Have you finished your Christmas shopping yet? You apparently are not alone in procrastinating. Shoppers are buying later and that is causing problems for firms trying to make sure they can get the right items to the right markets. Take, for example, toy maker Lego (Predicting Holiday Sales Poses Issues for Lego, Dec 13, Wall Street Journal).
The Christmas shopping season is getting trickier to navigate as buyers are waiting longer to purchase holiday gifts, Lego’s chief financial officer said Friday, and the trend is creating a need to get more immediate buying data from retailers, particularly in the U.S. …
In a telephone interview, John Goodwin said “this year is going to be the greatest stress test we have ever had.” While a late Thanksgiving contributes to the stress, “people are pushing off their gift buying later and later into their calendars.” …
[A]ccurately tracking buying patterns during the December shopping rush is of critical importance to a company such as Lego, which holds out as long as possible to package its bricks for shipping to individual markets. Many of Lego’s basic bricks are the same, but buyer tastes rapidly change, Mr. Goodwin said. So the company waits to decide what volumes of specific play sets to assemble.
“It increases the importance of getting very good data, so we can supply the retailers with the right products at the right time. We have to be as close to the ultimate purchase as possible in order to respond…nobody wants a disappointed child on Christmas.”
You may be asking yourself how hard can it be to sell Legos. Bricks are bricks. But Legos aren’t sold the way they use to be. Yes, Lego still sells packages of general purpose blocks, and the joy of unstructured building is what they emphasize in their TV ads. However, if you walk into a Lego store, you will see that they are really pushing sets tied to characters or story lines like Star Wars or the Hobbit aimed at building specific things like an X-Wing or Y-Wing Starfighter.
All of those choices masks some commonality. As we have posted about before, Lego tries to keep its designers from introducing too many set-specific pieces. They would rather have the same white brick be used in both the X-Wing or Y-Wing Starfighter sets. That allows for a pooling strategy. Lego can produce its bricks at a nice efficient pace and hold off on committing specific pieces to end products until there is a clearer picture of what will be demanded.
That all works great until shopping patterns change and Lego can’t assemble packages quickly enough to react to a late demand surge. This is really about how long Lego’s lead time is relative to when they get a signal of market demand. If their lead time is relatively long, their pooling strategy starts to fall apart if they need to get the goods to retailers in time for the holidays.
So what can Lego do? Move their assembly operations closer to their markets.
The bulk of Lego sales—especially Christmas purchases—are in Europe and North America. But Lego has eyed Asian customers for increasing growth.
That is partly why Lego earlier this year said it would shut its packaging operations in Denmark by 2015 and focus its processing and packaging at its factories in Hungary, the Czech Republic, and Mexico, which supplies most of North America.
“If you supply Europe from Asia, you have toys on the seas for weeks, but toy trends change differently.”