Chris Anderson writes about LEGO products and how TLG fits into the Long Tail model.
It all starts with Lego’s mail-order business, which began as a traditional shop-at-home catalog and is now increasing organized around its website. In a typical toy store, Lego may have a few dozen products. On its online store, it has nearly 1,000, ranging from bags of roof tiles to a $300 Deathstar (shown). If you want to see how different the online market is from the traditional retail market for Lego, check out their topsellers list. Only a few of those products are even available in stores, and most of those are inexpensive items added to other purchases to bring them over $50 and thus qualify for free shipping.
It’s worth pausing here and considering the Long Tail implications of this. At least 90% of Lego’s products are not available in traditional retail. They’re only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10-15% of Lego’s annual $1.1 billion in sales. But the margins on these products are higher than the kits sold through Toys R Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for all Lego fans, from kids to adult enthusiasts, and not just the sweet spot of nine-year-old boys, the range of prices can be a lot greater online, from $1 bricks to the aforementioned $300 Star Wars kit.
Through my job, and my general interest in all things online community, I end up talking with many journalists. I’m sure a Lexis-Nexus search of news articles would turn up quite a few hits on my name (ok, now I’m curious… must find Lexis-Nexus access).
But unfortunately, the reporters never seem to get the story quite right. Well, that’s probably not true – they don’t get the story written exactly as I would have written it. Doesn’t mean they’re wrong, I’m just a perfectionist! (And of course, I want to share vastly more details and facts than anyone would actually find interesting – thus the reason I’m not a journalist)
But Chris does a terrific job in this article of really hitting the nail on the head with this article. I’ve been following his blog since it launched shortly after the amazing article from Wired that it was based on. If you are interested in business strategies, his site is well worth keeping up with.