legotownlinz

LEGO, Quo Vadis? Some Thoughts on a New Business Model

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When I came out of my dark ages a few years ago, life was simple: There was Lego (offering a few AFOL-targeted sets that brough me back to the Lego hobby) but nothing else. Admittedly, there were already some Chinese competitors, but they had no impact on the market and I didn’t care for them either.

In the last few years, the situation has changed: Not only did the number of competitors increase, but also the availability of the sets in Europe has improved as well as the quality (which is imho still not good enough, but obviously good enough for many other customers).

Despite the shift of the market, one company stubbornly sticks to their old strategy: Lego. There are no signs that they respond to the better cost/performance ratio nor can I see other measures to face the competition.

I don’t think that lowering prices is the right answer to competition, instead, the part count should be increased at the same price. More and more often I notice that a Lego set looks miserable compared to other offers. The competition just throws in more parts. This is true for both play sets and AFOL sets.

Lego’s AFOL offerings, Ideas and Creator Expert saw an increase in the number of sets during the last few years, but it was too small to counter the exploding number of competitors’ sets. The variety of sets on the market has changed and will further change the buying behavior: It is no longer reasonable to collect all AFOL sets, but it is necessary to limit to one’s favorite themes and Lego offers only a faction of the sets available for a certain theme.

If Lego does not adjust its strategy, they’ll continue to loose market share. One pirate, castle, train, space, … you name it … set every few years is not enough if there are docens of alternatives out there. I refused to buy Chinese stuff so far, but it gets harder every day to ignore it. My main interest is trains, where Bluebrixx is aggressively entering the market. I wish I could spend my money on Lego trains, but the products are simply not there.

Obviously, Lego can’t make sets for every special interest market. They would end up with 100s or 1000s of sets. But Lego is big enough and has enough money to come up with the following business model that would kill all reasons to buy competitors’ stuff:

Allow customers to order their custom sets!

I’m aware that the Lego Digital Designer once allowed that and that you can still order bricks on Lego’s website and Bricklink. But it’s neither convenient nor reasonably priced nor are all important parts in all important colors available at any time nor is there any reliable source of proven designs.

Fan designers should be able to rely on a fixed set of parts they can use. They upload their creations to Ideas, Rebrickable or a to-be-created platform where customers can buy them, not only the instruction but also the bricks. Designers get a payment for each order. There should be some kind of rating system or categories, e.g. “designed by Lego” or “reviewed and approved by Lego” that only contain designs that meet certain quality goals. Lego Ideas in its current form would not be necessary anymore, instead all designs would be available all the time and produced on demand. All the talented designers would be part of an ecosystem that is controlled by Lego and would not have to work for or sell their designs to competitors (that are often stealing the designs anyway).

Key for the success of the proposed system is the technical infrastructure to handle the orders without manual work, otherwise custom sets would be too expensive (like pick-a-brick is now). Lego is the only market participant that could currently afford such large fully automated warehouses.

Of course, the current Lego product portfolio for children should continue to exist (with a more competitive price/performance ratio), also some of the best AFOL sets should be sold in Lego stores to attract new customers. But the bulk of the AFOL market should be moved to the proposed model where customers choose from a large catalogue of design that are made on demand.

I strongly believe this is the future to better respond to customer needs. Lego is in the best position to realize it, but if they don’t someone else will do it and then dominate the market.

What are your opinions? Are changes in Lego’s business model necessary?

Edited by legotownlinz

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You underestimate people's laziness and that old "I'll know what I want when I see it." thing. In a perfect world we'd of course all be super smart beings with refined tastes that selectively consume only what's really to their liking, but that's just not how it works. The ongoing issues with LEGO Ideas and last year's Bricklink AFOL Designer program can be taken as a good indication of some of that. More often than not people just want to wander into a shop and make decisions on the spot.

The rest - yeah, LEGO's business model has always been rather volatile with good and bad years, but ultimately completely changing it seems a far stretch. Ultimately most of their successes and failures can always be pinned down to misjudgments about market potential for some types of sets and if anything, they need better advisors on that stuff and not always burn so much money on pointless licenses or product series that nobody even remembers anymore after two years.

Mylenium

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5 hours ago, legotownlinz said:

Allow customers to order their custom sets!

I’m aware that the Lego Digital Designer once allowed that and that you can still order bricks on Lego’s website and Bricklink. But it’s neither convenient nor reasonably priced nor are all important parts in all important colors available at any time nor is there any reliable source of proven designs.

Sadly, those days are gone. Though I wish they would come back, I could understand as it would be a bit expensive. 

5 hours ago, legotownlinz said:

I don’t think that lowering prices is the right answer to competition, instead, the part count should be increased at the same price. More and more often I notice that a Lego set looks miserable compared to other offers. The competition just throws in more parts. This is true for both play sets and AFOL sets.

I do have to admit that sometimes brick tax is INSANE. In my opinion, some Lego sets aren't even worth buying at the full retail price. That's why I solve the problem by trying to find deals on eBay. Or if you live in the US, you of course know what Wal-Mart is. Sometimes I even buy parts of whole sets from places like eBay or Bricklink as I just need those particular parts. Otherwise, I'm hesitant to buy certain sets. I'm a table town maker so I'm an exacting person. 

Edited by Brandon Pea

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1 hour ago, Mylenium said:

More often than not people just want to wander into a shop and make decisions on the spot.

You might be right, but the growing number of brick stores sell all kind of brands, not just Lego. Some don't sell Lego at all. This is a a bad situation for Lego and something they should develop a strategy against. We are at the beginning of a market transformation: Right now, only the specialized brick stores sell clone brands, but its foreseeable that general toy stores will follow.

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Many physical Toy Stores are closing here for years now, so clone brands or not, the increase of people buying products online is growing.

The thing with modern LEGO is also they got so many themes and sets nowadays , LEGO even competes with their own themes for shelf space in physical stores.

Even the official Amsterdam LEGO store isn't very big and won't have all the sets on shelves, and is mainly focusing on the "experience" (Build-a-Minfigure / Pick-a-Brick / VIP Points / Exclusive sets) rather then being the #1 place to buy all sets.

I also rarely buy directly from LEGO.com as well as many regular sets can be gotten 20-40% off elsewhere.

I also notice LEGO selling smaller sets as exclusives, for 2020 for example a €10 Mail Plane, and the €20 Safari Truck, I don't know if that's going to increase their sales but I don't like small sets being exclusive like that.

 

Edited by TeriXeri

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14 hours ago, legotownlinz said:

You might be right, but the growing number of brick stores sell all kind of brands, not just Lego. Some don't sell Lego at all. This is a a bad situation for Lego and something they should develop a strategy against. We are at the beginning of a market transformation: Right now, only the specialized brick stores sell clone brands, but its foreseeable that general toy stores will follow.

As they say "A little bit of competition is good for the soul." I honestly don't mind LEGO getting some heat for a million reasons. And you're wrong - building your business strategy >>>against<<< your market competitors is never a good idea. You simply need to prove that your products are better than those of your competitors in a given segment.

Mylenium

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10 hours ago, Mylenium said:

As they say "A little bit of competition is good for the soul." I honestly don't mind LEGO getting some heat for a million reasons. And you're wrong - building your business strategy >>>against<<< your market competitors is never a good idea. You simply need to prove that your products are better than those of your competitors in a given segment.

Mylenium

From the customers perspective competition is a good thing, obviously.

Let's not call it a strategy against the competition, but a strategy to raise or at least keep the market share. No matter how you name it, change is necessary if Lego wants to remain the leading manufacturer. As I explained in the opening posting, having the best products is not sufficient is the customers want more specialized products. It's like having the best TV channel - nevertheless customers switch to Netflix and Amazon Prime in droves because they are more flexible. Markets change, including the brick market.

I've bought many Lego sets because I liked them and for the building experience. And I always had the goal to somehow integrate them in my city/train layout. But many sets do not integrate well and I'm lacking time to turn them into MOCs. So I ended up with Apocalypseburg, Disney Castle, fairground rides, Hogwarts and so on that are really nice sets, but they are not what I actually need. I need modular buildings and trains, but only get one building per year and no train at all. It would be so cool if you could buy all the parts for a Rebrickable set directly from Lego!

 

 

 

 

 

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While I'd love to have an inexpensive, custom, on-demand, direct-to-consumer type shopping experience with LEGO, I don't think it's feasible for a couple of reasons.

First, very few MOCers have the type of toy design experience/training that LEGO requires for their official sets.  It's possible that TLG could offer a design course for people who want to design custom LEGO sets to teach the dos/don'ts when it comes to design and only graduates will be allowed to upload designs.  Finally, every design that's uploaded has to undergo some form of review/validation to make sure it meets TLG's stringent design controls, even if designs are uploaded by approved graduate designers.

Second, automation is not that simple.  I have some (very minor) experience with automation, and every time a new process is added, it has to undergo a validation process to ensure the robots do what you think you told them to do (and often times, you thought wrong).  That includes making sure the correct number of elements gets sorted correctly into the different bags and then the correct bags are placed into each box.  It sounds simple, but it is not, and will require rigorous testing for every new design that gets uploaded.

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1 hour ago, pombe said:

First, very few MOCers have the type of toy design experience/training that LEGO requires for their official sets.  It's possible that TLG could offer a design course for people who want to design custom LEGO sets to teach the dos/don'ts when it comes to design and only graduates will be allowed to upload designs.  Finally, every design that's uploaded has to undergo some form of review/validation to make sure it meets TLG's stringent design controls, even if designs are uploaded by approved graduate designers.

With an easy to use platform and payments for the designers, I foresee a significant percentage of all the MOCs to be uploaded to such a platform. Even the Ideas submissions would be sufficient to have enough content.

I thought of a rating or category system. Of course Lego should check part lists and instructions at least for popular sets, but there should be no hurdle to submit a set. And it should be possible to upload and order your own part lists.

 

1 hour ago, pombe said:

Second, automation is not that simple.  I have some (very minor) experience with automation, and every time a new process is added, it has to undergo a validation process to ensure the robots do what you think you told them to do (and often times, you thought wrong).  That includes making sure the correct number of elements gets sorted correctly into the different bags and then the correct bags are placed into each box.  It sounds simple, but it is not, and will require rigorous testing for every new design that gets uploaded.

If it would be simple, everybody could do it. Lego has more resources than others, thus is in the best position to make it work. If they succeed, it would set them apart from the competition.

The testing has do be done for every new mold, but not for every set.

Edited by legotownlinz

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On 5/10/2020 at 4:28 AM, legotownlinz said:

I don’t think that lowering prices is the right answer to competition, instead, the part count should be increased at the same price.

That's the same thing. Price Per Piece.

On 5/10/2020 at 4:28 AM, legotownlinz said:

 But Lego is big enough and has enough money

Sounds like a successful business.

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A lot of people think that if only LEGO catered for their specific niche idea, then they'd make a huge amount of money. LEGO is already the number one toy company in the world, so it knows what it is doing. They are already set apart from the competition.

LEGO Used to have a custom designed set service and it failed. https://en.wikipedia.org/wiki/Lego_Design_byME . LEGO stated that it was too complex for kids. Chances are that it was not cost effective for them to do it. Their market is for the most part selling their designs to large numbers of people. And it seems to work very well.

Bricklink also tried this (so a third party solution) through the MOC shop. Designers could upload MOCs and customers could buy the sets from Bricklink sellers, with a small royalty going to the designer. It failed.

AFOLs have other services that they can use, such as Bricklink and Brickowl to buy the parts they need for MOCs, as well as pick-a-brick and bricks and pieces at LEGO.

 

Your main point seems to be about price. 

"I don’t think that lowering prices is the right answer to competition, instead, the part count should be increased at the same price."

"It is no longer reasonable to collect all AFOL sets, but it is necessary to limit to one’s favorite themes and Lego offers only a faction of the sets available for a certain theme."

"I’m aware that the Lego Digital Designer once allowed that and that you can still order bricks on Lego’s website and Bricklink. But it’s neither convenient nor reasonably priced nor are all important parts in all important colors available at any time nor is there any reliable source of proven designs."

LEGO is an expensive luxury. Why should they reduce the price per part (by increasing the number of parts in a set at a fixed cost)? This will lead to a drop in quality somewhere, lowering themselves to the quality of clone designs and/or parts. 

You also say there is no reliable source of proven designs. There are 1000s of designs on the internet, many free, many paid for. However, all the "proven" ones are official LEGO designs. What makes you think a design someone uploads to a LEGO server is going to be any better than a design uploaded to rebrickable or similar? To have a "proven" set, someone has to go through it to check it fits in with LEGO's design standards, both structural and ethical.

 

Edited by MAB

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16 hours ago, MAB said:

A lot of people think that if only LEGO catered for their specific niche idea, then they'd make a huge amount of money. LEGO is already the number one toy company in the world, so it knows what it is doing. They are already set apart from the competition.

LEGO Used to have a custom designed set service and it failed. https://en.wikipedia.org/wiki/Lego_Design_byME . LEGO stated that it was too complex for kids. Chances are that it was not cost effective for them to do it. Their market is for the most part selling their designs to large numbers of people. And it seems to work very well.

Bricklink also tried this (so a third party solution) through the MOC shop. Designers could upload MOCs and customers could buy the sets from Bricklink sellers, with a small royalty going to the designer. It failed.

AFOLs have other services that they can use, such as Bricklink and Brickowl to buy the parts they need for MOCs, as well as pick-a-brick and bricks and pieces at LEGO.

None of these services ever targeted the mass market and none of them had the technical infrastructure to handle custom orders efficiently. When done right, it could work. The high upfront investment is a risk, obviously.

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Doesn't this service essentially already exist? It's Bricklink. And Lego now own it and will no doubt be poring over the data that they have procured. Who knows what their plans are for it...

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On 5/12/2020 at 5:32 PM, legotownlinz said:

None of these services ever targeted the mass market and none of them had the technical infrastructure to handle custom orders efficiently. When done right, it could work. The high upfront investment is a risk, obviously.

That's why as a large company you can let someone else run with the niche.  Once they grow that market segment enough to make it worth your while, then you can try to acquire them.  :pir-classic: 

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When LDD had the option to design a set and order the pieces online, I was firmly in my dark ages but I heard about it and actually tried LDD briefly. I was horrified to discover that the parts/colours selection is extremely limited and the usability of the software is pretty bad. Obviously LDD was improved after that but the limited selection of parts was the biggest hurdle, it didn't even have most of the basic Technic pieces like most gears and axles available. No wonder this feature was scrapped.

In retrospect, though, I kinda understand why ordering custom set of pieces from a wide selection is something where price wouldn't meet expectations. The logistics of handling all the parts is a nightmare for a large corporation with millions of customers who have high expectations of the quality of the service (namely, always exactly correct parts in delivery, and fast delivery times) so they'd have to raise the price accordingly which would make the service disproportionately expensive. Running a Bricklink store is much different in terms of customer expectations and size of the operation. Many BL storekeepers are actually AFOL hobbyists instead of entrepreneurs with profit expectations, so they don't face the same risks and challenges as a large, profit-driven corporation like TLG.

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1 hour ago, howitzer said:

The logistics of handling all the parts is a nightmare for a large corporation with millions of customers who have high expectations of the quality of the service (namely, always exactly correct parts in delivery, and fast delivery times) so they'd have to raise the price accordingly which would make the service disproportionately expensive.

That's just one side of the equation, though. More to the point it would likely undermine their core business (selling packaged sets) to a degree where it becomes unhealthy. by that I not only mean people no longer buying the sets, but their internal production process becoming extremely inefficient e.g. due to them having to produce new lots of specific parts every other day and the machine maintenance and changeover times, parts storage and so on becoming a nightmare.

Mylenium

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Maybe the COVID situation will eventually lead expanded online Pick-A-Brick type service.

Pick a Brick could expand by offering bulk parts in preset quantities, for common parts at least, like back in the old days LEGO had SERVICE sets, or generic boxes with just red roof tiles for example.

The problem with current CLASSIC theme is that you'd only get a few parts of certain color/shape in each set, even while the parts are mostly traditional bricks and slopes, and Xtra doesn't offer sets like this

812-1.jpg?201501081004

Instead CLASSIC offers this, sure it has roof bricks but only a few of each shape and color.

11008-1.jpg?201912050531

Would be amazing to have an online Build-a-Minifig selection as well.

That's as far as I see custom builds expand on the market, and not full on custom sets.

(But keep in mind I would not want to limit parts availability of Bricks and Pieces, as I know lots of people order specific things from there)

 

Edited by TeriXeri

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On 5/12/2020 at 10:32 PM, legotownlinz said:

None of these services ever targeted the mass market and none of them had the technical infrastructure to handle custom orders efficiently. When done right, it could work. The high upfront investment is a risk, obviously.

What does work mean though? For LEGO, surely work means that they make more money overall. They can do this more effectively by designing their own sets and selling them to more new customers, rather than expecting these new customers to design their own builds and pay more for them than sets off the shelves.

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@TeriXeri I'm surprised they are limiting online pick a brick orders during this pandemic. If anything, I'd think Lego would take advantage of this. 

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52 minutes ago, Brandon Pea said:

@TeriXeri I'm surprised they are limiting online pick a brick orders during this pandemic. If anything, I'd think Lego would take advantage of this. 

I've made two orders to circumvent the limit.

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1 hour ago, MAB said:

They can do this more effectively by designing their own sets and selling them to more new customers, rather than expecting these new customers to design their own builds and pay more for them than sets off the shelves.

I didn't say Lego should stop making their own sets, of course they still need sets for the toy market and the Lego stores.

Your assumption that customers buy Lego sets when they can't buy custom sets might be wrong if there are better alternatives. I started this topic because I'm considering to collect clone brand sets that I can better use for my city/train layout. Just take a look at these sets and compare them to Lego's train offerings. Do you really think that Lego will not loose market share if they don't improve?

I wish I could build the Bluebrixx train sets with Lego bricks. The instructions can be downloaded but it requires dozens Bricklink orders and costs a fortune. I guess it's more likely that 99% of the customers buy from Bluebrixx and not from Bricklink or Pick-a-Brick. I'd like to avoid clone brands, but I don't know how to do it. Buying Lego sets only gets less and less reasonable. Am I really the only one who is unhappy with the current situation?

Edited by legotownlinz

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2 hours ago, TeriXeri said:

Maybe the COVID situation will eventually lead expanded online Pick-A-Brick type service.

Pick a Brick could expand by offering bulk parts in preset quantities, for common parts at least, like back in the old days LEGO had SERVICE sets, or generic boxes with just red roof tiles for example.

The problem with current CLASSIC theme is that you'd only get a few parts of certain color/shape in each set, even while the parts are mostly traditional bricks and slopes, and Xtra doesn't offer sets like this

812-1.jpg?201501081004

Instead CLASSIC offers this, sure it has roof bricks but only a few of each shape and color.

11008-1.jpg?201912050531

Would be amazing to have an online Build-a-Minifig selection as well.

That's as far as I see custom builds expand on the market, and not full on custom sets.

(But keep in mind I would not want to limit parts availability of Bricks and Pieces, as I know lots of people order specific things from there)

 

Yes, those CLASSIC sets are not very useful due to the rainbow colour palette combined with the wide variety of moulds. I'm sure kids love them but I also think that it would be much better to release colour coded sets of generic pieces, let's say containing a selection of parts in 3-5 shades of the base colour. This way the boxes could cover a wide variety of colours and moulds but for example someone making a landscape with river could buy only greens, browns, blues and maybe greys while skipping on yellows, purples and reds along with black and white.

Currently one has to resort to either B&P or aftermarket to find what they need, and while it's all well and good to be able to order exactly what you need, I think it would be nicer for example for a someone with a vague castle idea to buy a box of grey parts and see what happens, as it promotes creativity very differently when you have a limited but not too limited selection of parts at hand.

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6 minutes ago, legotownlinz said:

I didn't say Lego should stop making their own sets, of course they still need sets for the toy market and the Lego stores.

Your assumption that customers buy Lego sets when they can't buy custom sets might be wrong if there are better alternatives. I started this topic because I'm considering to collect clone brand sets that I can better use for my city/train layout. Just take a look at these sets and compare them to Lego's train offerings. Do you really think that Lego will not loose market share if they don't improve?

I wish I could build the Bluebrixx train sets with Lego bricks. The instructions can be downloaded but it requires dozens Bricklink orders and costs a fortune. I guess it's more likely that 99% of the customers buy from Bluebrixx and not from Bricklink or Pick-a-Brick. I'd like to avoid clone brands, but I don't know how to do it. Buying Lego sets only gets less and less reasonable. Am I really the only one who is unhappy with the current situation?

I looked at the website, and I didn't really see anything that couldn't reasonably be replicated in Lego. The only thing Bluebrixx appears to have going on for them is that they offer themes TLG doesn't (=military etc. but that has been talked in length elsewhere) and their prices are lower per piece. The latter of course begs the question, why are their prices lower? I'm guessing, lower profit margin and probably lower quality for the bricks. One thing that has kept TLG afloat for all this time is that they have never compromised on quality of the basic product itself and it has created a strong brand which everyone recognizes and associates with expensive, but high quality product. I'm sure the clone brands will start eating TLG's market sooner or later, but I believe it's a slow process and gives TLG plenty of time to react and adapt. They probably face a stronger competition from other kinds of toys and entertainment, especially video/mobile games and such.

Of course the Bricklink orders would cost a fortune, try doing the same with a similarly sized Lego set (as in buying the parts separately) and you'll see that it would cost a fortune too. But if a ready-made kit is what you want, why are you even considering a Bricklink order? Bluebrixx will never make the exact same sets as TLG, nor will TLG make the exact same sets as Bluebrixx, so if you want a certain set, you'll have to buy it from whoever made it, or pay extra for the Bricklink hassle.

One problem with clone brands is that there are so many of them, with varying quality and availability and that they generally aren't compatible with each other (or Lego) even if they try to. Let's say that you start buying sets of brand X, and get a nice collection going on making great MOCs. Then for one reason or another, the manufacturing stops (company goes bankrupt, or decides it's not profitable and shifts to some other market or whatever), and then you'll find yourself with a collection of bricks that are practically worthless for resale, and with no possibilities to expand your collection or replace worn out or broken parts. I think similar thing happening with Lego isn't nearly as likely (not impossible, but less likely) scenario, considering that even if the company went bankrupt, the brand is strong enough to attract buyers who would probably want continue the core business of making bricks.

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11 minutes ago, howitzer said:

But if a ready-made kit is what you want, why are you even considering a Bricklink order? Bluebrixx will never make the exact same sets as TLG, nor will TLG make the exact same sets as Bluebrixx, so if you want a certain set, you'll have to buy it from whoever made it, or pay extra for the Bricklink hassle.

I'm interested in the theme, not a particular set. If Lego offers something train-related, I would buy it instead of a BlueBrixx set.

Edited by legotownlinz

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45 minutes ago, legotownlinz said:

I'm interested in the theme, not a particular set. If Lego offers something train-related, I would buy it instead of a BlueBrixx set.

You make it sound like trains have been discontinued, but there are several sets available currently, and even PoweredUp-scheme includes a new train motor, so obviously TLG is interested in producing train sets in the future too. So what's the exact problem here?

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