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

[Guest TabbyBoy]

This may be why I've not been warned when ordering my first 35 Mars Rovers.  Then again... purchasing limits in UK seem a bit more relaxed than the US.  I'm making space for my 99x VW Camper order!

[Ed Mack]

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.

Why the strong sales in the first half of the year?  What changed mid year?  The economy didn't, it maybe even improved.  Kids habits didn't change in a couple of months.  The one thing that changed was LEGO policy.  

[Ed Mack]

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.

The article I listed in the original post said Chima was doing well.  I guess we will have to wait until Thursday to get more info on this.

[fatboycarney]

This to me is a typical media article. The title of the article makes it sound like sales are down. As noted when looking at the numbers growth has only slowed but as others have said it is still growing. The market is never happen unless growth is greater than the previous year. It sounds like the business is still very sound and still growing albeit at a slower pace. 

 

Technically sales havent slowed down, growth has. Those are 2 very different things. 

[Ed Mack]

This may be why I've not been warned when ordering my first 35 Mars Rovers.  Then again... purchasing limits in UK seem a bit more relaxed than the US.  I'm making space for my 99x VW Camper order!

Maybe it's a test.  Tighten the US market with new limits and restrictions.  Loosen the strings on the other markets and see what happens.  

[Ed Mack]

This to me is a typical media article. The title of the article makes it sound like sales are down. As noted when looking at the numbers growth has only slowed but as others have said it is still growing. The market is never happen unless growth is greater than the previous year. It sounds like the business is still very sound and still growing albeit at a slower pace. 

 

Technically sales havent slowed down, growth has. Those are 2 very different things. 

As I stated earlier, the final data can be read as a positive, but what interests me is how we got to this point with the sales and growth reducing in the US in the second half of the year.  If it is LEGO's policies that slowed sales, then they can change back to the old methods as well.  I'm not making any predictions on the future of LEGO investing, but I've been waiting for months to see if sales dropped because of all the recent changes...and they did.

[StarCityBrickCompany]

Why the strong sales in the first half of the year?  What changed mid year?  The economy didn't, it maybe even improved.  Kids habits didn't change in a couple of months.  The one thing that changed was LEGO policy.  

 

Why are you dismissing the Clone Wars cancelled effect? I doubt that they will give those details, but Lego Clone Wars was huge for them. I doubt that many kids had those sets on their Christmas lists this past year.

 

I would bet that if you were able to add or subtract the year to year difference in Lego Clone Wars sales - you would find the biggest reason.

[imirish11]

Some research I posted about a month ago:

 

 

Annual Revenue dating back to 2004, measure in (bil DKK) w/ % chg from prev. year:

 

 

04 6.3

05 7.1 (11.6%)

06 7.8 (11.0%)

07 8.0 (2.9%)

08 9.5 (18.7%)

09 11.7 (22.4%)

10 16.0 (37.3%)

11 18.7 (17.0%)

12 23.4 (25%)

 

My estimate for sales in '13 is 26.0 - 27.5 bil DKK, which translates to 11-18% Growth

[imirish11]

Based on the data, the previous year revenue growth of 25% was quite high. Expect SLOWED GROWTH to 10-15%. [Edit: Well maybe 5-10% based on some of this new info.] In the world of toys, it's just not feasible to maintain that kind of growth. Demand for toys is generally elastic, as other more important purchasing decisions take precedence, especially when facing a budget constraint. That's all.

[asharerin]

Why the strong sales in the first half of the year?  What changed mid year?  The economy didn't, it maybe even improved.  Kids habits didn't change in a couple of months.  The one thing that changed was LEGO policy.  

 

4% strong? Compared to 23% growth for the first half of 2012 for the USA? 

 

There was a time when I went out of my way to buy Lego for my kids and for gifts for others. This was pre-chinese manufacturing days. Nowdays as a consumer I lump Lego in with all the other cheap chinese crap. Why spend $40 on a Lego set when one aisle down has cheap chinese crap for half the price? As a fan I know Lego has higher quality (although that gap is closing) but as a consumer chinese bricks are chinese bricks. It was a disasterous move to fire all of those Danish workers and relocate to China. The brand is on its way to massive dilution.

 

This all means nothing for investing. In fact it is a huge positive for already retired collectible sets. 

[Darth_Raichu]

 

Why are you dismissing the Clone Wars cancelled effect? I doubt that they give those details, but Lego Clone Wars was huge for them. I doubt that many kids had those sets on their Christmas lists this past year.

 

I would bet that if you were able to add or subtract the year to year difference in Lego Clone Wars sales - you would find the biggest reason.

 

The cancelation of 3D Attack of the Clones movie most likely hurt them more than the cancelation of the CW TV series. As sucky as Ep2 is, the number of potential audience for the 3D movie dwarves the number of fans of CW TV series.

[Ed Mack]

Why are you dismissing the Clone Wars cancelled effect? I doubt that they will give those details, but Lego Clone Wars was huge for them. I doubt that many kids had those sets on their Christmas lists this past year.

 

I would bet that if you were able to add or subtract the year to year difference in Lego Clone Wars sales - you would find the biggest reason.

No, I'm not at all.  It could be one factor along with many others.  We really don't even know for sure what the numbers are.  Maybe I jumped the gun with this WSJ article.  LOL

[Ed Mack]

4% strong? Compared to 23% growth for the first half of 2012 for the USA? 

 

There was a time when I went out of my way to buy Lego for my kids and for gifts for others. This was pre-chinese manufacturing days. Nowdays as a consumer I lump Lego in with all the other cheap chinese crap. Why spend $40 on a Lego set when one aisle down has cheap chinese crap for half the price? As a fan I know Lego has higher quality (although that gap is closing) but as a consumer chinese bricks are chinese bricks. It was a disasterous move to fire all of those Danish workers and relocate to China. The brand is on its way to massive dilution.

 

This all means nothing for investing. In fact it is a huge positive for already retired collectible sets. 

I'm certainly no Economist and the numbers can always be manipulated, but just taking an overall layman's view of what has been written, it appears that US sales dropped in the second half of the year and it's just my opinion that it is because of their newly implemented polices in the midyear time frame.

[imirish11]

Hi guys,

I happen to be an economist. The numbers I posted above are directly from The Lego Group Annual Report which can be found on their website in the About Us section.

 

In 2012 sales for the first 6 months were 9.1 bil dkk, and 23.4 bil dkk for the year, meaning the first half of the year accounts for roughly 40% of the total. Fast forward to 2013, first 6 months sales were 10.4 bil dkk. Assuming this will be 40% of annual revenue, this would result in annual sales of 26 bil dkk, meaning sales growth will slow from 25% in 2012 to roughly 10% in 2013.

[El Guapo]

Christmas.  Christmas sales make or break the retail world.  For a toy company this is even MORE pronounced.  What was different about Christmas this year vs Christmas last year?  I am pretty sure that people on this forum noted that the LEGO aisles in their local retailers were decimated. (I hate anecdotal evidence, but the members on this website are the ones who really have their fingers on the pulse of LEGO retailers across the US and CANADA).  So why are sales DOWN in the second half of 2013?  Because the big box retailers (Target, Target.com, Walmart, and Walmart.com) purchased fewer sets.  Maybe because they didn

[fuzzy_bricks]

Christmas.  Christmas sales make or break the retail world.  For a toy company this is even MORE pronounced.  What was different about Christmas this year vs Christmas last year?  I am pretty sure that people on this forum noted that the LEGO aisles in their local retailers were decimated. (I hate anecdotal evidence, but the members on this website are the ones who really have their fingers on the pulse of LEGO retailers across the US and CANADA).  So why are sales DOWN in the second half of 2013?  Because the big box retailers (Target, Target.com, Walmart, and Walmart.com) purchased fewer sets.  Maybe because they didn

[El Guapo]

This makes a lot of sense to me.  Although we don't know how much these retailers ordered, I doubt individual stores want to clearance a fully, or near full, stocked aisle to make room for the new year's sets.  Why doesn't Lego change their release schedule to line up so that the new lines come out before Christmas?

Yeah, that didn't make sense to me either.  If I remember correctly there were alot of sets released RIGHT after Christmas.  Could be there were Tax implications based on the Calendar year? Not sure, but it is a privately held company, so a decision like that would make more sense then a public company doing the same thing. There are no shareholders/boardmembers that need to be placated every quarter with better-then-anticipated earnings reports.  They are allowed to make business decisions based on longer term goals.  

[Mos_Eisley]

They have always released new sets in this manner. They don't need new sets to encourage sales in December, you need new products to encourage purchasing when people aren't already looking to buy.

Also, I think too much weight is being put into the no discounting exclusives policy. Sure, people may not be buying as many exclusives, but they're still spending the money, just on different stuff. If someone has a $2,000 budget, they probably didn't stop buying sets because they can't buy exclusives, they just put that same money into other stuff they could get at a discount. Either way, most people weren't buying their exclusives from TLG directly since Amazon usually had bigger discounts on them.

[redcell]

As I stated earlier, the final data can be read as a positive, but what interests me is how we got to this point with the sales and growth reducing in the US in the second half of the year.  If it is LEGO's policies that slowed sales, then they can change back to the old methods as well.  I'm not making any predictions on the future of LEGO investing, but I've been waiting for months to see if sales dropped because of all the recent changes...and they did.

 

Correlation is not the same as causation.  For the change in policies to be the cause of the drop, you would have to accept the proposition that the only thing standing in between TLG and a hundred million in additional sales was the ability of retailers to discount a small number of high priced sets.  Personally, I don't buy it.  I'm not privy to any inside information, but I suspect that TLG's revenues are built on the back of smaller, more affordable sets to a much greater extent than larger more expensive sets.

[njseale]

Many many many good points in here (One of the main reason I like these forums, plenty of intelligent, civil conversations.) I think the answer is probably a little bit of everything.

[lsfrorex]

I think it might be about the sets that were introduce in 2012 vs 2013.  2012 had Superheroes, Lord of the Rings, Monster Fighters, and Friends to give them the bump.  2013 had Legend of Chima replacing Ninjago...

[Ed Mack]

Correlation is not the same as causation.  For the change in policies to be the cause of the drop, you would have to accept the proposition that the only thing standing in between TLG and a hundred million in additional sales was the ability of retailers to discount a small number of high priced sets.  Personally, I don't buy it.  I'm not privy to any inside information, but I suspect that TLG's revenues are built on the back of smaller, more affordable sets to a much greater extent than larger more expensive sets.

You are probably correct about the smaller sets and that is why they still will show a profit...just not as much.  It just seems like too much of a coincidence to me that they try and restrict resellers and profits are down at the same time.  But what do I really know?  I can be 100% incorrect.

[mcortez]

Personally I think the movie release timing, and thus the timing of sets to go with it was poorly made.  Another hurdle that the big box retailers have, at least in California but I have to assume it's similar in other states, is that they must take inventory each year and pay tax on the inventory that's sitting on their shelves and in their warehouses.

 

If the TRUs, Walmarts and the Targets in California are able to get keystone pricing, so they get it wholesale for roughly 50% off MSRP (which they may not get) then selling those sets at 30% off and having essentially bare shelves and empty warehouses on the date they decide to use for inventory may be better than having the shelves fully stocked and paying inventory tax on all those goods.

 

Timing the movie release right in the middle of all that, where retailers really want to have the shelves as fully stocked to take advantage of the movie hype was IMHO a bad decision.  

 

Now movie release dates are a very tricky thing, because you don't want two highly anticipated movies to hit the theaters on the same weekend as they end up cannibalizing each others box office take -- but I have to believe it would have been better to release either during Easter weekend or the weekend before.  That way they would have avoided the tax/inventory issues of Jan/Feb and could have taken advantage of the fact that most kids in the US get a week of school for spring break, which is tied to Easter.

[legofreeman]

Great thread. I'm not surprised to hear there is a downturn. TLG made two major mistakes this past year:

1) As mentioned previously, Chima was supposed to replace Ninjago; but they stumbled out of the blocks with the new series.

If I remember correctly, they released only one episode and then had a delay in production of the series. The second episode didn't premiere until over a month later.

Such new concept wasn't going to catch on without the series. They lost months of sales because of that delay.

2) There were too many licensed sets that seemed mailed in this year. Too many mediocre SW ships and the mid-priced LOTR sets were subpar (79006 & 79007).

That said, 2014 is shaping up to be a banner year for sets. The Simpsons, two new trains and a full Chima push will all sell well, not to mention the addition of the new movie sets. It could be one of their best years ever.

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[Legodog]

If even a little of the slowdown is associated with buying limits and no discounts on exclusives I wonder if LEGO would possibly reverse this in the future. I know that is a really big "if" but it is something to think about. I am personally fine with no discounts on exclusives because it allows me to stock up without having to wait for a sale and evens out the playing field.

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