"Lego Prepares for Global Economic Decline"

bluemoose

Just stumbled on this news article on Bloomberg, from 27th Sept; there isn't a lot of detail, but it's interesting (I assume 'Borsen' is the name of a Danish newspaper) ...

Lego Prepares for Global Economic Decline, Borsen Reports
Danish toy brick maker Lego A/S is preparing for a period of global economic decline, Borsen said. Chief Executive Officer Joergen Vig Knudstorp’s recent management changes are designed to help the company cope with adverse market conditions, the Copenhagen-based newspaper reported.

So LEGO are expecting to move into a more challenging financial environment in the next couple of years, despite their recent large investment in increasing brick production in Mexico. Not sure what the impact will be on the consumer, but something to keep an eye on ...
http://www.bloomberg.com/news/2011-09-27/lego-prepares-for-global-economic-decline-borsen-reports.html

BeardedCastleGuy

I suspect (guess) that part of the preparations is more closely manage quantities of sets produced, I think we've seen evidence of this already just in the fact that we are not seeing as many sets hit deep discounts for extended periods. Some sets hit a deep discount but go *poof* fairly quickly, others linger at shallow discounts for a while (the PoP line on Lego's [email protected] website comes to mind for an example of the later).
So while they may produce MORE bricks/sets overall, I expect it to be spread out over a broader variety of sets/lines at the same time.

Si_UKNZ

hmmm, tantalising. Id love to know what their strategy is.
If I were them Id reduce the range as well as reducing the volume of the production per month.

madforLEGO

Hmmm, how about making quality sets cheaper and smaller and stop building 400 dollar sets that do not sell until on sale...... do not cheapen the toy.. Reduce box sizes again, cause there is still too much air in these anyway...
But again that is my pie in the sky type of attitude toward it...

Legoboy

Reduce box sizes again, cause there is still too much air in these anyway....

Hey? After you've built, taken apart and put into seperated ziplock bags, how on earth do you manage to squeeze it all into the smaller boxes? :o). No smaller.....please?..Sorry OT.

BTHodgeman

@flump6523 - I think they could be a little smaller... but the real reason, I believe, they keep the boxes as large as they are is to ensure they don't lose shelf space. If they cut their boxes in half, why would Target give them two aisles? (Many may argue then that Target could carry a wider variety, but then you get into a game of cannibalizing sales of existing products, planning/logistics issues, etc.)

If they keep the boxes large, they inherently take more shelf space.

The simple reality is that more shelf space = more sales.

Brent

JP3804

Here in northern Illinois they have lost about a quarter of there self space to Kre-o. I noticed this back in October @ all the Target, Walmart and Kmart stores.

BTHodgeman

I think it ebbs and flows... LEGO has withstood almost all of its competition of late. I'd suspect this Kre-o stuff will be on its way out at some point in the not-too-distant future.

Brent

bellybutton290

I think lego has too many themes and too many licenced themes especially, also too many sets in each theme per year do we really need 40 sets per theme each year (though this already appears to dropping in the case of SW) both could be reduced and make a saving on designers etc. maybe drop the number of new elements each year aswell seeing as the molds cost 250k a time to design, build and maintain. Under no circumstances though should China have any more involvement than they already do. Lego must maintain it's high quality just looking at an assembled set vs a megoblocks set or even other toys and lego just screams of a quality materials and design.

sturner26

I think the overly large boxes also help to subconsciencely justify the cost of LEGO sets. Putting them in smaller boxes only makes them seem even more expensive to the average customer.

LegoFanTexas

@bellybutton290 - why do you think molds cost $250K each? They used to, but thanks to modern CAD/CAM, plastic mold making is now downright cheap.

I believe this is why we now see so many different parts compared to 20 or 30 years ago. In 1980, it was really expensive to make a mold, so they only had a few basic bricks and basic parts. Today they made a thousand custom parts for this and that.

bellybutton290

@legofantexas watched a mega factories on national geographic last year (I know it was last year due to the new police station being the focus of the show) and it quoted the figure on there when the they made the police dog mold for the set. Whether that is accurate or not I do not know but it was on factual program and was recent show about TLG and their factories so assume this is accurate however agree with you that given modern tech this sounds high but who are we to question national geograhic and the mega factory program makers. I have it on dvd so might re watch to confirm. Any one else seen this show to put me right?

luckyruss

the 250k was definitely what was said on the show... but I did find it a little hard to believe.

bellybutton290

@luckyruss thanks saves me digging up the disk! maybe they just used out of date info. @legofantexas I hope the show was wrong as it means that cost cutting this area won't really achieve a huge amount and we can continue to enjoy new elements and by association better looking sets. if I recall from the show don't parts get moved all over europe for paint etc and then moved to different centres for distribution? Surely one thing to do would be to do as much as possible in one place? Seems logical to cut down on logistics and diesel (ain't cheap in europe espeically in the uk grrr).

LegoFanTexas

I question that fact... Keep in mind that just because something is on TV, doesn't make it right. :)

Lets just say I question the number highly...

bellybutton290

@legofantexas I'm questioing it aswell, in my first post about it I did state that it sounded high and in my second I did state that perhaps they got it wrong. This is the media we are talking about pinch of salt needed on everything ha ha.

BTHodgeman

if I recall from the show don't parts get moved all over europe for paint etc and then moved to different centres for distribution? Surely one thing to do would be to do as much as possible in one place? Seems logical to cut down on logistics and diesel (ain't cheap in europe espeically in the uk grrr).

Yes, but TLG probably wants to have a few different factories for contingency purposes.

That way if one factory goes offline for any reason, thy could shift some production to abother factory.

Brent

bellybutton290

^true but can the factories do all functions and they do have mexico, but you are right it is a good setup from a bcp perspective. Anyway they'll probably layoff the hardworkers at the bottom, pay the top 1% a stupid bonus each and reduce quality like most uk and us companies do. Whatever happens layoffs are likely, few things cost you more in business than staffing even companies such as lego that are doing well use resessions and global downturns to clear out people.

BTHodgeman

I think the fortunate thing for us is that machines do most of the work. I don't have any stats, but I recall that as far as "production" workers go, LEGO has very, very few.

If they start laying off designers, you'll notice the quality of sets go down.

Brent

bellybutton290

^Hope that never happens that would be bad. Didn't tlg have a 1200 person clearout a while back must be lean these days given the machinery

Sorry about the bonus rant btw work in the city and see layoffs and the bonus culture all the time. Clearly here is not the place to vent that stuff.

streeker

If this article was dated 27/9, then it could explain why it was announced last month to disband LEGO Universe. That was an undeniable sinkhole. Also makes me think that LEGO must be somewhat confident about the potential of Friends to tap (finally?) the elusive female market for them to launch this new, risky line at this particular time.

BTHodgeman

@streeker - is Friends that risky, really? They've gotten retailers to agree to give them *more* shelf space, in the girl's toy aisle. Once the retailers buy the product, LEGO has already gotten their money...

The only potential risk would be them left with a bunch of pastel-ish brick in warehouses, which they'd either incorporate into other sets or send to PAB walls.

I think it would be more risky to replace an existing line with a new line, but since this is a whole new "customer," I don't see it as being that risky.

By the way, agree completely with LEGO Universe. Now that had to lose them some big amounts of money. They were developing that game for years. Sad to say, I kinda saw it coming once the stores started "clearancing" the software...

Brent

streeker

@BTHodgeman, did you read that Bloomberg Businessweek article on the frontpage?Did you see The Lego Girl Graveyard Courtesy Lego? Featuring past failures like Scala, Paradisa, Belville, Scala Dolls and my personal unknown favourite Clikits? Did you know that LEGO has been doing 'anthro' studies since 2007 to understand how girls play? Or that Lego Group CEO Jørgen Vig Knudstrop said of Friends, “This is the most significant strategic launch we’ve done in a decade. We want to reach the other 50 percent of the world’s children.”

Yup, girls, the 5-12 market. These girls are not a 'new customer' for LEGO. These girls are not even A customer of LEGO right now. LEGO acknowledges trying to woo them many times, and many times just getting the hand. Wanna risk spending more money, more sets, more time just to get the hand?

LEGO has invested a wholelottalotta money --40-million marketing campaign-- and time -4 years- to limit the risk to Friends failing that its predecessors have stumbled on. Retailers have very little to do with it, Friends' success or failure will rest in the hands of little girls.

BTHodgeman

@streeker - I'm not disagreeing that the success or failure rests in the hands of little girls (and their parents), but I am saying that there is little potential downside to LEGO beyond their "sunk costs." (i.e. product development, marketing, expenses paid to retailers for shelf space, etc.)

Worst case, LEGO has another line for girls that isn't successful. In other words, if the line fails, LEGO still has its entire current successful line. They're not trading off shelf space and potential sales because they've negotiated with retailers to get extra shelf space in the girls' toy aisle.

I only see the upside potential for LEGO on this one. Anything more that they could lose they have likely already spent.

And, the girls are a new customer. Most anyone in the target age range (5-12) has not experienced any of LEGO's other girl products.

Brent

Matthew

Here's the documentary you were referring to:
http://www.bricksetforum.com/discussion/126/new-documentary#Item_1

LegoFanTexas

Brent makes a good point... What Lego did 10 years ago for girls does not matter, because the current group of 5 to 12 year old girls, wern't, 10 years ago... A 12 year old today was 2 back then.

So it is a completely new set of customers. Even the parents are mostly different now. I have a 3 year old girl, I didn't have kids 10 years ago, didn't even think about Lego then, so it doesn't matter.

I only even found out about Belville last month, never having heard of it before, and even then there are only 3 sets that you can buy new now, so I don't care.

I'm very excited about Friends, looking forward to have a complete line for my daughter to play with. We shall see, but already she LOVES her Duplo and she takes the female Duplo figures and makes up stories about them. I "get" what she'll do with Friends and I think Lego will do well.

The only trick is that Lego needs to keep it up for 3 years in a row, keep coming out with quality sets and assure parents there will be something new to buy next year, so the parents don't give up on it either.

brickmatic

I don't doubt the $250,000 figure. LEGO keeps very high tolerances, which is bound to increase the cost of the molds. I mean, maybe they are inflated. But, according to this mold manufacturer, a high production, multi-cavity mold made with hardened tool steel goes for $60,000-$100,000 or more.

Also, I was curious about the reference made by the Bloomberg to Borsen (which is indeed a Danish news source). It looks like they're mainly reporting about changes in management. This was announced in August.

2011-08-30: Director level positions cleared out to create a simpler company. New organizational structure and Christian Iversen, EVP of Corporate Center, and Lisbeth Valther Pallesen, EVP of Community, Education & Direct, leaving Lego's leadership during the fall. Three directors left. Full force of changes expected to hit January 2012.

2011-11-04: LEGO Universe is a flop. They spent a large three digit million amount on it. The EVP of that, Lisbeth Valther Pallesen, has been let go, but that was part of the management changes. Strategy is to work with other companies like TT Games and WB to make digital games. And they are on top of that already.

2011-11-10: CFO Sten Daugaard resigns of own accord. That leaves just two directors under the CEO, Market Director Mads Nipper and Supply Chain Director Bali Padda.

bellybutton290

^thats the right way round for a change clear out the people on silly money at the top and keep the grafters at the bottom, welcome done TLG.

streeker

Huw, you sure you don't want to open the forum to 16 and under (5-12)?
Because we are all AFOLs here, I find the discussion very myopic, and skewered towards our opinons and tastes, as if what we adults like, then our kids will like, too. I think Ninjago demonstrates well this huge disconnect.

It doesn't matter if you were 2_year old girl ten years ago, and now you're 12, that LEGO is now an attractive toy. I don't follow. What appealed to you as a boy about LEGO, has it drastically changed? No, the principles are still the same, those bricks are still so much fun to play with. Unfortunately, that hasn't been the same story with girls, at any age. LEGO has never been able to capture the female market in mass numbers, LEGO doesn't register a blip with girls. Up until now, LEGO is a boy's toys, as far as girls are concerned, and that's the big challenge that LEGO will need to overcome with Friends. In that, they have the potential to become new customers.

I don't think LEGO would be so laid-back and go 'oh well, more pieces for the PAB wall' if Friends fail. They have poured too much money and time to ensure that Friends succeeds. I hope Friends is a success, too. I want that my daughters like them, too. It's up to them to decide.

We have Emma's splash pool and design studio. I love that everything is printed. My girls? Don't care about that. They like that they can open the shelves, that Emma can talk on her pink cellphone with the CMF skater (my god, he's yellow??), can pile high the sundae. Girl stuff.

nasri

@bellybutton290 I think lego should make deeper and less themes some themes only last a year make them longer. Also they should make new theme ideas they are just recycling old ones

airways09

@nasri ... but you've created a thread saying it would be good if they recycled the lego soccer theme???

prevere

I think it ebbs and flows... LEGO has withstood almost all of its competition of late. I'd suspect this Kre-o stuff will be on its way out at some point in the not-too-distant future.

Brent

Agreed. That Kre-o stuff never seems to leave the shelf.

BTHodgeman

I'd just look at TRU for some anecdotal evidence...

If your local stores are anything like mine, the LEGO aisles are pretty much bare. Kre-o has TONS of stock, despite being BOGO50 for some of the same time as LEGO.

Brent