My prediction is that sets will remain "Sold Out" for a while...

[maxgc53]

I find this to be an odd corporate policy. If I were a company, I would produce as much of something as I could, that I knew I could sell.

 

Taking this to other avenues, it would be like Sears not allowing you to buy 1,000 refrigerators from them on-line, or Topps baseball cards not allowing you to buy 1,000 of their sets on-line.

 

Lego has built in advantages to their system which would actually make reselling a non-issue if they produced enough of their product.

People consume refrigerators, but in the Lego world many are starting to invest in Lego sets, which can lead to a whole set of problems for the company if they cannot taper the growth back. 

[LeGod]

You don't understand my point. Im saying if the reseller market is driving up false demand, then they will overproduce with respect to true demand. 

 

They do production runs.

They do not overproduce.

They produce according to demand.

'We' buy the sets, just like normal customers.

The aftermarket is not the problem of LEGO

LEGO moves along to new products.

[maxgc53]

They do production runs.

They do not overproduce.

They produce according to demand.

'We' buy the sets, just like normal customers.

The aftermarket is not the problem of LEGO

LEGO moves along to new products.

I give up lol

[iahawks550]

You also however don't have people buying 20-30 refrigerators to flip / invest. There is also the problem with people who will end up deciding they want out and end up  returning all the unsold refrigerators.

I agree that was a bad example. But, if Lego simply let anyone buy what they wanted to buy, given the fact they can produce to what the demand expects, why wouldn't they do that. Better yet, make a corporate no multiple return policy, and returns are only for damaged items, within X amount of days of purchase.

 

This would

 

1: Cut down on resellers naturally because they may not want to take the risk of being stuck with products

2: Allow the company to (theoretically) sell many more items, without banning otherwise good customers.

[spener90]

so says the lego employe  spy  

Take me into custody, I am the Batman... 

[mudcatsfan]

They do production runs.

They do not overproduce.

They produce according to demand.

'We' buy the sets, just like normal customers.

The aftermarket is not the problem of LEGO

LEGO moves along to new products.

let's try a hypothetical, with big round numbers. Feel free to substitute your own numbers if you have better info. Either way the formula is the same. X + y = z

True demand for lego is 1 million sets per year. Demand = x

Investors start buying up sets to save until after retirement and lego does more production runs to keep up. Let's say 1 million. Investors inventory =y

Eventually lego is producing 2 million sets (x+y) some consumed by true demand, some going into storage for investors.

Few years later investors put their million sets on ebay, Amazon, etc, and lego puts their 2 million out each year because they think that's the true demand. New demand = z

There are now 3 million sets for sale with true demand at 1 million. Z+ y = 3 million

If investors keep buying their inventory every year (y) no problem.

If investors keep their asking prices high, no problem.

What if investors stop buying? What if they decide to liquidate?

See the potential risk to lego? When you say lego can control their production runs, how fast can they react to a huge change in demand? How much might that Cost them? Even if they could handle it, Why would they want that risk to exist?

[LeGod]

let's try a hypothetical, with big round numbers. Feel free to substitute your own numbers if you have better info. Either way the formula is the same. X + y = z

True demand for lego is 1 million sets per year. Demand = x

Investors start buying up sets to save until after retirement and lego does more production runs to keep up. Let's say 1 million. Investors inventory =y

Eventually lego is producing 2 million sets (x+y) some consumed by true demand, some going into storage for investors.

Few years later investors put their million sets on ebay, Amazon, etc, and lego puts their 2 million out each year because they think that's the true demand. New demand = z

There are now 3 million sets for sale with true demand at 1 million. Z+ y = 3 million

If investors keep buying their inventory every year (y) no problem.

If investors keep their asking prices high, no problem.

What if investors stop buying? What if they decide to liquidate?

See the potential risk to lego? When you say lego can control their production runs, how fast can they react to a huge change in demand? How much might that Cost them? Even if they could handle it, Why would they want that risk to exist?

 

I give up lol

[jaisonline]

let's try a hypothetical, with big round numbers. Feel free to substitute your own numbers if you have better info. Either way the formula is the same. X + y = z

True demand for lego is 1 million sets per year. Demand = x

Investors start buying up sets to save until after retirement and lego does more production runs to keep up. Let's say 1 million. Investors inventory =y

Eventually lego is producing 2 million sets (x+y) some consumed by true demand, some going into storage for investors.

Few years later investors put their million sets on ebay, Amazon, etc, and lego puts their 2 million out each year because they think that's the true demand. New demand = z

There are now 3 million sets for sale with true demand at 1 million. Z+ y = 3 million

If investors keep buying their inventory every year (y) no problem.

If investors keep their asking prices high, no problem.

What if investors stop buying? What if they decide to liquidate?

See the potential risk to lego? When you say lego can control their production runs, how fast can they react to a huge change in demand? How much might that Cost them? Even if they could handle it, Why would they want that risk to exist?

I totally understand your thought process.

Lego decides to produce 10k sets of abc during any given quarter. Investors buy up 50% of these. Lego thinks they have a winner of their hands so they ramp up production to 20k sets of abc during the 2nd quarter. Investors buy of 50% of these. Now lego has possible artificial demand perception problem. Consumers (aka non-retailers of any form) bought only 15k of 30k produced sets over 6 months.

I just think we are giving Lego investors too much credit. It happened in the sports card market partially because card are cheap to manufacture and packs / wax boxes have a far cheaper buy-in and storage costs than Lego.

My bigger fear is that we have far too many investors during retirement periods of sets. This is due to my "buy and hold" investing method of investing.

[maxgc53]

That is a perfect example of what im trying to get at. I agree right now there is no way the reseller market is throwing off demand by that much, but one day who knows it may be an effect. I think that is why lego is trying to aggressively taper back the growth to try to not have another Minecraft shortage..etc

[Caltrops]

I think there is far greater risk to the individual investor who buys up lots of sets indiscriminately for years and then is unable to liquidate them then there is to Lego as a company.  As has been stated previously, Lego will always be moving on to the next wave of sets/themes/licences, etc.  Don't most investors (at least the ones here) wait and buy on clearance (how many of you will be rushing out to load up the new sets releasing now at full msrp?  That's what I thought . . .you will wait for sales or pick them up 1-2 years from now)?

 

These clearanced sets are sets that retailers either a.) have not been able to sell at msrp or b.) want to clear out  to make room for something else--many examples discussed here of sets with very short shelf lives that are still obtainable on-line.  Yes, an investor could turn around and return 20 sets to their Target or send them back to Amazon, but how much of that is really felt by Lego or even the retailer?  Lego is such a proven product that Wal-Mart and Target will ALWAYS buy it and stock it (unlike some other toy lines--***.I. Joe collector here so I know what I'm talking about) so I don't see Lego having any real worries there either.  

 

While it's possible investors could be creating a false demand for certain sets/skewing the numbers somewhat, the only thing I really see it doing is driving Lego sales more and possibly making it harder for the average consumer to walk into a store and buy a set for their kid on clearance because the investor got there first.  That said, compared to certain action figures, finding a particular Lego set prior to EOL at retail price is no challenge at all.

[mudcatsfan]

I totally understand your thought process.

Lego decides to produce 10k sets of abc during any given quarter. Investors buy up 50% of these. Lego thinks they have a winner of their hands so they ramp up production to 20k sets of abc during the 2nd quarter. Investors buy of 50% of these. Now lego has possible artificial demand perception problem. Consumers (aka non-retailers of any form) bought only 15k of 30k produced sets over 6 months.

I just think we are giving Lego investors too much credit. It happened in the sports card market partially because card are cheap to manufacture and packs / wax boxes have a far cheaper buy-in and storage costs than Lego.

My bigger fear is that we have far too many investors during retirement periods of sets. This is due to my "buy and hold" investing method of investing.

 

I suspect that the amount lego investors are skewing the perceived demand is a not huge factor across ALL lego lines, but i'd love to know how much it is in certain ones.

 

But when you hear about folks (LOTS of us)  buying 30, 40, 50, funhouses from their local Toys R Us, you have to wonder, how many funhouses sold to regular purchases at that particular store? One investor buying a ton of any particular set might really skew the perceived demand.

 

Not across ALL lego lines, but some of the collector focused ones like modulars or UCS star wars? Maybe. With items like the 41999 crawler? ALmost DEFINATELY

[Caltrops]

I suspect that the amount lego investors are skewing the perceived demand is a not huge factor across ALL lego lines, but i'd love to know how much it is in certain ones.

 

But when you hear about folks (LOTS of us)  buying 30, 40, 50, funhouses from their local Toys R Us, you have to wonder, how many funhouses sold to regular purchases at that particular store? One investor buying a ton of any particular set might really skew the perceived demand.

 

Not across ALL lego lines, but some of the collector focused ones like modulars or UCS star wars? Maybe. With items like the 41999 crawler? ALmost DEFINATELY

I agree with this and would be very curious to know these numbers as well.  

[fantomas007]

I think that investors cannot be a problem for TLG. Investors just cover a gap in the demand - they are satisfying the collectors, who are new in the market or just forget to buy what they want. Without investors these collectors would be without chance to buy cetain sets.

The only effects of investors to TLG is just:

1) an increase of demand for lego sets (TLC sells 1 million sets instead of 700 000) - this is a good point not bad point for TLG,

2) an extention of EOL - if TLG finish production of set X after 2 years, then investors are coming and extend a supply of these sets - so a real EOL come in many years after an official EOL - this is without effect for TLG - its just up to TLG, whether they want to participate on such secondary market by extending the official EOL, or by re-edition of the sets produced in the past.

Some of us are describing that the problem for TLG should be a distortion of the market - many investors buy many sets, which can TLG read as a higher demand and produce more and more such sets. But this isnt a problem. Firstly, investors are just a smaller part of customers, which effect is not so big. Secondly, TLG can produce the sets in several portions and react continuosly on the situation in the market. Another factor is that most investors are coming in the end of life of certain set, not in the begining (in order to cut the storage time). And if TLG produce more sets than the real demand is, its definitely no problem - the EOL of this set will just come later than was planned. And more collectors will have a chance to buy such set for normal price. Again - NO PROBLEM FOR TLG.

[b-ran]

They do production runs.

They do not overproduce.

They produce according to demand.

'We' buy the sets, just like normal customers.

The aftermarket is not the problem of LEGO

LEGO moves along to new products.

 

LeGod is assuming, correct me if I am wrong, a JIT system whereas madcatsfan is assuming a more traditional approach where demand is estimated, and inventory is produced to that demand level estimated, not necessarily flexible with current demand.  How does Lego run their business?  Are they JIT?  That is critical to know here in determining the effects of the resale market.  I would think the higher end sets can be more JIT than the smaller sets.  

 

JIT would allow Lego to cease production on dogs and increase production on winners as long as set up costs to change production runs are not significant.  If they have more of a traditional inventory and production approach, then their estimates for their new products will be based on the demand from end-users and resellers combined.  If resellers move out of the market due to diminishing profits from oversaturated markets as madcatsfan has described, then the traditional inventory and production processes of TLG will cause overproduction, and directly hurt Lego.  Either way, resellers are a positive for TLG as a sale is a sale no matter who it is, in the short-term.  Long-term is a different story for TLG depending on a JIT or traditional inventory process.  

 

Conclusion JIT: LeGod is correct.  Traditional: madcatsfan is correct.    Let me know if I am missing something.

[mudcatsfan]

LeGod is assuming, correct me if I am wrong, a JIT system whereas madcatsfan is assuming a more traditional approach where demand is estimated, and inventory is produced to that demand level estimated, not necessarily flexible with current demand. How does Lego run their business? Are they JIT? That is critical to know here in determining the effects of the resale market. I would think the higher end sets can be more JIT than the smaller sets.

JIT would allow Lego to cease production on dogs and increase production on winners as long as set up costs to change production runs are not significant. If they have more of a traditional inventory and production approach, then their estimates for their new products will be based on the demand from end-users and resellers combined. If resellers move out of the market due to diminishing profits from oversaturated markets as madcatsfan has described, then the traditional inventory and production processes of TLG will cause overproduction, and directly hurt Lego. Either way, resellers are a positive for TLG as a sale is a sale no matter who it is, in the short-term. Long-term is a different story for TLG depending on a JIT or traditional inventory process.

Conclusion JIT: LeGod is correct. Traditional: madcatsfan is correct. Let me know if I am missing something.

even if lego can perfectly meet demand, you mention the resellers are a positive no matter what.

If resellers are offering mint in box sets on ebay Amazon and Craigslist, then they are competing with lego and that is not a positive to lego. How big does the reseller market have to get before it impacts them negatively? We can't know that.

But imagine the perfect storm of resellers wanting to dump 100's of thousands of LEGO sets in a short period of time, and not buying new sets, thus lego can't move their over inflated expected demand, and they've got low priced competition for sales.

That could be a bad situation for them.

[b-ran]

Positive in the short term as they sale loads to resellers. Short-term only considers current and immediate sales.
JIT is a pull system where it is produced as it is ordered essentially. They only produce as they receive orders. They could do this with of out of stock items on the LEGO Shop at Home. When it is out of stock, they wait until they get orders, then only produce equal to orders. We are talking immediate sales I the short-term. Your question starts looking forward after resellers have bought loads from sellers, that is moving into the long-term.  I'm not saying they do JIT, just if they do, then they only produce to current demand.  Not demand from previous sales.

When you say lego is competing with resellers, we have to remember Lego already sold a set to the reseller (could have been through a myriad of ways). Walmart and TRU et al, are resellers no different than the scenario provided. Are you also implying non Lego retailers are bad for Lego?


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[Caltrops]

^^^^^^^^^^This.  I don't see how Lego competes with re-sellers.  They made their money from the set once they sold it to Target, Wal-mart, or from their own stores and they won't look back.  So what if a reseller turns around and sells it cheaper?  Unless they are making the sets themselves they are zero competition for TLG.  If a company has to sell each of it's products twice in order to be viable then they are all sunk.

[mudcatsfan]

Positive in the short term as they sale loads to resellers. Short-term only considers current and immediate sales.

JIT is a pull system where it is produced as it is ordered essentially. They only produce as they receive orders. They could do this with of out of stock items on the LEGO Shop at Home. When it is out of stock, they wait until they get orders, then only produce equal to orders. We are talking immediate sales I the short-term. Your question starts looking forward after resellers have bought loads from sellers, that is moving into the long-term.  I'm not saying they do JIT, just if they do, then they only produce to current demand.  Not demand from previous sales.

When you say lego is competing with resellers, we have to remember Lego already sold a set to the reseller (could have been through a myriad of ways). Walmart and TRU et al, are resellers no different than the scenario provided. Are you also implying non Lego retailers are bad for Lego?

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While i agree that for the most part, businesses don't have to worry about competing with the folks they've already sold their product to,,,,,lego is a bit different.

 

Most items purchased with disposable income, computers, iPhone, and other electronics sold today do not appreciate, nor do they even hold their value.

 

As we've all seen on this site, many (not all) lego products kept sealed and mint are almost always able to be sold for their original retail, if not much, much more.

 

If, (big if) the lego resellers create a significant (we don't know if its significant) increase in perceived demand, and if (IF) lego resellers leave the market rapidly for any reason (doesn't matter why, boredom, economic issues, next big thing, mom kicked them out the basement), Lego MIGHT be in a situation where their brand new 2016 (pick a year) sets are in direct competition with a large (maybe significant) amount of product that's either just as good, or even more desireable (because its' no longer available at retail).

 

If lego investors were opening the products and enjoying them, then lego doesnt have to worry about competing with them in 2,3,4 years,,,,but if you check out the storage pictures thread,,,,its like a massive decentralized warehouse system of product just waiting to compete with lego..............at some point.

[c4dreams]

Positive in the short term as they sale loads to resellers. Short-term only considers current and immediate sales.

JIT is a pull system where it is produced as it is ordered essentially. They only produce as they receive orders. They could do this with of out of stock items on the LEGO Shop at Home. When it is out of stock, they wait until they get orders, then only produce equal to orders. We are talking immediate sales I the short-term. Your question starts looking forward after resellers have bought loads from sellers, that is moving into the long-term.  I'm not saying they do JIT, just if they do, then they only produce to current demand.  Not demand from previous sales.

When you say lego is competing with resellers, we have to remember Lego already sold a set to the reseller (could have been through a myriad of ways). Walmart and TRU et al, are resellers no different than the scenario provided. Are you also implying non Lego retailers are bad for Lego?

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Very well said.  I've stated many times that Walmart, Target, TRU etc are "resellers."  They buy at a discount and sell for a profit.  It's a solid argument against flipper haters.

[mudcatsfan]

Also, just wanted to say, i'm really enjoying the discussion. I don't necesarily feel this WILL happen, just pointing out a hypothetical. There's no way to know really.

 

Jeff & Ed have a decent window into the amount of volume we're hoarding but even that window has issues. Are inventories up to date, are they true, does this site have a significant amount of the lego investing population contributing (probably), are they all entering all their sets, etc.

 

Also, to your note about whether lego has to worry about competing with walmart & target, i think that's a great point. But i think the key difference is that other retailers dont sit on product for YEARS at a time, creating the POTENTIAL for a market flood, Nor are they as likely to suddenly stop ordering en masse, like we might.

 

I think the investor community is a bit of a wild card. We run up the perceived demand, (which could be a problem (who knows how big, maybe not very) if we stop buying) and we hold a ton of inventory that could compete with new lego product at any time.

[b-ran]

While i agree that for the most part, businesses don't have to worry about competing with the folks they've already sold their product to,,,,,lego is a bit different.

 

Most items purchased with disposable income, computers, iPhone, and other electronics sold today do not appreciate, nor do they even hold their value.

 

As we've all seen on this site, many (not all) lego products kept sealed and mint are almost always able to be sold for their original retail, if not much, much more.

 

If, (big if) the lego resellers create a significant (we don't know if its significant) increase in perceived demand, and if (IF) lego resellers leave the market rapidly for any reason (doesn't matter why, boredom, economic issues, next big thing, mom kicked them out the basement), Lego MIGHT be in a situation where their brand new 2016 (pick a year) sets are in direct competition with a large (maybe significant) amount of product that's either just as good, or even more desireable (because its' no longer available at retail).

 

If lego investors were opening the products and enjoying them, then lego doesnt have to worry about competing with them in 2,3,4 years,,,,but if you check out the storage pictures thread,,,,its like a massive decentralized warehouse system of product just waiting to compete with lego..............at some point.

 

Yep, I agree here assuming the same assumptions above.  In the short-term, Lego isn't really harmed by resellers, but long-term, 2, 3, 4+ years down the road, there could definitely be an issue assuming the same products that investors have hoarded are still in demand, especially over Lego's new lines.  And you are right also, investors hold onto sets for years where retailers don't do so.  That is another short-term vs long-term idea.  In the short-term, resellers are like any other retailer if they are reselling in the short term.  In the short-term, resellers are no harm to LEgo.  In the long-term, they are a little different as they don't offer the same product.  I see what you were saying earlier about Lego competing with resellers.

 

A lot depends on what information Lego uses, and how they produce the sets.

 

Definitely been a good discussion, I have learned a lot.

[mudcatsfan]

Yep, I agree here assuming the same assumptions above. In the short-term, Lego isn't really harmed by resellers, but long-term, 2, 3, 4+ years down the road, there could definitely be an issue assuming the same products that investors have hoarded are still in demand, especially over Lego's new lines. And you are right also, investors hold onto sets for years where retailers don't do so. That is another short-term vs long-term idea. In the short-term, resellers are like any other retailer if they are reselling in the short term. In the short-term, resellers are no harm to LEgo. In the long-term, they are a little different as they don't offer the same product. I see what you were saying earlier about Lego competing with resellers.

A lot depends on what information Lego uses, and how they produce the sets.

Definitely been a good discussion, I have learned a lot.

I think it's that longterm competition that is at issue.

When you say resellers and lego don't compete long term since they won't be selling the same product, I disagree. Even though the sets will be slightly different they are competing for the same dollars.

A 2012 batman set will compete with a 2015 batman set if they're both on Amazon in 2015 at similar prices.

Earlier batman sets were not hoarded, so they have huge prices and perhaps don't compete with current sets but today's hoarded sets might.

[b-ran]

I think it's that longterm competition that is at issue.

When you say resellers and lego don't compete long term since they won't be selling the same product, I disagree. Even though the sets will be slightly different they are competing for the same dollars.

A 2012 batman set will compete with a 2015 batman set if they're both on Amazon in 2015 at similar prices.

Earlier batman sets were not hoarded, so they have huge prices and perhaps don't compete with current sets but today's hoarded sets might.

Right, I agree that they will compete in the long-term, that is what I was going for earlier.  Sorry I wasn't clear on that.

[MillerTime]

This discussion has been brought up many times in the past. I think the answer is fairly simple: yes the point about a small risk later on if investors hoard x amount of sets and decide to flood the market later, could Lego take a small hit? Ehh, maybe.

 

The main reason that I have seen from communication that people have posted directly from Lego reps and all the facts seems to be this:

 

We all know that the increased demand from investors helps Lego. The reason why Lego is trying to stop resellers buying up all of these sets is not because it's not a good thing, it's that Lego would RATHER you go 1 step further and become an official reseller.

 

Sort of like going double or nothing. Netflix had 25 million subscribers back when they were $9.99 per month. They raised prices to $14.99 - there was a huge outcry and 1 million subscribers left. But they still had 24 million left, and each one left started paying 50% higher. In a way, Lego is trying the same thing by trying to force investors to become an official reseller. Better for Lego, worse for us.