How can retailers offer cheaper Lego than Lego themselves?

[mobi]

I don't understand this paradox. Retailers like Amazon, Argos, Tesco etc. often sell Legos at a price which is considerably lower than price in Lego's own site!

How can they afford to do that?

I see no incentive for buying directly from Lego (VIP points are not good enough).

[Milan]

Selling a large number of the same product helps the manufacturer reduce costs so they can offer it to the reseller at a much lower rate.

[Studio Draven]

Retailers pay a lower price; if they didn't, they'd never bother even stocking anything. Lego's prices are probably the recommended retail price.

[Ash]

The Lego Stores will still be a seperate financial entity despite being part of the same group of companies. They'll still have to "buy" Lego from the group and then sell it to make a profit. If they didn't make a profit they wouldn't bother (many manufacturers don't). Official retailers are usually more expensive than other stores for a number of reasons. A few are:

Official stores set the bar in terms of pricing (RRP or MRSP depending where you're from) and this forms part of the percieved value of the product. Lowering the price at the official store lowers the percieved value of the product.

There maybe legal ramifications related to unfair business practices if Lego (the manufacturer) offers preferential treatment to their own shops. I'm not certain if this applies in this case though.

But the biggest one is probably the fact that if they chose to consistantly undercut other retailers they'd really really tick them off and no manufacuter wants to do that.

[mobi]

It is not the case of Lego shop undercutting other retailers but the other way round!

Lego can't sell less than retailers price because that means retailers not willing to sell Lego products.

But often retailers manage to give 10-50% discount on some sets which is quite amazing.

[cerebus76]

Very few companies with their own store system would actively work to undercut other retailers. You want your product to have as much exposure as possible, and that means you want your brand in retail stores. In my town alone, I can go to Target, Walmart, K-mart, and Toys R Us to find Lego, and there are multiples of each store. If Lego worked to undercut those retailers on price, those retailers would have no incentive to carry Lego's product. Increasing overall exposure increases overall sales, which is a good thing for the company. You better believe that Lego could undercut those stores if they wanted to, but it wouldn't be good for business.

[Ash]

But often retailers manage to give 10-50% discount on some sets which is quite amazing.

You'll see similar discounts on dozens of products if you walk around your average supermarket. At the end of the day Lego is no different. The higher discounts are usually end-of-line stuff that they are probably dumping at close to cost just to get rid of it. Even the Lego Store does that, they have some Atlantis stuff at 50% off at the moment.

[Steamrunner]

It is not the case of Lego shop undercutting other retailers but the other way round!

Lego can't sell less than retailers price because that means retailers not willing to sell Lego products.

But often retailers manage to give 10-50% discount on some sets which is quite amazing.

There's plenty of reasons - Amazon will often severely drop prices on products to encourage you to buy from them, in the hope that while you're on the site you'll buy something else (this is what's often referred to as a "loss leader" - supermarkets do the same thing all the time). They also know that there are many sites out there where people talk about bargains, and thus word spreads and more people come onto the site.

In general, though, retailers are free (usually) to charge what they want. If they buy a large amount of stock then they'll pay less per item, so that can be passed on as lower prices (and that's the usual reason). If a retailer still has stock sitting around longer than expected, they may choose to drop the price to turn that stale stock back into cash - usually this is done in the sales but really can be any time.

Finally, physical stores are trying hard to compete with online stores, so when they see sites like Amazon dropping their prices, they often follow.

Don't forget that some retailers (I'm looking at you, Hamleys and Toys R Us) even choose to charge higher prices because they know they can get away with it - Hamleys charge up to 50% extra for some sets!

[cpw]

Lego will sometimes discount, but even without discounts Lego often has prices that are better than or equal to other retailers.

If they have the same price as another retailer; I would rather buy directly from Lego. I can get more variety from Lego than other retailers, and would rather support Lego than others.

That being said, when I'm buying for my kids and let them pick, I usually go to Wal-Mart because it is close (the Lego store is an hour away) and sells for MSRP (TRU is also close to us, and has more selection than Wal-Mart, but doesn't sell near MSRP).

[fyrmedhatt]

Lego sells at MSRP because they can afford to do so, why would they diminish their profits if they don't have to? They have the huge advantage of people being mentally prepared to spend money on their product when they get there, and a small discount doesn't matter. It's the same reason why Toys R'US can sell above MSRP, people are ready to spend on toys when they get there, and so they are able to maximize profits.

Target, Wal-Mart, Amazon etc. are all trying to undercut the two stores above as they don't have the advantage of the consumers automatically wanting to spend on toys when they go there, thus they have to be cheaper. If these stores could afford to charge more for Lego they would. They don't charge us less because they are a charity, it's because they have to in order to be competitive either in a short term perspective (as in price matching for Black Friday), or to preserve their reputation (if people perceived Amazon to be more expensive than their physical competitors they would likely lose a lot of business).

[Sir_Basil_Ashton]

Interesting conversation.

When retailers offer LEGO at a cheaper price than the LEGO Company itself, they are cutting into their own profits. They may do this for many of the reasons posted in previous replies to this thread. We have to remember, as members of Eurobricks and fans of LEGO, we are full aware of how expensive this hobby can be. The average consumer or parent buying LEGOs for their kids are not aware of how often sales come around or what's a good price in LEGO. It makes me cringe whenever I see young kids with their parents/grandparents shopping at TRU for LEGO. From time to time I'll tell them where they can get sets for cheaper but I've been told things like "mind your own business". I rarely say things during the year but I speak up a lot more during the holidays because people tend to appreciate being told where to find things that time of the year.