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About Faefrost

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  1. Lego (TLG) 's economic woes

    Interesting list. Lego looks to be much better positioned than I thought. $29 Million in TRU debt is not bad. It actually looks like very very conservative lending and inventory policies, considering how much product Lego has in the stores and what their total sales are. As a counter point look at "Spin Master" at $32 million. $29 mil is probably around 1% of Lego's annual sales. Yeah 1 point off margin is harsh. But not that damaging. But does anyone think Spin Masters product lines are that broad and profitable? TRU is probably holding 20-30% of their annual revenue. I can't see Hatchimal's or even Air Hogs doing more than $100-150 Mil annual? The same thing with Just Play. If TRU owes you more than they owe the #1 Toy Company, you have likely overextended how much credit you've been giving them, and you are boned! Graco, Hasbro and Mattel are all Billion $ outfits. It will hurt but the only really worrying number is Mattel. That's a harsh amount of exposure there. Mattel, maker of Barbie, Hot Wheels and other toy brands, owed $135.6 million Hasbro, which owns the Star Wars license, owed $59 million Graco children's Products, car seats and baby gear, owed $59 million Spin Master, Hatchimals, Air Hogs, owed $32.7 million Lego, building blocks, owed $28.9 million Just Play, Care Bears, dolls, licensed toys, owed $28.9 million MGA Entertainment, Bratz, Little Tikes, owed $21.6 million VTech electronics, learning toys, owed $17.7 million JAKKS Pacific, costumes and various licensed toys, owed $14 million Radio Flyer, Wagons, bikes, play cars, owed $12.2 million They don't have much choice. Payment for the holiday stuff is now guaranteed by the court. And where else are they going to sell the stuff. The vendors aren't going to take a massive holiday hit. This is part of why TRU likely filed now. If they had let it go they would have risked inventory problems as vendors got scared about being paid for holiday merchandise. But rest assured TRU will not be getting "very best customer" finance rates from any of them. Many of the smaller vendors will be in a very tight spot and may not continue to ship. Mattel, Hasbro, Lego and Graco as examples will play nice as that helps to keep them in the Judges good graces as mission critical vendors, so likely to be near the top of the outstanding bills paid.
  2. It is much more nuanced then that. The Bankruptcy filing has probably given the larger vendors confidence that anything TRU orders for the Holiday Season is protected by the courts and will be fully paid for. But by the same token TRU is not gonna be getting good rates on it. A lot of it will depend heavily on how much exposure a given merchant has with TRU and how they think the court will treat them. Not every vendor will be treated equally by the court. Since it's chapter 11, the court will be looking to ensure a continuation of business. So some priority will be given to making the primary and mission critical vendors happy. Mattel, Hasbro, Lego, they are probably not in too bad of a place. NECA? Yeah they're gonna be boned. The big uncertainty is that almost $6 Billion of Debt isn't from business operations. When Bain Capital bought TRU on the 00's and took it private, they did so via Leveraged Buyout. Basically they put up none of their own money and instead too out a massive mortgage on the cost of buying the company. That the company is then responsible for paying back itself. (It would seem like this should be in some way illegal, but remarkably it isn't.) It all depends on how that Debt is structured. Under normal circumstances that should be the lowest priority as it is obviously a very very risky loan, as opposed to payment for merchandise. But Bain and their bankers can be tricksy hobbitses. At least as a Private Company that debt should all be to Banks and investment firms. You aren't going to hear any complaining about Pension Funds taking a hit on TRU except for their own employees. I don't think that Lego is at a high risk of losing their primary distribution arm. But I think they will take a fairly noticable write down for second and third quarter on bad debt to TRU.
  3. Lego (TLG) 's economic woes

    Of the major toy players Lego is better positioned than Hasbro or Mattel. Hasbro in particular is I think way to extended into TRU with far too much exposure there. Plus they have been getting battered and bloodied in other areas. Of the big players Lego and Bandai are probably in the place of the least damage. Still not a good place to be. And no matter how you slice it Lego has an awesome amount of real estate in each and every TRU store. That equates to major exposure and loss.
  4. Lego and every other vendor will be denying sales or new product to Toys R Us until or unless they have ironclad agreements from the court regarding how they will be getting paid going forward. Weirdly entering Bankruptcy increases the chances that they will be able to get further financing for merchandise. The shoe is dropped. Anything going forward is protected. The real problem is payments that are already late or are coming up. Loans or credit that has already been extended.
  5. Lego (TLG) 's economic woes

    Toys R Us just filed for Federal Bankruptcy this week. At least the US and Canadian stores did. The European ones are owned by a different company. Woe's might be understating things, depending on how much money they owe Lego?
  6. It depends. If it is something I have intentionally built for display, and specifically pre designed and purchased the parts for, such as a custom Modular building, it is considered more or less permanent. At best I might tear part of it down to improve it and put it back up. But it never gets stripped all the way down once built so long as I have a place to put it. Things from my regular part stash get built and torn down constantly.
  7. One slightly related thing to keep in mind. As somebody pointed out a few pages back, much of Lego's losses were reported from the "financial" side of things, not the product sales etc. We have been assuming that would likely be currency exchange rates working against them. But something else just reared its ugly head yesterday. How much exposure do you think Lego has to the North American ToysRus stores? How much credit for merchandise have they been extended? ToysRUs is reportedly carrying a $5 Billion (usd) Debt load. How much of that is owed to Lego? Mattel? Hasbro? etc. TRU may survive Bankruptcy via court restructuring etc, but what they owe the manufacturers the manufacturers will end up eating. Unless TRU was arranging financing through a third party bank or entity to purchase merchandise, these vendors are completely and utterly screwed. If you think this recent Lego report is bad, just wait until we see the next one, where they have to right down everything TRU owes them. Every piece of inventory sitting in TRU stores or warehouses (they don't get to repo that. The Judge considers that assets of the bankrupt corp.) yeah that is going to be an UGLY financial report. Although I think Hasbro's will be much worse.
  8. I think you guys are missing my point. It isn't that they are doing large adult targeted sets or huge $120+ sets. It's the shear volume of them at similar and competing price points. Once you cross a certain threshold of the number of similar sets per price point on your shelves, you start competing with yourself rather than just other manufacturers. This is true across all price points but is particularly acute in the high end stuff. With the traditional and highly effective Lego release Wave model you would get one or more impulse sets, a $20 set a $30 set a $50 set a $70 set and a $100 set. (Or some slight variations thereof) This made full capture of a customers spending budget possible and likely. Any additional $100 sets in that target interest are just going to force a decision point on the consumer. A or B. But either way Lego loses as they have increased production costs with multiple sets at that point, without a commensurate increase in consumer budget or spending habits. This was one of the problems in the late 90's and early 2000's. Not the only problem, but one of the core ones. When Professor Robinson talks about Lego losing control of Product Management and not understanding how much sets were costing to produce, this is a big part of it. And it all is a case by case thing. It requires some context. City has thrived with a touch of oversaturation at the $20 price point. The long running great vehicles line. Similarly the Speed Champions line thrives at a just above impulse price point for many sets. But overall the lines feel a bit oversaturated and conflicting to my not inexpert eye. They aren't at a critical stage. Certainly not to 2003 levels. But it is something they need to keep an eye on. The Batman movie sets sold well for Lego, but to my eye an awesome number of them were being blown out at discount prices at retail. I suspect that everybodies numbers would have been better with a smaller more focused selection of sets. I'm not one of those calling for an end to Star Wars or Ninjago. The lines do well. I think Star Wars could do with a bit more or better set selection to leave better differentiation between sets. But they always suffer somewhat at that for movie years, which generally seem to be grey slab after grey slab. Love or hate Clone Wars, at least it forced some color into Star Wars. I would agree that a large part of Lego's financial downturn is likely tied to fluctuating international exchange rates. Plus mixed with areas where they are seeing high sales growth, China, they are not necessarily seeing similar high returns or margin growth. Sales in China of almost anything foreign notoriously give a much lower return to the producer than an equivalent sale in North America Europe or other parts of Asia. Lego's not going anywhere. Knudstorp is a savvy and experienced businessman with a keen eye towards the financials and the direction of them. He's not going to let Padda get too far afield of market trends in their core business. But they are facing some headwinds that they had not seen for a few years. The adult retro pop culture collector boom may be fading a bit or moving onto the next baby boomer big thing. Their retail channels are growing stressed from modern era disrupters. Exchange rates are not as favorable in some of their largest markets. And their only growth direction lies in China. A direction fraught with business peril. It will be interesting to see how it shakes out.
  9. LEGO Ideas Discussion

    I always hate when something like this happens, as the horde of internet rules lawyers will charge forward championing their preferred failed project and demanding a recount. See here's what everybody misses. The project failed the first time for a reason. Outside of some very very exceptional circumstances, that same reason will also fail it again. The business case doesn't change that much. When the project pops up again the reviewers just open the prior file, see why and get out the big red rejected stamp. This can get particularly weird regarding licensed properties. Because a given property was first presented for formal review during a time when it was in some way circumscribed by or in conflict with a license, that conflict for that specific submitted project may remain, even if the license expires. Simply because it was first reviewed under the terms of that prior license. Would the Western Town be considered to be prior work developed during the period covered by the Lone Ranger license for example? And would that license have precluded any such development? Not simply release? They have always been distinct merchandising licenses. In part because the ownership or partnerships between JP and JW are slightly different. I would suggest to Lego, permit 2 wins. Upon the third win, just hire the designer instead.
  10. You are not alone. It's actually one of Lego's major problems right now. One that they had years ago and managed to recover from. Back before their near bankruptcy they had among other things lost control of product discipline. They were putting two much new product offerings on the shelves, canibalizing themselves and creating overwhelming decision points on the toy aisle. This is bad business. Right now there are too many Lego sets being brought to market at far too many and too high price points. Look at a traditional Lego wave for an annual or seasonal theme. 5-6 sets, perfectly spaced along a cost curve starting with an impulse buy, up through a $20 ish set, going up a few price tiers to the theme anchor set. The big fortress etc. that tops out around $90-120. It was an environment where a kid or parent could reasonably menlly and financially invest in a theme and gather the full set. Which made it feel complete, and good and special. They might come back the next year and do it again with another theme. Now look at the Lego Batman Movie sets and you can clearly see where it all went wrong. Look at the shear volume of them. The random pricing. The overpricing. The difficulting in assembling anything that felt complete. And even how disjointed the sets felt to each other. No kid is going to collect them all. At that point other than say a batmobile, why get any of them? To much choice leads to a negative decision loop where the consumer walks away. A sure thing purchase becomes "do I really need or want this?" And in the past two years Lego has grossly over saturated their offerings. The number of upper tier adult targeted sets has quite frankly gotten untenable. Look at the Lego Ninjago movie sets. There are at least three sets in there that are so insanely outside the kid target market as to call into question the product managers judgement. They are gorgeous sets. Glorious sets. Some of the finest sets that we as AFOL's have ever seen. But they really weren't made for the kids now were they? That Destiny's Bounty? Yeah no. That Ninjago City? Heck no! And while the AFOL in me is squeezing with delight, the MBA in me is looking aghast and wondering what unhinged lunatic in product management and approval thought an $800 Millenium Falcon was a good idea? This all gets back to another problem that we have seen looming for a few years. The adult "Speculators Bubble". Instead of taking steps to counter it, or simply ignore it and proceed as normal, Lego started to sell into it, thus increasing their product offerings to the current saturation levels and their pricing past tenable levels for the original intended purpose of their product. That bubble is now bursting. Big time. Just as it did with comic books, beanie babies and any other kid thing adults get fascinated by. (For those curious I am sensing a bubble starting to build over in high end die cast robot toys. The nerd collector is an ever fickle soul.) Lego will have some hard decisions to make in the next year. Their product lines are over saturated. They have too many of them. And too many of those are locked in licensed properties that limit their flexibility and shelf space to go back to their traditional strengths. At the end of the day Lego also has a bigger looming problem. The bulk of their sales do not go through Lego stores or shop.lego.com. They go through Big box stores. Has anybody looked at TRU's balance sheets lately? Notice that Walmart and especially Target have been trimming sales with regard to inventory on hand? Notice that the Lego aisles at these chains are looking more mangy and picked through lately? Re stocks aren't happening, or aren't happening as frequently. If the product isn't out there to buy, it won't get bought. And weaknesses in other areas get transferred through and spread to other vendors via the available cash flow for inventory of the mass merchants. If you watch the shippers in the stores Lego remains one of the most desired brands on the toy aisle'. But it still suffers when the stores high margin products are being steadily eroded by Amazon. Lego is the lucky one. Has anyone tried finding Mega brands on store shelves lately? The terms sparse, sporadic and short term come to mind for any of their offerings. They are still doing better than any of the other brick competitors that aren't Chinese bootleggers.
  11. First 2017 LEGO Ideas Review - Guessing Game

    It's not like it is a matter of "opening the door". Lego has and continues to do a number of military style jets and helicopters. Just so long as they are not in real world military markings. Excepting Coast Guard. Heck Lego has produced a technic C-130 in Coast Guard Markings. I can see them doing the U-2 or SR-71 in NASA markings with no problem. You might even see something such as a USAF marked purely research plane such as an X-15. There seems to be a bit of nuance regarding Lego's "No Real World Military" rules. I think the big rule is "nothing that depicts or implies real world violence or weaponry of war". Context will be everything. For example I don't think Lego would have any more issue making a kit of the US's Air Force One Presidential Plane, then they would of the White House or Parliament. Even though technically it is a US Air Force plane. It's not a combat system. It's not something that a child in a war zone is going to see flying overhead dropping bombs or rolling down the street to the sounds of gunfire and explosions.
  12. First 2017 LEGO Ideas Review - Guessing Game

    I'm going to go with Sega Arcade Machines as a likely winner. It seems to be in that nice mix of size, nostalgia and unusual subject that Ideas likes. I'm also going to say, entirely depending on timing, that the Tron Lightcycle has an unexpected outside chance. As part of the buildup to Walt Disney Worlds 50th anniversary Disney has broken ground on a ton of new rides for the Florida parks. One of them, the first wholly new Ride Building in Epcot in decades, will be a Tron ride. So there might be some fortuitous timing and marketing interests there.
  13. LEGO Ideas Discussion

    I've heard from a few people with first hand knowledge that the nice folks at WEP fell in love with the project the moment they saw it. The delay was likely more to do with license complexities. Right now WEP has three very active Voltron toy licenses out and in effect. Bandai, Playmates and Toynami. All with new product currently on shelves. So there was probably some extra due diligence needed to insure no conflicts anywhere. There may have also been some price haggling. Voltron is currently a hot license. But like I said, the WEP folks really really liked len_69's set. So there was going to be a deal done. I rather suspect that it will essentially be a Creator set. You can build it one of two ways. Either as the Voltron Robot or as the Five Lions. In the robot collector world we call this "parts forming". While not considered a good thing in terms of die cast robots, Lego IS partsforming.p by its very nature. So it's forgivable and expected. Edit: And my early prediction for the next review cycle. I'm betting on the Sega Arcade Machines. Everything else is either a license that they won't go for, or too generic looking. Longshot bet on the Venetian Houses.
  14. LEGO Ideas Discussion

    I'm so thrilled for Voltron. The proposed set is just so good. A work of art. I'm so thrilled for len. The ship in the bottle doesn't surprise me that much. It's distinct and different. A new and fascinating use of Lego, which seems to be a key element to Ideas sets chosen. They look for things we have never ever seen before. As much as I wanted the diner, it's a good choice. Besides I can't be too critical, the Voltron news just made my day.
  15. Third 2016 LEGO Ideas Review - Guessing Game

    Voltron is 100% WEP except for the latest Drwamworks/Netflix show. In that case Dreamworks can extend a sublicense, but AwEP is still controlling IP holder. No other entities involved. Not even Toei anymore. The problem is Voltron as a license suddenly went hot, and is likely expensive now. Plus the fact that the project is extremely large might preclude it. (Although it might not. Bandai currently can't keep the $300 Soul of Chogokin GX-71 Voltron stocked on store shelves, they sell out so fast. The robot released in January is already commanding 2-3x list price aftermarket.)