Friends - Gut Check for this Bear

Is the Friends theme worth investing in? If one were to search the forums for an answer to this question, you would find rather fervent opinions on both sides. Currently the Friends theme sports a CAGR of over 35%, making it one of the highest in the LEGO universe. So is that it, end of story, numbers don’t lie – ‘Friends’ is an investment winner? It is hard to say with such a short history to go on, but I’m skeptical.

There is no question that the Friends theme has been exceptionally popular at retail and is unlikely to go away any time soon. Does this make it a good investment though? Duplo sets sell very well at retail, does that mean people should start investing in Duplo? Eh, doubtful (I am about to get flamed by the sole Duplo investor out there). ‘Friends’ are hot at retail, but will they be hot in the secondary market? Are AFOLs going to pay a premium for Heartlake Vet or Olivia’s House or a Summer Riding Camp when they are no longer available in stores? One has to imagine that some comparable iteration of these sets will always be available. Surely there will always be a Vet, (Insert name)’s house, and as far as horses – there will always be horses. There will never be a time when a LEGO customer cannot go into a store and find a Friends “Horse” set. Just like there will never be a time when someone cannot go into a store and buy an X-Wing. There aren’t many LEGO certainties, but this is a rare exception.

Almost any retired Friends set is going to have an equivalent set available at retail. Now, the same might be said for the CITY theme as well and certainly there are a number of hits among that theme. What is going to compel someone to pay $200 for a retired Summer Riding Camp when there is a $100 - 2015 Equestrian School on the shelf that is just as good as the Summer Rising Camp, if not better? Do little girls really care that one set is more “rare” than another and therefore more desirable? Are there middle aged women that collect Friends sets and are willing to pay extra for rare retired sets (a la Barbie)? Or, perhaps more disturbingly are there grown men (think Bronies) collecting EOL Friends sets? That sort of condition could certainly lead to highly elevated prices.

Ok, so I have thrown out an abundance of opinion, so let’s look at some actual data. The CAGR is over 35% as previously mentioned – that’s impressive. However, how consistent is that return across the theme? There are currently 54 Friends sets in existence, 10 of which are retired. If we look at just the retired sets we have the following:

This chart illustrates why I think the high CAGR may be misleading. There are a lot of low priced sets on this list. Low priced sets seem to be more susceptible to inflated BP percentages. While the increases look impressive on a percentage basis, the net return is less so. The net return above is based on the “lowest acquisition price” which I thought might be a more reliable way to look at these low priced sets. With that said, there are at least two clearly worthwhile hits that made for viable investments, 3187 and 3942. This list also shows that we don’t have much data to go on yet in determining how well ‘Friends’ will do on the secondary market. These are all newly retired sets after all. The other aspect I wonder about it is how many people had the foresight to invest in 3187 and 3942? It is likely that the supply of these retired sets is low. Now that investors have been turned on to this theme, will future retired sets be in such short supply?

Now going back to the high CAGR and the abundance of low priced sets, let’s look at the breakdown of the current list of 54 sets currently in this theme. Of these, 23 either have not been released or have a MSRP of $0.00. In either case, they are not included in the aggregate CAGR calculation. That leaves 31 sets, (including the 10 retired sets listed above). The MSRP breakdown is detailed in the histogram below.
 

The chart shows that 18 of these 31 sets have an MSRP ranging from 3.97 to 14.99. Therefore, the CAGR for the theme is going to be heavily influenced by these low priced sets. I would be cautious about basing theme wide optimism on data from so many low priced sets.

Now, I don’t hate the Friends theme. I think the Summer Riding Camp is a great set and the upcoming Dolphin Cruiser has great appeal for its uniqueness among the line. I just think we need to look behind the numbers to see what is driving that very exciting CAGR and set investment expectations accordingly. Odd as it may sound I actually have a lot of the $9.99 retired sets above. Now, that is only because I happened upon a huge supply of them at half price and I decided to take on the tedium of reselling them. I don’t expect much from them and will be unloading all of them this year. My purpose in exploring this topic was to see if my gut bearish sentiment was justified and the opinions expressed at the outset reflect those initial gut feelings. I will say that having looked into the Friends line further I do see some potential in very select sets, but count me still in the bear camp. Ok, I'm ready for my pink and purple hate mail now.