It seems like Ace and I aren’t the only ones feeling a bit burnt out on Lego lately… Lego released their earnings report for the first half of the year, and for the first time in a decade (perhaps even longer), Lego reported a drop in sales since the previous year. Last year was already the lowest growth they’d seen since their turnaround years in the mid 2000s, and there had been rumblings from retailers that there wasn’t as much demand for sets recently. Specifically, it looks like the LEGO Batman movie was in particular a poor performer, but their original lines were the top performers in the period.
Knudstorp said brands that Lego invented, including Lego City, Lego Friends, Lego Duplo and Lego Technic, were the best performers in the period
That’s a pretty telling little bit after years of Star Wars and similar lines being the powerhouses of the lineup, and big releases like the Lego Movie and Lego Batman getting all of the attention and marketing. Of course, if you’ve read my reviews for any of the licensed sets I’ve covered in recent history, you can probably guess that I’m not overly shocked to see them fall off. It has felt that Lego has a drought of creativity in a lot of set designs, with things like the Batcave feeling like a copy/paste and Star Wars being full of remakes coming out closer and closer together (looking at you, Force Awakens X-Wing).
The worst part about this news is that 1400 people are going to lose their jobs as Lego tries to corporate their way out of a product problem (as someone who has spent many years in a corporate environment… that has, to date, never worked). Hopefully they land on their feet (and they aren’t out of the brand retail stores, those guys are overworked and underpaid as it is).
To quote their CEO…
We have added complexity into the organisation which now in turn makes it harder for us to grow further,†he said in a statement. “As a result, we have now pressed the reset-button for the entire Group.
I’m certain that’s true on the front of complexity… Lego is the largest toymaker in the world and has grown to just about everything in recent years. But I fail to see the connection on too much organization complexity causing problems with people not wanting your sets. I’m going to go into my own personal guesses for some of it, and I won’t claim any special insight, but I think there are a few things in there that should make anyone still following Lego very concerned about the future.
Another very telling line is the one that got the biggest eyebrow raise from me when I read it.
We will find more opportunities to engage with kids and parents, including innovative ways to blend physical building and digital experiences, such as our successful Lego Life social platform and Lego Boost building and coding set
This could mean any number of things. I actually don’t know what Lego Boost is, so I can’t speak to how great it is, but calling Lego Life successful feels like a bit of a stretch. Sure, I bet a lot of kids play with it, but that’s a pretty far stretch from turning it into a money printing machine. And I can think of a number of times when Lego has tried to turn their digital offerings into that and failed… badly.
Possible Reason: The Failure of Lego Dimensions
I’m sure none of this is helped by the failure of Lego Dimensions. In part, it was Lego grabbing while the iron was already cooling… the toys-to-life market was already slowing by the time they jumped in. Worse than that, they came in as the most expensive toy on the market in that space and then made the decision to tie the majority of the products into licenses that AFOLs my age would enjoy, but your average eight year old isn’t going to care about in the least. I mean, I love Gremlins, but my daughter only wanted to put Batman and Wonder Woman on the pad.
I could go on about Dimensions for awhile; I’m no fan of the Tt Lego games as it is, the gameplay is poorly designed and, at least to me, they’re not all that fun to play. The writing was on the wall pretty quickly when they had to go on a permanent price cut at places like Best Buy and Target just to start selling. Even once they sold, they weren’t being restocked at the stores. Why Lego turned that shaky start into introducing even more expensive packs, which had been discounted by 50% before they even released, is beyond me.
Stated Reason: The Failure of the Lego Batman Movie sets
Lego doesn’t release sales numbers for individual lines (or really products in general), but they did call out the sets for their new movie by name. While, overall, I quite liked the sets I built (with a couple exceptions), I can understand why these didn’t do as well. The first reason would be saturation of Batman, across two different lines. My daughter loves Lego, but she looks at sets like this and says things like “I already have a Batman” before asking for a different set. More than that, watching the movie itself, if you take out the Batmobile and the Scuttler, the rest of the first few sets probably were on screen less than five minutes combined (I refuse to count the Batcave as being from the movie).
There was also a big lag between that initial wave, which came out around Christmas, the release of the movie, and the second wave. That second round of sets missed the big holiday window by a wide margin, and by the time Christmas comes around again, the movie will be out of kid’s minds (and replaced with the Ninjago movie… though I have my doubts it’ll have the staying power).
There were also a lot of tie-in products to this, and while I’m not the target market… most of them were bad. The giant head costumes where just awful looking (or “yucky” according to my sample size of one, who would much rather have the costumes from the DC Super Heroes Girls line), and a lot of the other stuff, like pencils and similar things, were released in March instead of during back-to-school shopping.
Of course, the biggest missing item was an official Lego Batman Movie video game. There was a Dimensions level pack, but by the time it came out (and, honestly, months before that), Dimensions had died off. There were products announced, but nothing in the future. That there wasn’t a true Lego Batman movie game in the works was odd, to say the least, and feels like a huge miss on their part. Sure, these games aren’t my thing, but they were popular.
Possible Reason: A Lack of Creativity and Innovation.Â
I called it out in my post about going in to a dark age, but I think there’s a much more basic reason why the demand for Lego is softening… the products just aren’t overly compelling right now. While re-releases have always been part of Lego’s cycle, in the big lines we cover here, Star Wars and Super Heroes, it feels like they’ve gotten worse. For me and Star Wars, the breaking point was when we got two different X-Wings within a few months of each other, where it was basically just a reason to put in some extra minifigs and change colors.
The UCS series has suffered as well, with three of the last four sets being remakes of previous sets. Sure, some people likely missed out of them, but plenty of long-time collectors didn’t and are less likely to buy another one. The one unique set, the Hoth Base, was effectively just a repackage of a lot of different system scale sets, and was very easy to pass on for long-time collectors. Among the others, the Death Star playset was a re-release that was around for eight years and was out of print for less than a year before its re-release, and the upcoming Falcon jacks up the price out of the reach for a huge chunk of buyers.
I don’t have any special insight to how the design process works, but in the past few years, it felt like LEGO moved to a very formulaic system for new sets. I don’t know if its true, but it feels like a lot of the sets were spit out by a computer and not a designer working on it. At the very least, there’s obviously a template that’s being used that makes up the basic shape and form of the set, and the rest gets tacked on. I’m sure that lowers the amount of time in designing a set and getting it to market, but it also makes a huge chunk of the product line start to feel “the same.” Super Heroes suffers from this the worst, with so many of the sets only being differentiated by the figures, and a lot of the core figures being repeated. You can only get so many variations of jet, truck, and playset with big doors before the money just isn’t worth it.
There certainly are some very nice sets out there, but some of the best new sets have come from places like Ideas, where fans came up with something great like the Saturn V or Wall-E. There are other nice looking sets, but if the hegemony makes it hard for an AFOL like myself to get excited, how does it look to normal parents looking to get something for their kids?
Stated Reason: Organizational Problems
I have no particular insight into Lego’s organization. I’m a few years removed from my time working at a certain smiling retailer, but there was precisely one person from Lego at the time who worked with the buyer from toys. It was a sort of afterthought for the most part, while other retailers like Hasbro and Mattel had a much larger presence in the area. It’s hard to know where the 1400 jobs are going to come from, but it’s a safe bet that it’s not going to come from upper management (past the CEO they canned last month). Middle managers and sales, probably anyone internal that was working on Dimensions, things like that.
Like I said above, though, I don’t buy that this is the cause of any of the issues they’ve had in sales growth. It’s a stop-gap when you’re trying to make sure you keep making money… and that’s kind of curious, given that Lego isn’t a publicly-traded company. I guess the Kristiansen’s needed that money pretty badly.
Possible Reason: Lego is Pricing Itself Out of Parent’s (and therefore Kid’s) minds
Lego has always been a high-end toy, even when it was a lot cheaper. There’s nothing wrong with having a premium product… but part of having a product like that is to accept that the price premium will drive a portion of your customers away. However, Lego seems to be chasing after all corners of the market, and it worked, to a point, in the size they grew towards. The problem is that there’s been a shift in the average price of sets that’s been gradually creeping upwards over the year. Collectible minifigs are now at $4, the smallest sets are Brickheadz, a niche product for the most part, while base sets have hit $15 or even $20 in most of the themes.
Let’s look at the averages for the 2016 Starwars Lineup:
- LEGO released 27 sets that fit the criteria above
- 13 sets were re-releases, 14 were new (48%)
- Averages…
Average Price $63.69 Median Price $49.99 Without Micros $75.62 Without UCS $51.67 Without Battle Packs $86.51 Without BP/UCS $60.74 - Two new subthemes (Freemaker Adventures and Rogue One)
- Sets had, on average, 5.26 minifigs including the UCS, 4 minifigs without it
This flies in the face of a lot of other toys they share an aisle with. While things like action figures and dolls have also gone up in price, there have been new variations of figures, sizes and features, that come in at different price points. The Star Wars Black Series 6″ figures are $20, but there are less detailed 12″ and 4″ figures available for less money as well. Lego is also missing out on a lot of the bigger things for their target market as well… the loss of the Nickelodeon license was actually a pretty big blow (and my wallet is glad there aren’t Paw Patrol sets on the shelves).
Honestly, there’s another problem with the pricing of Lego sets, and that one seems to fit squarely on greed. Economies of scale drive down the cost of production, and there aren’t any other toy companies that operate at the scale Lego does at this point. Even the old oil price argument doesn’t really work these days (and really never did)… oil has been at its lowest prices in years over the same time that Lego has seen its downturn.
In short, it feels like Lego pushed to see how much they could charge, and then decided to push it even further. Maybe it worked for awhile, but it is never sustainable, and this would be one of the most likely things I’d pin the downturn of sales on.
Conclusions?
I’ll be honest, I don’t have any good answers to how it’s going to turn out past “Lego will survive.” A toy doesn’t stick around for decades, and it’s still one of the single most recognizable toy brands on Earth. But this article on the layoffs said it best… this isn’t a surprise and the writing was on the wall for awhile on it. Dimensions, last years sales falling, and sales reports from retailers all pointed a dip and maybe even a crash coming. Looking over a lot of the the recent trends for Lego, it seems like Lego has been exceptionally reactionary and not innovative. Dimensions followed after Skylanders had started to level, Brickheadz tries to eat into things like PopVinyl and similar products, and the build-able figures try to pull dollars away from action figures by charging more for arguably less.
Even things like Mindstorms, which are still big in the robotics circles, have been losing ground as both simpler and more-advanced options are available for less. One of the managers where I work is a coordinator for several teams in the area, and they’ve gone to full robotic kits over the Lego options because they give far more bang for the buck. Not a scientific sample, sure, but a quick run through places like Fry’s or even Target to look at their STEM toys show a whole lot of products going after that space, and those same companies are making a push into educational markets too. My daughter hasn’t gone to a beebots class in months, but will still talk about it when we see any robot toys.
Lego has certainly been in a similar place before… though they certainly haven’t taken a tumble from this kind of height before. Ultimately, after their market started to crater back in the early 2000s, they fixed it not just by fixing up their supply chain and putting a structure in process for their designers to innovate, but also by turning around and starting to deliver an awesome product that got people interested again. It was the burst in 2006 that drug me out of the last time I hit some dark ages. Ironically, it was picking up a remake of a set in an A-Wing, but it was also a set that looked cool and unique compared to what came before it and delivered outstanding value for the money.
My fear is that Lego will try to reorg their way out of this problem. My hope is they will remember what got them there in the first place, and make everything awesome again.
