Slowdown in US LEGO Sales?...TLG's 2013 Annual Financial Report

[Ed Mack]

I just finished scanning my morning Twitter feeds and came across this Wall Street Journal tweet about an article by Clemens Bonsdorf...

 

The popularity of "The Lego Movie" may be coming at just the right time for the Danish toymaker, as the company is expected to report an abrupt slowdown in its U.S. business in 2013 after several years of heady gains.

Closely held Lego will publish its 2013 financial performance Thursday, after the company issued a press release saying, "Our U.S. sales growth last year was more moderate than the...

 

I do not have a WSJ membership, so if any of you do and want to fill us in, it would be greatly appreciated.  Very curious development though, considering LEGO sales were up 9% in the first half of 2013.  Maybe their change of policy(in the middle of 2013) dealing with purchase limits has really affected sales.  Maybe the LEGO investor and reseller has more power than LEGO thinks.  I can't wait until LEGO's financials are released tomorrow...

[Jeff Mack]

I think this is the entire article:

 

 

COPENHAGEN

[Ed Mack]

"Lego has said that U.S. and European toy markets are being pressured by the flood of new competition."  

 

I guess they don't want to mention buying restrictions and reductions in discounts....

[Guest TabbyBoy]

"Lego has said that U.S. and European toy markets are being pressured by the flood of new competition."  

 

I guess they don't want to mention buying restrictions and reductions in discounts....

 

Why don't they wipe out those unlicenced fakes then coming from the Far East?  I don't see the substandard "clone" manufacturers (eg. Mega Bollocks, etc.) as a threat as true fans will only buy the real McCoy.

[Ed Mack]

True. That is another factor. They are getting what they asked for.

Sent from my iPhone using Brickpicker

[Achilles]

Also, while not in the same category, I think it is important to note that the PS4 and Xbox ONE were released in 2013, updates in the console generation for the first time in 8 or 9 years. 

 

Also, reports of the economic recovery have been greatly exaggerated... 

[Bold-Arrow]

"Lego has said that U.S. and European toy markets are being pressured by the flood of new competition."

I guess they don't want to mention buying restrictions and reductions in discounts....

I was thinking the same thing. We have seen one sale after another since September, and we are talking clearance type discounted ( pirate ship @ 54$, LR train @ 58$, ect.....)

[Caltrops]

Why don't they wipe out those unlicenced fakes then coming from the Far East?  I don't see the substandard "clone" manufacturers (eg. Mega Bollocks, etc.) as a threat as true fans will only buy the real McCoy.

 

I don't see Mega Blocks or Kre-O as a significant threat to Lego either though mainly because those lines are anchored by themes that Lego won't touch--specifically modern/realistic military themes.  Mega Blocks has of course had the HALO line for a few years now along with the new Call of Duty Line released last year and continuing this year. Kre-O has the ***.I. Joe line carried by Toys R US.  

 

I personally don't own any of the COD kits but I have heard very good things about them--that the quality of the bricks is much improved and that the kits are very detailed.  The figures are also very realistic and have multiple points of articulation.  I have honestly been impressed with some of the images I've seen and if I ever see the tank set on sale/clearance at my Wal-Mart I will very likely pick it up.  They have a new Blackhawk coming out later this year that also looks really, really nice.  

 

As for Kre-O, I am a die-hard ***.I. Joe fan and therefore own a complete set minus one convention exclusive of that line.  I will acknowledge that Kre-O bricks feel "lighter" than Lego bricks and some of the figure printing is not as detailed, but they also tend to be less expensive (even with Toys R Us prices) than Lego and the line really nails the vintage ***.I. Joe feel.  The kits are fun to assemble and, most importantly, they stay together.  My boys have a few as well and they hold up to play just as well as their Lego builds do.  For what it's worth, it was getting heavily into Kre-O that then led me more heavily back into Lego--I've spent more on Lego in the last 2 months than the last 10 years combined (mostly for my own collection).  So maybe some of these competitors are actually helping Lego out . . .  Also, not all Kre-O is created equally.  The Cityville sets are pretty much @$%^.

 

I realize that some of what I have said here may be considered blasphemy by some, but that brings me to my last point:  while company/product/brand loyalty can be a very good thing, blind loyalty has the potential to be harmful, especially if you are an investor.  To automatically dismiss a competitor as inferior without truly assessing what it is they are doing or offering "just because they aren't X" or haven't been as good in the past can come back and bite you later.  

 

There's already been some discussion here about Lego relying more on Chinese production resulting in a "cheaper feeling" product while Mega Bloks may very well be improving (again, I cannot say this from my own ownership of a recent kit one way or the other).  Then there are the doors that Lego leaves open to competitors by not producing certain types of kits (military).  

 

Who knows--within the next 10 years most Lego bricks could be made in China and people will be investing in Call of Duty sets.

 

Finally, if the sharp drop off in Lego sales in 2013 was due to buying limits on investors that tells me that a very significant amount of Lego buying is being done by investors.  Which seems a bit bubble-ish to me . . .

 

Okay, back to work.

 

P,S.

I've got my next TRU Lego shipment arriving today--Star Wars and Super Heroes--can't wait to get home this afternoon!

[jaisonline]

"Lego has said that U.S. and European toy markets are being pressured by the flood of new competition."

I guess they don't want to mention buying restrictions and reductions in discounts....

This is strange. Retailers are commonly discounting the non-"hard to find" sets to move inventory. However, they aren't allowed to do the same for "hard to find" sets. I don't get it. Yes, it is helps in controlling who gets what and how many but the lack of discounts on these expensive sets slows down their sales... I wonder it Lego executives truly understand the catch-22 here.

[Guest TabbyBoy]

Since Lego continues to be ever popular and the immediate rise of the FB just after EOL,  I think a bubble is a little way off yet but, it will come and you just have to ride out the storm when (not if) it does.  However, in the current era, careful selection of sets is getting very important as there are a few turkeys out there like LR, and SW prequel sets.  If Lego ever moves full-scale production solely to China, it'll be their downfall as quality will suffer badly as it has done with Apple.  I still think were are <1% of Lego's customers where small/medium sets are concerned but, perhaps >10% with large exclusives.

[StarCityBrickCompany]

I can see one thing that would certainly explain some of the drop in the second half of 2013 - The cancellation of The Clone Wars.

 

While I know that many members of this site dismissed the show, it was extremely popular (and good by the way), and that connection has been lost. There is no longer that must have factor that existed before - kids are not going to grab them quickly from the shelves, since it is no longer an active part of their lives.

[Anakinisvader]

I can see one thing that would certainly explain some of the drop in the second half of 2013 - The cancellation of The Clone Wars.

While I know that many members on this site dismissed the show, it was extremely popular (and good by the way), and that connection has been lost. There is no longer that must have factor that existed before - kids are not going to grab them quickly from the shelves, since it is no longer an active part of their lives.

This is very true. Star Wars has ALWAYS been a great seller. This last year was the worst I have ever seen (in my many years of selling) as far as SW LEGO sales goes. Not normal by far.

[c4dreams]

It's important to note that GROWTH has slowed, but sales are still INCREASING.  At least according to the article posted above, it looks like LEGO sold more sets last year (even if only 1% more) than the year before, so it's not like LEGO is going to be hurting (unless they way overshot their production/expansion in anticipation of continued growth).

 

That being said, this is obviously an indicator of a possible bubble that some believe is coming.  I've said a few times before, there is no way LEGO (or any company) could maintain 30%-40% growth annually.  Eventually, any company would see that growth slow, or they'd be able to basically buy the world.

 

On the plus side, I do believe the movie is going to help their sales a lot, at least in the short run, which should help their growth this year.

[c4dreams]

Also, I'm not sure Lego's buying limits have had that much effect.  Have any of the people here cut back the purchasing because of Lego's limits?  I doubt it, I'm sure they just find other avenues to make their purchases.

[jaisonline]

Also, I'm not sure Lego's buying limits have had that much effect. Have any of the people here cut back the purchasing because of Lego's limits? I doubt it, I'm sure they just find other avenues to make their purchases.

Buying limits haven't impacted my buying. However, lack of discounts on expensive "hard to find" set have.

I would bet even non-investor purchases have slowed sales of these sales. I just don't have the proof.

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[jbacunn]

Next year we get the new Star Wars movie which I assume Lego will be heavily involved in. I wonder how these sets will do.

[Ed Mack]

There are many reasons for the decrease.  Buying limits are an issue.  Lack of sales on big ticket exclusive sets can be a major factor.  I know in my business(car wash & oil change), people look to save every dollar and discounts/coupons are huge.  The lack of 10% off coupons on exclusives in catalogs could be a factor.  My business is one that people use discretionary income on.  There is a limit as to what people will spend on items that they can do without.  LEGO is an item people do not need to live.  They have to tread lightly here.  If people start to believe that LEGO sets are too expensive, they will move onto other toys, quality or not.  

 

That brings up another point mentioned earlier.  These bricks and minifigures made in China of inferior quality(many say) only weakens the market.  Now there are all sorts of knockoffs and it will get worse because LEGO bricks are being made in China.  How will they protect their patented molds in a country where knockoffs were born and security is questionable?  

 

The timing of the sales decrease really makes me wonder though.  Sales in the first half of the year were strong, then LEGO started banning people, limiting purchases and removing discounts and sales tanked enough to notice.  It doesn't take a genius to add it all up.

[johnwray]

Very interesting for the long term prospects of Lego investing.

As for the short term, I'll go on record as saying that they'll see the fastest growth in their history in 2014 thanks to the movie. It's phenomenally successful (and good!), will create millions of AFOLs who want the sets for themselves *and* to share with their kids, has established an in-house line of likable characters and models, and it inspires strong brand loyalty due to its very specific style and personality.

Plus, blockbuster movies have powerful influence overseas. Hollywood doesn't even make movies for North American audiences anymore--they make them for the international sales and merchandising. Special effects and action movies are particularly popular with foreign audiences, so even if US sales continue to slow (which I doubt), international sales are going to boom. I guarantee Lego is in the process of making it easier for other countries to get sets at reasonable prices.

All of this will add up to huge 2014 sales. If their product quality doesn't drop, and if they continue to produce exceptional movies, TLG could be as monstrous as Disney when it comes to entertainment and merchandising tie-ins. We'll have to hope that the sequel is just as good.

Source: I work in Hollywood.

[Ed Mack]

Buying limits haven't impacted my buying. However, lack of discounts on expensive "hard to find" set have.

I would bet even non-investor purchases have slowed sales of these sales. I just don't have the proof.

Sent from an iPhone using the Brickpicker app

My buying hasn't changed, but I buy all types of sets in smaller numbers.  If some major resellers reduced their overall purchases because of the change in policy, it could be a factor.  People have no idea on how much resellers affect the market, but this is the first sign that they do.  Maybe someone smarter tahn me can figure it out when the real numbers come out.

[pickleboy]

That brings up another point mentioned earlier.  These bricks and minifigures made in China of inferior quality(many say) only weakens the market.  Now there are all sorts of knockoffs and it will get worse because LEGO bricks are being made in China.  How will they protect their patented molds in a country where knockoffs were born and security is questionable?  

The Chinese will steal it.  No doubt.  They steal everything.  

[Ed Mack]

Very interesting for the long term prospects of Lego investing.

As for the short term, I'll go on record as saying that they'll see the fastest growth in their history in 2014 thanks to the movie. It's phenomenally successful (and good!), will create millions of AFOLs who want the sets for themselves *and* to share with their kids, has established an in-house line of likable characters and models, and it inspires strong brand loyalty due to its very specific style and personality.

Plus, blockbuster movies have powerful influence overseas. Hollywood doesn't even make movies for North American audiences anymore--they make them for the international sales and merchandising. Special effects and action movies are particularly popular with foreign audiences, so even if US sales continue to slow (which I doubt), international sales are going to boom. I guarantee Lego is in the process of making it easier for other countries to get sets at reasonable prices.

All of this will add up to huge 2014 sales. If their product quality doesn't drop, and if they continue to produce exceptional movies, TLG could be as monstrous as Disney when it comes to entertainment and merchandising tie-ins. We'll have to hope that the sequel is just as good.

Source: I work in Hollywood.

I agree, The LEGO Movie will ramp up sales once again.

[DoNotInsertIntoMouth]

There are many reasons for the decrease.  Buying limits are an issue.  Lack of sales on big ticket exclusive sets can be a major factor.  I know in my business(car wash & oil change), people look to save every dollar and discounts/coupons are huge.  The lack of 10% off coupons on exclusives in catalogs could be a factor.  My business is one that people use discretionary income on.  There is a limit as to what people will spend on items that they can do without.  LEGO is an item people do not need to live.  They have to tread lightly here.  If people start to believe that LEGO sets are too expensive, they will move onto other toys, quality or not.  

 

That brings up another point mentioned earlier.  These bricks and minifigures made in China of inferior quality(many say) only weakens the market.  Now there are all sorts of knockoffs and it will get worse because LEGO bricks are being made in China.  How will they protect their patented molds in a country where knockoffs were born and security is questionable?  

 

The timing of the sales decrease really makes me wonder though.  Sales in the first half of the year were strong, then LEGO started banning people, limiting purchases and removing discounts and sales tanked enough to notice.  It doesn't take a genius to add it all up.

 

Yeah I think its pretty obvious for sure. I have not really been buying the bigger ticket items anymore and definitely not from them. I have been buying them from Amazon which is pulling away from their profit.

 

I also stopped buying near as much from them once my account was warned as well.

[Sauromosis]

No average consumer is going to buy the Sydney Opera House or Ewok Village...Lego is becoming too "boutique" for what its user base is.

[asharerin]

Wow that is major cause for concern for TLG. To put in in perspective Amazon's growth in USA sales last year was 24%. If TLG's stock was publicly traded it would have lost half its value if not more. Even more disturbing is the great success of Friends. Without Friends I would hate to see those sales numbers for the US. Ouch! Without a movie Star Wars is simply not relevant to kids anymore. Even with the new movies I think the franchise is stale sorry to say. TLG should know by the huge hit it had with Minecraft that the digital arena is a massive threat. My son spent close to a thousand dollars last year on Minecraft memberships and upgrades and not a single dime on Lego.

 

TLG really needs to learn how to crossover from bricks to digital. I don't believe the limit bans had anything to do with the horrific sales number. Kids simply don't buy exclusives and they don't buy in bulk. I really don't see how putting plastic bricks together with your hands fits with where the world is headed. Duplo has a limited application until kids are old enough to jump on a laptop or tablet at 2 or 3 and then it is all over.

[Darth_Raichu]

I wonder how much of the slowdown was caused by the unpopularity of the Chima line. With all of the money, marketing, and production time put into this line, the response has been lukewarm at best. This line was supposed to repeat or even surpass Ninjago's numbers. Early 2013 they were still riding the popularity of Ninjago as the 3rd most successful line in their roster. Not having a reliable 3rd cash cow has got to hurt them in 2nd half of 2013, especially when the Clone Wars heavy SW line also suffered from cancellation of 3D version of episode 2 movie in theatres and CW TV series.