by dWhisper » Sat Aug 01, 2009 8:47 pm
I believe that if you check my post history on this forum and the old one, you'll see that at least 13% of my posts go towards ripping on Canada. I intend to raise that at least to 15% before year's end.
A couple of points, working for a retailer that expands internationally on a planned basis. It is very difficult, overall, to get into a new country, even where it'd seem to make no sense. Tarriffs and taxes add to product costs, and economies of scales are eaten away by transportation costs. While Canada has several "large" cities that could hold a store, part of putting in those stores is bring in surrounding communities to the shopping center.
Canada has a lower population density outside of those urban areas, I think because it's hard to ice skate or take a dog sled that far into Toronto. Montreal could do it, but anyone who comes in there is going to be drunk before they make it to the store, making it equally difficult.
To be fair, Canada has a better shot of getting a store than Australia, given the huge added cost of goods and the lack of expansion room once its there. With Canada, you can piggy-back on the US distribution and expand it, but in Australia, you're establishing entirely new in-roads. It costs a lot of money to get product down under, for anyone, unless it's made there. And the question has to be asked, does it make sense for LEGO to operate in a market that gets half the margin of another, or having to charge more for a product to absorb those costs?
For all these decisions, it's a balance between potential profits and cost of making inroads. Yes, there is such a thing as "not profitable enough;" any profit margin has to be able to absorb fluctuations in the economy and business cycle. Make that too narrow and it's too risky to operate it.
On that same note, one thing to keep in mind about international strategy is how product is positioned. By pushing products through retailers, LEGO offsets costs and tariffs to those businesses instead of paying for them directly, which makes it easier to operate. Those stores also get more traffic than a LEGO store does, which are boutique by their very nature. Until it tips enough that it is profitable for both LEGO and those retailers to operate, LEGO will not be able to operate in those markets.
Look at the expansion plans in the US and where stores opened; they were in places that were relatively low-density for their other retail partners. Only recently has LEGO started to expand in the same markets where Walmart, Target, and TRU also operate. LEGO makes more money in their stores, but those stores get less traffic in a month than a slow Walmart does in a day, and until they can open a store without cutting into that margin, you won't see a store pop up in your area.
You know, if I see links to Brickshelf, more often than not, the first thing I click is the "Back" button.
