Subject:
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Lego Margin and Lego Direct
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Newsgroups:
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lugnet.market.theory
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Date:
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Fri, 2 Jun 2000 13:40:06 GMT
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Viewed:
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1000 times
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In lugnet.market.theory, John Robert Blaze Kanehl writes:
> I think the margin on Lego is approx 20-25%. I have heard the margin on
> clones is much bigger.
I bet the margin, at least for power players like TRU and K-mart is a
lot bigger than that. Otherwise, they'd take a bath each time they run a
BOGO 50% off. Mom and Pop's may only get 20/25%, but big guys probably
run close to 40/45%. (A local Mom and Pop recently had a few sets at 30%
off, and I'd be surprised if they would sell at a loss.)
And what about the spate of sets at Zainy Brainy selling at 50% off?
Special purchases, I'd bet. But when they reduce Mos Espa to clear at
$50 from a $90 list, I suspect it nearly reflects their discount.
I'm very curious what this means for Lego Direct. You can bet that Lego
isn't losing any money when they sell tubs though TRU, which in turn
isn't losing money when TRU sells 1200 pieces for $15. This means that
Lego can profitably sell the most simple molded pieces at a retail price
of $.00125 a piece. The 400 piece bucket at $7.50 puts the piece price
up to $.001875 a pop; it contains printed pieces, minifigs that were
printed and assembled, and color instructions. And both the tub and
bucket include a durable container that adds some to the production cost.
Lego Direct sales presumably require no R&D, minimal container costs, no
printing, no assembly, and most importantly no retail overhead. It very
well may also allow for no inventory costs, if sales are guaranteed
before special parts are manufactured. I expect that Lego direct sales
will be at $.10 a piece or higher, but I don't think this in any way
reflects the cost. It simply reflects the demand.
After all, the only competition Lego Direct has is Lego retail. And even
with many resellers willing to buy in bulk and part it out, the current
price for piece is high, since the resellers are still buying retail and
indirectly paying for R&D and so on.
However, someone at Lego could have an enlightened view on Lego Direct
and rather seeing it as competition to Lego retail, see it as cheap
advertising. More bulk Lego means more adults building and showing their
MOCs to other adults through friendship, web sites, train shows, etc.
And it means more interest in said adults buying Lego for their children
instead of video games. Since most moderate sized Lego sets have over
100 unique pieces, there's little fear that Lego Direct will allow
anyone to build cheaper sets. The parts simply won't be available. It
may impact sales of sets which are bought now as parts packs, but those
sets on sale or clearance reduce the price/part to $.005 or less.
The greatest tragedy would be if Lego Direct prices itself right out of
viability. If the part cost is too high, then there won't be enough
volume to justify the service. It reminds me of a product at a computer
company where the project sales weren't enough to cover the product
manager's salary. If in the first year 1000 Lugnetters each buy on
average 1000 parts at 10 cents each, then Lego Direct might generate
enough profit to pay for Brad Justice, but probably not.
Cary
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Message is in Reply To:
 | | Re: Ames 75% Star Wars LEGO
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| (...) On balace, I guess I have done fairly well...I have visited 5 stores and purchased at 3 of them...I skipped 1 store because their stock was limited to droid fighters, skiffs, flash speeders and A-wings. I skipped the second one at the end of (...) (24 years ago, 2-Jun-00, to lugnet.market.theory)
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