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In lugnet.general, Todd Lehman writes:
> In lugnet.general, Frank Filz writes:
> > In lugnet.general, Todd Lehman writes:
> > > I believe that five to ten years from now, pre-packaged sets designed by
> > > internal design teams will account for but a small percentage of the market
> > > leader's profits -- the rest coming from bulk element sales with • ^^^^^^^
> > > phenominally low overhead compared to pre-packaged retail sets.
> > >
> > > The leader's customers will be able to choose exactly what they want to
> > > buy -- brick for brick -- 100% online. The ERP to make this work is easier
> > > said than done, but someone will do it. The leader's website will give
> > > customers a truly outstanding positive experience, which they will remember
> > > and tell their friends and peers online. When a customer receives an • order,
> > > it will include personally-tailored incentives to return online to buy more
> > > soon. Incentives may include gift certificates, coupons, • parts-subscription
> > > discounts, and pointers to areas online with related building ideas --
> > > anything to keep the enthusiasm up -- and it will vary from person to
> > > person, and the one who learns what motivates each person to buy more will
> > > profit the most. • ^^^^^^
> >
> > I'm not sure that bulk or by-the-brick type purchasing will ever be that
> > large a segment of the market.
>
> Are you agreeing or disagreeing? I was making predictions about gross
> profits, not gross revenues.
>
>
> > I strongly suspect that unless something happens to change our culture,
>
> Hasn't this already begun to happen? 5-10 years down the road is anyone's
> guess, and I'm not holding my breath for sweeping changes, but I'll be
> surprised if traditional businesses can keep up -- we're just at the tip of
> the iceberg right now and already many people are buying major book and LEGO
> purchases online rather than offline -- that's where so many of the deals are!
My comments about culture were relating to what kind of play kids do, not about
how we shop.
> > that the in-store purchase of sets will be the the bulk of
> > the market. Online sales of sets will be a close second. Unless the AFOL
> > hobby grows astronomically, I would expect that the 5-12 year old age ranges
> > will be the target of most of the sales of construction toys.
>
> Most of the sales, but not most of the profits. :-)
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. If only 10% of the construction toy
market purchasing power is applied to bulk purchases (which I feel may be a
high percentage), and the bricks are somehow able to be made for free so that
the profit realized is 100% (which of course is dreamland) and the profit (to
the construction brick company - not the overal profit in the whole system)
realized from sales of sets is 10% (which may be low), then the bulk purchases
still only contribute about 50% of the overal profit.
I also doubt that the profit margin on bulk sales will ever be much more than
double that of sets.
Now I may be wrong in how much of the market will be through on-line purchases,
but I suspect that walk-in stores will still be significant. The advantage of a
walk in store is that you can satisfy your need NOW! (and our culture is
demanding more and more instant gratification - which of course is one of the
factors which is hurting construction toys, and one of the factors which is
driving TLC to juniorization).
> I'll bet the largest
> percentage of gross profit will come from direct-to-consumer bulk sales. The
> overhead is minimal -- you need servers to handle orders and walk the
> customer through buying, etc., you need production facilities with robots
> to assemble the orders from vast parts coffers (hopefully with as close to
> JIT production as possible), you need software to run all that, and you need
> a bit of grunt labor to make sure it gets shipped). No fancy packaging is
> needed, and you let consumers online design their own sets. Plus, if you pay
> consumers a commission on bricks purchased in connection with a model/set
> they designed, you get free advertising. What could be more profitable than
> that? I'm positive that it could be gotten down to a science.
One potential problem I see with more and more on-line ordering is whether the
distribution network can handle it. 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), and someone has to pay someone
to do all the driving to each person's house (now theoretically, this means
that the purchaser doesn't have to drive to the store, and thus the purchaser
has more time to do other stuff [and may chose to pay the Fedex driver instead
of the lawn service for example]). I'm also not sure what happens to the cost
of running the vehicles to do the delivery (vs the cost of the purchaser's car
for going to the store). It's interesting to note that Airborne has eliminated
delivery to residences, transferring the goods to the Post Office (I forget, is
the Post Office self supporting? I don't think so - which means part of the
cost of delivery will eventually either show up on your tax bill or in
increased postage rates).
Trimmed groups as this is getting way off what belongs in lugnet.general or
lugnet.lego.direct...
Frank
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