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Retail margin on Lego Sets

So, Costco is well known to not mark up items more than 15% at most.  I have also seen it selling sets for the same price Target and others sell those same sets for.  For example, set 60141. Retail price is $100. Currently at Costco for $80, which is the same $80 Target and Walmart sell it for (as one would expect, B&N and TRU both want the full $100).

This would SEEM to indicate that the "normal" actual margin for retail Lego sets sold by a discount outlet is no more than 15% (more or less).

I'm kind of surprised at this.  I would have expected it to be a lot more. In this example - the store makes, at most, $10 on the set (barring any kind of rebate/volume deals it may have going on with Lego). So...if a store is offering 20% off a set, it may be taking a small loss. This also implies that, say, 30% off, is a much better deal than I previously thought it was.  I may have to rethink my discount strategy.  I WAS thinking that I wouldn't even consider at set that wasn't at least 40% off retail......but that may be too high of a standard.

Comments

  • drdavewatforddrdavewatford Hertfordshire, UKAdministrator Posts: 6,017
    alaskaguy said:
    I WAS thinking that I wouldn't even consider at set that wasn't at least 40% off retail......but that may be too high of a standard.
    Admittedly I'm UK- rather than US-based, but if I'd waited for at least 40% off RRP on all the sets that I've wanted over the past few years then I'd have missed out on a number of them. Exclusives obviously excepted, I've generally worked on the principle that I'll bite at 30% off, and that's served me well for many years, although I have to admit that this year I've occasionally jumped at 27% or 29% off RRP when I've particularly wanted the set and Amazon have played hard to get....
  • alaskaguyalaskaguy Member Posts: 157
    edited November 13
    Well, yes, sure.  I'm coming at it from a different perspective though. I'm buying sets for my kids years in advance (he is 1) - to take advantage of sale prices and avoiding buying "on the spot" for events like birthdays and such. 

    For a set that I wanted to make sure I got, for whatever the reason may be, I'd not wait for such a deep discount. For example - the Saturn V rocket. I didn't fool around - I bought it ASAP when it was released (:

    For the "buy on sale and stash it away" strategy, I now think 40% may have been too high of a standard, and think 30% may be more reasonable.
  • HanzoHanzo VAMember Posts: 358
    I spoiled myself with the deals Walmart had in the past several month.  50% off or more wasn't uncommon.  But finding that elsewhere isn't that common from what I have seen since Walmart doesn't seem to mind taking a loss to just get something out of their store (but they certainly aren't the only retailer that does this).  If you set a 40% off threshold, it's going to severely limit you, but your wallet will thank you.

    I am pretty much right where you are, buy things I really want at full retail (Saturn V, UCS Falcon etc) because you probably won't see in demand sets at that great of a reduction (usually).

    30% off seems like the sweet spot for "deals" for me.
  • Penkid11Penkid11 Member Posts: 748
    edited November 13
    The margin in the US is 20%.

    I had asked the manager at the local store regarding steep discounts on sets some time ago, and he said that 20% is as low they can go, unless the item needs to be forced out of production/off of shelves, and it needs help doing so.
  • HanzoHanzo VAMember Posts: 358
    Surely the margin is based on the retailer/volume of order, no? 
    pharmjoddougtskiki180703
  • pharmjodpharmjod 1,170 miles to Wall Drug, USAMember Posts: 2,225
    Years ago when I worked at toys r us I remember seeing the "cost" of most LEGO sets about 30% less than msrp. I have been told that LEGO gives various rebates to stores based on the amount of shelf space dedicated to the product. Not sure if that's accurate, but I'd be surprised if actual cost at big retailers is more than 50 % - 60% of retail. I could be wrong though.
  • dougtsdougts Oregon, USAMember Posts: 4,097
    edited November 13
    pharmjod said:
    Years ago when I worked at toys r us I remember seeing the "cost" of most LEGO sets about 30% less than msrp. I have been told that LEGO gives various rebates to stores based on the amount of shelf space dedicated to the product. Not sure if that's accurate, but I'd be surprised if actual cost at big retailers is more than 50 % - 60% of retail. I could be wrong though.
    for big retailers, I guarantee they aren't paying more than 50% of MSRP, factoring rebates, etc.  Could even be closer to 40% of MSRP
    pharmjodkiki180703ryjaysid3windr
  • YodaliciousYodalicious DagobahMember Posts: 1,278
    This is the first year, I’ve seen seriously discounted items, so either stores are getting them for that lower cost or (and what I’ve mentioned several times here before) toys are being massively overproduced. Since coming back into LEGO in 2012, I’ve seen plenty of the typical 20-30% sales, but also run across the occasional 50%. This year, I’ve seen 75-80% sales hit Walmarts in my area like crazy. And that 80% off has ranged from $10 sets all the way up to $120-150 sets.

    I don’t wait that long for the sets that are high on my want list though. I’ll jump at those usually at the 20% mark if it’s something I really want and I don’t see it lasting for the bigger clearances. I wanted Kylo’s shuttle for instance, but not at $120 or $100 or even $80. But at $30, done!

    Gone are the days of me buying almost anything at retail though unless it’s an exclusive or D2C. So many of the mainstream sets are marked 20% off almost immediately in my area.
  • datsunrobbiedatsunrobbie West Haven , CTMember Posts: 910
    I've seen some very odd pricing at local Walmarts this year. The Ninjago Play and Display Case (and the Sorting Box) went directly to the clearance aisle in at least one local Walmart, and I'm seeing it for $19 on Brickseek now at several other local Walmarts where I never saw it listed at full price. I'm now checking a couple of times a day on those, hoping to see the $5 pricing others have seen.

    Part of the cost of inventory is storing that inventory. The Play and Display Case is bulky, and I'd bet the margin percentage on those is lower than most sets, so they get sent to the clearance aisle more quickly than smaller, higher-margin sets.
  • omniumomnium Brickenham, UKMember Posts: 330
    I'm still waiting for #75188 resistance bomber to be available at a nice discount. 18% isn't enough to make me bite.
    But it's an interesting point about the margins. All those 50% off deals I've nabbed may have been mitigating a loss somewhere along the line.
  • CCCCCC UKMember Posts: 15,067
    I think Costco in the UK price things based on what they think they can sell them for, rather than 15% markup on their base price. Often they aren't any cheaper than regular supermarkets and you need to buy in bulk. Some things are a good price but not everything.


  • alaskaguyalaskaguy Member Posts: 157
    CCC said:
    I think Costco in the UK price things based on what they think they can sell them for, rather than 15% markup on their base price. Often they aren't any cheaper than regular supermarkets and you need to buy in bulk. Some things are a good price but not everything.
    Yeah...I dunno man. Maybe they just don't get as good of a deal there as they do in other places (taxes, costs, etc. maybe?).

    "Costco has to be lean because Brotman and Sinegal long ago established a rule that no branded item could be marked up more than 14% and no Kirkland Signature item more than 15% over cost. It is an inviolate line: the very value proposition of the company. (Prices are partly offset by a $55-a-year membership fee, which customers pay for the privilege of shopping there and which constitutes 3% of Costco’s profits.) As it has worked out, given the very low profit margins on items like gasoline and ground beef, the average markup at Costco is 11%, which compares with markups of nearly 24% at Walmart, 30% at supermarkets, and 35% at Home Depot and Lowe’s."

    http://fortune.com/costco-wholesale-shopping/


    mak0137
  • oldtodd33oldtodd33 Denver 4800 miles to BillundMember Posts: 1,940
    @alaskaguy ;   The way corporations figure cost is so varied you can't just say a %15 markup. Since Costco's effective tax rate is 32.81% according to this web sit. I don't think their mark up is the 15% you are thinking about. Seems to me they would be out of business pretty quick the way you are thinking. https://csimarket.com/stocks/singleProfitabilityRatiosy.php?code=COST&itx
    sid3windrkiki180703
  • oldtodd33oldtodd33 Denver 4800 miles to BillundMember Posts: 1,940
    @SumoLego Is that only TRU that you are talking about? I would think Walmart and Target are a bit different. 
    SumoLegokiki180703
  • SumoLegoSumoLego New YorkMember Posts: 7,928
    edited November 14
    Frankly, I don't think the margins are substantially different between the large retailers.  LEGO is a proven premium product and both retailer and wholesalers generally want consistency in pricing.  

    (Despite Wal-Mart's reputation of driving down wholesale margins - I can't imagine Wal-Mart walking away from the biggest toy product.)

    If you mean advance stock purchases?  They have to guarantee a certain volume of stock - often 18 months in advance.  LEGO doesn't do rush productions or production on demand.

    I've been told that the 'exclusives' end up being hotly contested between the big retailers.

    For smaller retailers, the retail margins are lower - so you will gemerally see LEGO priced higher at those smaller stores, of there are no discounts.
  • PaperballparkPaperballpark UKMember Posts: 2,749
    Having worked in retail, I'll say that just because retailers may have paid X amount for the stock, that doesn't mean that they can sell it at just above that and make a profit. They also have to add on the costs of storing it, distributing it, a proportion of staffing costs, shop costs (rental, heating etc.)

    So although they may pay 50-60% of the RRP (for example), once their costs are taken into account, they probably wouldn't make a profit on anything below 60-70% of RRP (again, for example).
  • CCCCCC UKMember Posts: 15,067
    SumoLego said:

    If you mean advance stock purchases?  They have to guarantee a certain volume of stock - often 18 months in advance.  LEGO doesn't do rush productions or production on demand.
    And in some cases they order too much from a second or third series before finding out about sales for the first. The Hobbit second and third wave sets were heavily discounted early on here in supermarkets. Dol Guldur Battle was £25 (from £70 RRP) within a couple of weeks.
  • alaskaguyalaskaguy Member Posts: 157
    edited November 14
    FWIW, I used to own a specialty retail business. Dealer price was half of retail price. I paid $250 for items that I sold for $500, $500 for items I sold for $1000, etc. I had virtually zero additional overhead cost in selling these items since I already had the retail location for a related line of business. . Only real risk was paying up front and hoping items would sell, but they always did. Sometimes, I did not even have to do that. Customer placed order with me and paid up front. All I had to do was place an order on-line. It was a sweet gig (;
  • nhyonenhyone Member Posts: 138
    SumoLego said:

    Most people find it shocking how 'cheap' product really is from the wholesaler - considering LEGO's profits are collected before that 50% retailer margin.  
    Unless you buy from their website, in which case they get to keep all the profits.

    Ironically, the one place where they can give the best price, they have to stick to RRP, else which retailer will sell their products? (This is usual for manufacturers, not just Lego.)
    SumoLegosid3windr
  • alaskaguyalaskaguy Member Posts: 157
    edited November 14
    I don’t know about that. Airlines can give the best price on their own tickets, but plenty of people buy tickets from other sources. Same for hotels and hotel rooms.
  • SumoLegoSumoLego New YorkMember Posts: 7,928
    @nhyone said:
    Unless you buy from their website, in which case they get to keep all the profits.
    Yes, and it dramatically reduces distribution costs.  But we live in a world where the majority of sales are still at brick-and-mortar. 

    (And the same is true with LEGO Retail Stores - LEGO retains 100% of the margin, plus any margin a reseller would get.)
  • SumoLegoSumoLego New YorkMember Posts: 7,928
    CCC said:
    And in some cases they order too much from a second or third series before finding out about sales for the first.
    Thus, why retailers assume more of the risk and can get stuck with product.  On the flip side, selling out of their complete stock of Minecraft is highly, highly profitable for the retailer.
  • datsunrobbiedatsunrobbie West Haven , CTMember Posts: 910
    edited November 14
    It may actually cost LEGO at least as much, if not a bit more to sell their own product than it costs retailers like Walmart, Target and TRU. Product shipping to third parties gets shipped out by the pallet to distribution centers, and LEGO has minimal storage and handling to deal with. With items they sell directly, LEGO has all the storage and handling expenses that third parties have, but they don't have thousands of other products to share those costs. They don't just grab sets off the assembly line and ship them. It s much cheaper to sell 1000 sets to one buyer than to sell 1 set each to 1000 buyers.

    With a LEGO Retail Store, LEGO keeps 100% of the margin, but pays all the expenses related to having the store.
    pharmjoddougts
  • alaskaguyalaskaguy Member Posts: 157
    edited November 15
    Exactly. A LOT of the cost in retail products is due to packaging and shipping.  Lego eats the packaging cost on everything it sells, no matter who it sells to.  With respect to shipping things out - Lego would probably rather ship 100,000 units/month to Walmart at 50% of retail price than 100,000 units/month to individual customers at 100% of retail price...but that's just a guess.

    The VALUABLE thing Lego gets out of direct sales is customer data...something it doesn't get from retailers.
    pharmjod77ncaachamps
  • PapaBearPapaBear East CoastMember Posts: 168
    They most likely get good deals on bulk boxes and shipping.  I bet most boxes cost less than a dollar for them.  They also use only a few box sizes to get better deals on the shipping boxes.  I've heard bulk shipping is very cheap as well.
  • dougtsdougts Oregon, USAMember Posts: 4,097
    edited November 17
    SumoLego said:
    @nhyone said:
    Unless you buy from their website, in which case they get to keep all the profits.
    Yes, and it dramatically reduces distribution costs.  But we live in a world where the majority of sales are still at brick-and-mortar. 

    (And the same is true with LEGO Retail Stores - LEGO retains 100% of the margin, plus any margin a reseller would get.)
    I work for Nike, and I would assume LEGO is pretty similar in how they are setup: The retail chain is really treated as a separate business unit. Our Nike-owned stores buy the inventory from Nike, Inc, in the same way other retailers do, for roughly 50% of MSRP. And they have to place their orders 18 months ahead of time too.

    So yes, Nike as a whole keeps both sides of profits, but they are handled differently financially. the Inc. division (the manufacturer) takes their profits when the sell the inventory wholesale to Nike Stores. Nike Stores make their profits when they sell to end consumers. Both entities have separate budgets and accounting books. Way way way down the line they all roll up into the topline corporate numbers somewhere, but operationally, functionally, and financially they are completely separate businesses.  And they cost overhead and logistics in running the stores is immense.  I'm sure the company makes way more margin off wholesaling than off of retail. But as pointed out above, you get customer data, you can directly control your brand message and build loyalty to customer's better through unique brand "experiences" in the store.  That's what premium brand retail is all about right now - experiences
    alaskaguyYodaliciouschuckpdatsunrobbieSumoLegoBumblepantskiki180703maaaaaaa
  • SumoLegoSumoLego New YorkMember Posts: 7,928
    dougts said:
    So yes, Nike as a whole keeps both sides of profits, but they are handled differently financially. the Inc. division (the manufacturer) takes their profits when the sell the inventory wholesale to Nike Stores.
    Right-on!

    I don't know the financials for Nike, but I would presume the gross profit margin on their product is probably higher than LEGO.  (And I'm sure the net profit is lower, given that Nike likely spends more on marketing to drive sales.)

    And I am sure you are 100% correct on Nike (and LEGO), treating their retail stores as a 'vendor' for the wholesale operation.  
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