Subject:
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Re: LEGO® Systems, Inc. sells Enfield complex for $58.9 million
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Newsgroups:
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lugnet.general, lugnet.mediawatch
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Date:
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Sat, 13 Jan 2007 19:09:56 GMT
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Viewed:
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253 times
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In lugnet.general, David Winkler wrote:
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In lugnet.general, Joe Meno wrote:
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In lugnet.general, Gerhard R. Istok wrote:
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In lugnet.general, Harvey Henkelman wrote:
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Lego is on it’s way out, plain and simple. By 2012, it will be a memory.
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No it will still be around. In the future LEGO may not be owned by Kjeld
and Gunhild anymore (Godtfred Kirk Christiansen’s 2 surviving children),
however it will still be around.
There’s too much value in the brand name. A future owner may move
production to China or Vietnam or India. It seems that everything else is
ending up there, a loss for Europe, North America and Australia.
The future offset may be cheaper prices, but less in the way of quality.
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Gary’s right. One the things that is happening is that globalization of
resources...the US has higher wages than the rest of the world in many
things, so to bear the costs that consumers want, less expensive places have
to be found to produce products. So like so many other industries, LEGO
chose to streamline costs.
In this particular case, selling the facility was a good choice because it
pushed expense toward maintenance of the building to those owning the
building now, not TLG. It’s like having an apartment as opposed to owning a
house - sure you can have a house, but with that, you have the
responsibility of upkeep. At an apartment, if there’s a problem, you call
the landlord. It’s much cheaper to call the landlord to tell him your water
heater broke as opposed to having to buy a new one.
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IBM did a similar sell-off of their buildings and lease back a couple years
ago. It turns out to save on US taxes.
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When you own the property, you benefit from the increase in real estate values
over time. When I originally bought my house, my mortgage was higher than it
would have cost me to rent a comparable house. Within five years, this was no
longer the case. At the risk of jinxing myself, my maintainance costs have
always been a tiny fraction of my mortgage costs. (Remember that when your
landlord has to install a new water heater, he’s paying for it out of the PROFIT
he made by subtracting his own mortgage from the rent you pay.)
The same goes for the other outsourcing moves. The company is essentially now
sharing their profits with a whole group of suppliers and subcontractors. While
they may gain efficiency by being able to move labor to inexpensive markets,
they are also handing off the profit from the business of managing their own
employees and processes to their new partners. (Just as they are handing off
any profits from their real estate “business” to their new landlord.)
I understand that corporate finances do not work the same way as personal
finances, but this kind of move (selling and re-leasing property) has always
struck me as a short-term gain, long-term loss. I am happy to see the company
making changes that could keep them alive, but not happy that they are in such
dire circumstances in the first place. I hope this isn’t all just preparation
for selling the company off to the highest bidder.
Yes, the LEGO brand would surely survive a change in ownership (if it ever came
to that) but I fear that this would spell the end of the company’s incredible
quality. Would you still buy LEGO if it was basically just MegaBloks in a LEGO
box? Would a corporation that is focused on building shareholder value every
quarter be able to maintain the focus of generations of toymakers for whom “only
the best is good enough?”
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