Should you only purchase Lego at a "Lego Store" or S@H?

[LegoDW]

Had a discussion with another AFOL, thought I would poll your thoughts.  This AFOL informed me he only purchases Lego directly from a official Lego Store or from the S@H website.  According to him, he thought this was the best way to ensure TLG got the maximum amount of profits from the sale of its products.  He also said, by doing this he hoped TLG would be more profitable and be less aggressive in raising the prices of their future products.

I disagreed with him.  Per my thoughts, TLG actually makes more revenue by selling their products at a discount to distributors, who sell to retailers (Walmart, Target, TRU (RIP), etc.) as the volume of sales more then offsets the loss of revenue per individual sales from their own stores.  My augment was taking a $100 set, TLG probable sells it this set to a distributor for around $20. Looking at the volume of sales (USA) in Target/Walmart vs the Lego Store, feel easily 10 or more sets there vs 1 at the Lego store.  So if we say it costs TLG $10 to make this set, if they sell directly they still have some extra costs for shipping/employees etc, say this is another $10, they make ($100 - $10 - $10= $80) $80 profit on the sale of the set in this example. Going the distributor route, they make ($20 - $10 = $10) $10 profit per set.  At 10 to 1 or greater differential distributor vs selling themselves, that's 10*$10 =$100 revenue vs $80.  That about 20% more revenue out souring their products vs selling themselves.  Plus it might cost them more then an extra $10 in my example for shipping/employees, etc (assuming buyer is purchasing multiple sets to offset some of the costs).

His counter point was retailers sell these sets sometimes at 20% less then at the Lego store.  I countered with it really doesn't matter what the resellers sell their products for, it is the volume of sales that are making TLG their revenue and in my example the numbers would be unchanged unless TLG was forced to sell their product for less then $20 to their distributors.

Then he countered that TLG would never sell a $100 set for $20 to a distributor.  I countered with they might get a few more dollars but buy the time everyone who has their hands on this set in this example put on their markup in, my number are fairly close.

Then he got upset that TLG was marking their products up so high, $10 in costs selling for $100.  I countered with TLG has other costs to be profitable and they have revenue expectations they need to maintain.

We ended the discussion with Lego is an expensive hobby.  TLG has to maintain it revenue/profitability to say in business.  He is going to continue exclusively purchasing only at The Lego Store or S@H and I am going to purchase from there and retailers (specifically retailers when on sale).

So which one of us was correct?  Do I need to rethink my future shopping habits.  

 

 

[Johnny1360]

Everything that has anything to do with LEGO I do as economical as possible so I can buy more LEGO. 

I also believe regardless of my buying habits it will effect TLGs bottom line in no way shape or form. 

[icm]

I don't know how retail works, so I can't answer the question you're actually asking.  However, my attitude is that, looking only at my bank account, it only makes sense to buy directly from Lego if there's a cool free promotional set available or if a set cannot be found elsewhere for more than a 5-10% discount, since VIP points equate to a delayed 5% discount and double points to a 10% discount.  I can't take personal responsibility in my shopping habits for how much of my payment goes directly to Lego versus the retailer I buy from.

[Nick Wolfe]

I used to work for LEGO so I know a bit about how the company sees this question since you seem to be mostly concerned with making sure as much of your money gets to the company as possible.

So bottom line is your friend is mostly right. Buying from the LEGO store or online makes sure the most money goes directly to the company and, given the option, the company would rather consumers buy from them. Buying through other retailers does mean that the company gets less of the money you spend.

The whole point of promos and the VIP loyalty program is to encourage people to buy directly from the company as opposed to from other retailers. The more people buying directly from the source the better the profits are. It is absolutely true that many many more sets are bought from other retailers than from LEGO directly and the profits overall are greater from those sales than from direct to consumer sales but that is entirely because of the scale.

LEGO is in no danger of having their toys pulled from shelves because they aren't selling. The company has stopped it's decade of exponential growth and undergone a restructure but sales haven't really dropped. Walmart and Target are still making loads of money on selling the sets and definitely won't stop buying the bulk orders, or even dropping quantities by much, most of the business done in those stores is from people who have decided to go to Target and then buy a toy there than people who have decided to buy a LEGO set and are deciding where to purchase it. The point I'm trying to make here is that your decision to buy from LEGO directly, or even the collective decision of the whole AFOL community, would do nothing to hurt it. The sales to retailers would drop but they would continue to sell the product while the company itself would gain the extra profit from every set bought directly.

Now here's the thing. Overall the company doesn't really care where you're buying the sets from. They get profits any way you purchase and even their customer service reps will recommend you take advantage of the excellent discount at the other store. The company's business model focuses more on building a relationship with it's consumers so even buying sets from places like bricklink where none of the profit is going directly to the company helps in the long run because they want people to have the toys more than they want people to buy them directly.

So, yeah essentially it doesn't matter. Get the best price, the company will never hold it against you. If you really want to make sure that as much of your money goes to lego as possible then buy from the website. Buying online will never hurt Walmart's sales enough to make them sever ties.

[deraven]

Nick Wolfe's explanation says it pretty well - Lego makes a good deal more when you buy directly from them, yes, but in terms of absolute dollars there's no contest from the volume that 3rd party retailers do.  If they could snap their fingers and get everyone to buy through them, they could potentially discount their final pricing and still make more money than with retail distribution, but that will never realistically happen.

I did want to point out that your assumed numbers are likely pretty far off.  According to their annual reports, Lego's margin is about 25%.  Knowing some about retail and having had similar discussions in the recent past with folks more actively involved in the channel, a large retailer is likely paying 40-50% of SRP.  So on a $100 retail set, Lego is likely selling it to the retailer/distributor for around $45 and making $11.25 profit, then the retailer has their own costs and mark-up to make their own margin.  Lego's profit margin has been consistently going up each year, and that's due to a combination of volume growth, efficiency, and price increases, but isn't likely to jump drastically in either direction if other market factors remain stable.

That means that if you buy a $100 set from Target, Lego probably makes $11-$15 (on the high side).  If you buy it directly from them, they'll probably get closer to $50 (since they incur more costs to deliver to individual consumers, the whole difference won't be profit).  So that's roughly 5-to-1, and I don't have numbers on what percentage of sales are direct vs. through distributors but I'd wager that 3rd parties sell far more than 5x the number that Lego does direct-to-consumer.

Personally, if there's no better deal to be had via a sale or something, I'll but from Lego direct to throw them a bit more profit and get my VIP points in the process, unless convenience/urgency (like a last-minute gift or something) of picking it up elsewhere outweighs both those considerations.

[Johnny1360]

Something else to consider in my area, Indianapolis there are literally dozens of Targets dozens of Walmarts and same goes for Barnes and Noble and countless other places that sell LEGO, most of them have online stores as well, yet only one rather small LEGO store at the mall. So one can assume that only a very small percentage of LEGO sets are actually bought directly from TLG. 

[zux]

Well, I find this kind of thinking to be odd. Don't we all want to save more money to buy more stuff? Obviously, if you have no questions raised regarding recent TLG pricing strategy your opponent could even send money to TLG to support it (similarly like people donating money to get some Kardashian even more rich, doh!) if he fills they aren't doing well. But it isn't a healthy thing to do. It would have been much better to buy required LEGO stuff at cheapest available price and donate the difference with RRP to a charity. Company will make its money anyway.

[Johnny1360]

2 hours ago, zux said:

Well, I find this kind of thinking to be odd. Don't we all want to save more money to buy more stuff? Obviously, if you have no questions raised regarding recent TLG pricing strategy your opponent could even send money to TLG to support it (similarly like people donating money to get some Kardashian even more rich, doh!) if he fills they aren't doing well. But it isn't a healthy thing to do. It would have been much better to buy required LEGO stuff at cheapest available price and donate the difference with RRP to a charity. Company will make its money anyway.

Absolutely couldn't agree more with this, to do otherwise is saying quite a lot for TLG, they seem to have a very loyal customer base. 

[Dragunov2]

Sometimes it's even cheaper to buy them on online shops.

Taj Mahal I bought on an online shop is cheaper than the price on S@H minus the VIP points (value in money)

[knotian]

Heck no. With net profits in the double digits in K, save all the money you can. It is privately owned so you cannot even think of stockholder dividends.

[fred67]

TLG is already one of the most profitable toy manufacturer in the world.  With an average profit margin well north of 20%, and a volume of sales that would make a Rockefeller choke, I have no qualms buying it as cheaply as possible from somewhere else.  Most companies are happy to get over 5% profit margins.

[Kalahari134]

I can shed some light on prices. I used to be a warehouseman at Legoland Windsor. One that sticks in my memory is that 60051 was being bought for 50% of its RRP. Obviously VAT at 20% will be in the equation. 

[AFOLguy1970]

Buying strictly from a Lego Store or S@H does not work too well for MOCs.  I really need Bricklink as there are a multitude of parts that cannot be bought directly from Lego itself.  

[AE bricks]

3 hours ago, AFOLguy1970 said:

Buying strictly from a Lego Store or S@H does not work too well for MOCs.  I really need Bricklink as there are a multitude of parts that cannot be bought directly from Lego itself.  

I agree, there are many bricks you won't find in Pick a brick, so for building Moc's you will soon or late notice buying parts on Bricklink is a great and efficient way to get your hands on the parts you need or even older sets that already retired in retail or brand stores.