BLOCKS: Why LEGO Needs To Be Collectible
An excerpt from a recent September 5th article in The Guardian…
The company had enjoyed a decade of growth, helped by franchise deals based on Hollywood films such as Star Wars, Harry Potter and Indiana Jones, and the introduction of the Lego Friends range aimed at girls. Success continued with the launch of ** in 2014.
Lou Ellerton, associate director at the brand consultancy Mash, said Lego had over-extended its product offering, partly because it has licensed so many popular brands, and was operating in a competitive environment.
"Lego has tripled its workforce and more than tripled the number of lines they offer [over recent years]. Realistically there is a limit to how much people can buy at any one time. There has been so much licensing they are over-extended."
Ellerton said there were rival, cheaper products available that might not have the famous licensed names but were essentially toy building blocks. "Parents are becoming much more conscious of value for money on toys," she said.
More importantly than the above information, the article stated that The LEGO Group's mid-year profits were down across major markets for the first time since 2004 and that it was letting go of 1400 employees...about 8% of their total workforce. This is not good news for LEGO. After last year's flat sales in the United States, the party appears to be over for nonstop increasing profits for The LEGO Group. But the major question is why?
Well, from the above statement and others that have been released, it would appear LEGO is blaming extreme, unsustainable growth, excessive overhead, cheaper competition and a multitude of other issues that every modern-day company refers to when profits are down. Maybe they need to dig a bit deeper and look at what has changed over the past decade. If we look back at the early 2000s, LEGO was coming off one of its worst decades in its history, the 1990s. Sales were stagnant, product lines were uninspiring. But then something changed. LEGO agreed to licensing deals with franchises like STAR WARS and Harry Potter and began building more complex and detailed LEGO sets aimed at older LEGO fans. The "Ultimate Collector Series" from the STAR WARS theme was created and interest in LEGO sets grew once again, but this time, fueled by adult buyers with extra discretionary income to spend on "toys."
Let's face it, LEGO bricks will always be a "kid's toy" at its heart, but it is my belief that the recent upsurge in profits for The LEGO Group was aided by the LEGO secondary markets. Children will always be the main user of the LEGO brick, but it is the parents that are the major purchaser of the products. As stated above, there are pressures from cheaper manufacturers of similar brick-type toys. What's worse is that there are uber cheap knockoff companies duplicating both new and retired LEGO sets exactly and with increasing quality. If parents don't find "value" with a product, they will move to other entertainment sources for their kids. LEGO sets are expensive...always have been. I have been a fan for over 40 years, and they were always the most expensive toy in the toy section of the local K-Mart or Toys R' Us. But along with that high price tag came an exceptional product that was unique and of high quality and standards. While that has not changed for the most part, toy competitors have upped their game and other sources of children's entertainment have been developed. Why build LEGO bricks when you can build worlds in Minecraft using virtual blocks for the one-time cost of the game and system? If LEGO wants to remain on the top of the toy world's food chain, then either they must make their product cheaper or make it worth more.
While I am certain LEGO could produce more cost effective sets, that has not been their modus operandi for the past 50 years. If that is not an option, what's the alternative and what do I mean by "making it worth more"? Let me introduce you to the term...perceived value. From the Investopedia website, here is the definition:
**Perceived value is the worth that a product or service has in the mind of the consumer. For the most part, consumers are unaware of the true cost of production for the products they buy; instead, they simply have an internal feeling for how much certain products are worth to them.
Perceived value is one of the most important qualities in the world of collectibles. Without it, the collectibles are basically worthless and for the most part, people collect things because they are valuable or potentially could be. Perceived value is also one of the most important factors that differentiates LEGO from all of its competitors in my opinion. At the moment, people perceive LEGO as a quality, high-end toy that is worth paying higher prices for. But times are changing and so are LEGO's competitors, legit or not. There will come a time in the not so near future when counterfeits and competitors' bricks and designs are just as good or damn close to The LEGO Group's products. Why would one pay top dollar for a product that is no different than other similar products? A name? Maybe, but that wears thin after awhile, especially with toys that are played with and usually discarded a few weeks or months later. LEGO products are facing tremendous pressure from outside forces, and it will be very difficult for them to continue being profitable unless their current philosophy returns to what made them great only a decade ago. Let me explain….
About a week ago (These articles are always dated a bit...sorry.), LEGO announced the re-release of the 10189 Taj Mahal. It will be a large Creator set numbered 10256. It will be basically identical to the decade old original. No new pieces or building techniques...just an exact duplicate of the iconic original. The 10189 Taj Mahal was a set that has sold for thousands of dollars on secondary market sites like eBay and Amazon, but with this re-release, the older set's value will take a huge hit. Now, some LEGO fans are happy that they get a chance to buy this set for around $400.00 instead of $4000.00, but there are also those like myself who are quite upset with this re-release. To us, it will not only destroy the values of current 10189s in existence, but there will be a trickle-down effect on all used and retired LEGO sets. It is a lazy copy of the original that will help LEGO in the short term sell some sets, but in the long term, could damage their entire brand. Why? Perceived value.
I've been a LEGO fan for over 40 years and owned and built thousands of sets. I have never sold one for profit, but I do like the fact that they appreciate like a collectible. My brother Jeff and I were at ground zero with the whole explosion of the LEGO secondary market. Some would say that our BrickPicker site helped pump up the secondary market just a little. Some people say we hurt the secondary market by promoting the collectibility of LEGO too much. Regardless, the LEGO secondary market was just about ready to explode a little over a decade ago. eBay and Amazon were becoming internet monsters, and people realized that LEGO sets were a prime candidate for reselling on that sort of platform. In fact, LEGO to this day is one of the most sold products on the entire eBay site. Resellers realized that LEGO sets had a high perceived value and after retirement, the value only grew. LEGO did not reissue sets, and they retired them on a predictable and frequent basis, which made them highly collectible. LEGO fans could go on eBay and locate older and retired sets and then pay a premium for them. Most people did not mind. They understood that LEGO sets held their value, even used or built. It was one of the few toys that could be played with and sold for a profit later. Everyone was happy a few years back. Resellers were happy, collectors were happy and The LEGO Group was happy. Record profits for the company became an annual ritual. The LEGO secondary market was exploding. LEGO appreciated better than Gold! But then things started to change.
LEGO started to ban resellers from LEGO Shop @ Home. Restrictions were put on purchases. Discounts were stopped on "exclusive" LEGO sets. Sets were no longer being retired on regular intervals. Classic sets were being reissued or remade. All these things hurt resellers and collectors. They also hurt the LEGO secondary market and perceived values of retired sets. It is my belief that there is a direct correlation between the primary and secondary LEGO markets. I believe that the secondary markets helped fuel this LEGO profit explosion over the past decade and that LEGO's current method of doing business is hurting the secondary markets and will and might already have hurt their current and future profits. With eBay's and Amazon's rise to power, the secondary LEGO markets and The LEGO Group's profits all took off at the same time. The LEGO Group's profits are shrinking now and over the past year and a half. Why? Maybe because resellers and collectors are not buying quantities like they did only a few years ago. Many resellers and collectors would buy dozens of one type of set to save or resell at a future date. Now, not so much. By re-releasing sets like the Taj Mahal or UCS Millennium Falcon, the perceived and actual value of iconic sets has shrunk and will continue to shrink if LEGO keeps reissuing retired sets. It is no surprise to me that profits in the United States are the hardest hit. From what we can see from the data on our site, reselling LEGO sets is an American phenomena by a large margin. Discounts, lower taxes and shipping costs enable resellers to be more profitable in the United States. While there are resellers and high- end collectors in the United Kingdom and Europe, the vast majority are from the United States. Why are LEGO's profits down in the United States more so than the rest of the world? Go ask a reseller.
So this leads us to the final question...Why should the secondary market prices of LEGO sets matter to The LEGO Group and to LEGO fans in general? Once again...perceived value. If LEGO wants to continue to get paid top dollar for a box of ABS plastic, it would really help if these bricks appreciated after sets are retired. It could entice potential buyers of new and expensive LEGO sets to shell out hundreds of dollars for a box of plastic. If the perceived value remains high on both the primary and secondary markets, then people might be willing to spend more of their discretionary income on LEGO sets instead of counterfeits or cheaper competitor brands. Regardless of what many "builders" say, money matters. Even people who are just builders appreciate the fact that their LEGO collection is valuable and not just a pile of plastic. As stated earlier by LEGO representatives, LEGO has gotten too big, too fast. There are too many sets being produced, with too many choices. Some themes are just not worthy or special, and when that special set comes along that is super popular, LEGO cannot meet demand. LEGO has had production issues on multiple sets recently, yet they are laying off 1400 people. It doesn't make sense.
LEGO should embrace the collectible aspect of the toy and run with it. Make more sets limited in production. Remember that it's adults that BUY most of the LEGO sets, not children. They buy them for their kids and themselves and do realize the high cost of the product. It would behoove LEGO to promote the collectibility aspect of their product. They could even use it as an advertising pitch. More choices aren't always better. Less choices that are more valuable could be the answer for production and employee issues. Don't reissue sets and, if you do, make them different enough from the original to enable the original to hold some of its value. Retire sets within a reasonable amount of time. Give fans less, but better designs. Recent Ideas-themed sets have been spectacular. Use MOC designs more often if the development costs are too much. Many LEGO fans would design sets for FREE if they just got some recognition. Don't ban resellers or collectors. Be grateful for the business. Protect the brand. Fight counterfeiters and educate the public to the potential dangers and illegality of knockoff sets. Don't be so corporate, remember short-term gains could hurt long-term goals. Finally...Embrace the LEGO secondary market. If that is growing and healthy, The LEGO Group's profits will follow suit. It already happened once and will again if given the right set of conditions and corporate policies.
In conclusion, it is ironic that the release of the 10256 Taj Mahal is most likely due to the performance of the 10189 Taj Mahal on the secondary market. Its explosive growth was probably the reason LEGO re-released it, hoping to capitalize on the after (production) life of the 10189 Taj Mahal. Where were all these fans who crave reissues of iconic sets a decade ago when the 10189 was available at retail? Not buying them, that is for sure. Now they want what they didn't have the foresight to buy (or chance in some cases for newer fans). The 10256 Taj Mahal was an easy reissue for LEGO. The set is made from basic bricks, readily available and in large supply, I would imagine. But The LEGO Group needs to be very careful if they choose to continue down this path of reissues. What were once considered "special" or "Iconic" sets will be the norm. Perceived and actual values will drop across the secondary markets and in turn, will influence the buying habits of knowledgeable LEGO fans that have the discretionary income to spend on expensive toys. My purchase habits have changed drastically, and I used to buy hundreds of LEGO sets a year. I get the sense, from our forum discussions on BrickPicker, many others have reduced their LEGO purchases as well. LEGO controls its own destiny, but I hope they realize most LEGO collectors and resellers care about keeping LEGO perceived values high and in protecting the brand from scammers and scoundrels. I would like to see LEGO revert to the ways of a decade ago, when retired sets were retired and they were interested in innovation instead of replication...
