself is part of
> that unknown "someone". Whenever sales of interesting sets are spotted
> by any of our members (some of who check the stores almost every day),
> an email about it is posted to our mailing list. The result is often a
> horde of locusts descending on the stores, buying up all of the on-sale
> items.
Not counting the fact that you could have theoretically gone in and bought that
a week earlier at full price, the faster clearance-priced product gets cleared
out, the better it is for the retailer. It clears up shelf space that could be
used to display newer product that might very well be sitting in the back room
at that very instant, and the sooner they can put new product out there, the
sooner the shelf space will start paying for itself again.
> When we buy up all of the stuff on sale, that means that parents and kids
> can't buy it. That means there are fewer people exposed to more Lego, and
> quite possibly there is then less demand for new sets at regular prices.
Well, yeah, there is a little bit of that, but they have plenty of opportunities
to buy the same stuff at full price before it goes on sale, and if they're not
buying it until it's 50% off, they probably aren't likely to buy much at all
anyways. AFOLs do it because it seriously increases their buying potential, but
parents do it because they're buying on a budget.
> In the past, perhaps the effect we had wasn't that big. But, it seems to
> me, looking at projects people are doing, that the size of the projects
> is steadily increasing. That means the amount of Lego being bought (and
> how often is that at full retail price?) by AFOLs is increasing. Are we
> in fact contributing to the trend of fewer new young Lego fans because
> we are buying up all the cheap Lego?
That would require that more sets be clearanced, and there's a finite limit to
how many of a particular set each store will have on hand when they get
clearanced. All it might mean is that AFOLs are accounting for a larger chunk
of the existing clearance market, and bumping other people out.
> Do we compensate for all of this by getting more people interested in Lego?
> Probably not, because what we do is just increase the number of people who
> are not paying full retail price!
Probably not? LUGs and LTCs certainly do, by putting on large displays at shows
and cons, where the public can see the full potential of a big pile of bricks
and a fertile imagination or two.
> Another possible contributor is the tremendous consolidation of the retail
> market for toys. What percentage does Walmart sell in the U.S.? Do you
> think they pay as much for their huge bulk buys as other stores do? I think
> we've heard in the past that they most definitely don't. This is yet
> another reduction in income for Lego, for the same production costs.
This is by far a bigger factor than AFOLs ever could be unless we started
picketing in front of stores calling for a boycott on all LEGO product. The US
is the largest consumer-nation of LEGO product in the world, and a number of the
main store chains have worldwide presence. Big retail chains thrive on quantity
discounts. If I buy 10 copies of a set to sell in my store, I'm not going to
get any discount at all. If I buy 100 copies to sell in my store, I might get a
token discount. But if I buy 100 copies to sell in each of my 10,000 stores,
that's a million copies, and you better believe I'm going to be able to
negotiate a fat discount. So the result is that TLC gets less profit per piece
but makes up for it on quantity. But when you add in the flagging value of the
US Dollar compared to the Danish Kroner, and the fact that all US sales would go
through Enfield (in US Dollars), that can really cut into TLC's already-low
per-piece profit to the biggest store chains.
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Message is in Reply To:
 | | Are *we* part of TLG's problem?
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| I've been reading the recent articles about The Lego Group's financial problems. Its sad to see a company with a long history of good practices in trouble. But, it has occurred to me that we AFOL's might be part of the problem. What do we do? Well, (...) (20 years ago, 23-Oct-04, to lugnet.general)
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