Graham Hubbard and Dennis Lovett of Bachmann Europe Plc today held a press briefing on the commercial reasons why it has been necessary to bring price increases into effect. Traditionally these are made when new announcements are made in March each year but the announcements are held over until 20th July this year to tie in with their 25th Anniversary.
Ben Jones ( L ) and Dennis Lovett ( R )
Bachmann took a positive step of explaining to the media what's behind this in a spirit of transparency and to avoid gaps in the knowledge of retailers and customers alike. Bachmann Europe continues it's healthy position in the marketplace meeting its targets for 2013 thanks to the significant last releases which arrived in the UK just before Christmas and they're delighted with their wide successes in the Model of the Year polls. They're also keen to emphasise that there are no changes to any Ts&Cs with their appointed stockists; they won't be selling direct and all distribution will be through those appointed stockists who have to be bricks and mortar shops with regular opening hours and who can support their customers with supply and service needs. There are no plans to use any intermediary wholesalers which again ensures the dealer network will be there for customers and they will continue to ensure that all international ranges, EFE vehicles, Woodland Scenics and W.Britain products are made available to stockists if they wish.
Take a breath and read on as this is the most illuminating tale of competitive pressures we've seen to date!
Most of us are familiar with the changes that China as a manufacturing powerhouse are going through with an accelerating economy geared up to volume production of consumer goods right through the price range. The expansion of 'hi-tech' industries' sucking in labour continues to be an issue with fierce local competition causing a volatile labour market with stories of competitors recruiting staff at the factory gate with promises of wage increases. When this is linked to governmental initiatives to create factories in more northerly provinces there's currently less migration of labour en-masse to the southern provinces where the model railway producing factories, including Kader, are based. Chinese New Year is frequently cited as a reason for stalled production where workers from out of the provinces return to their families, some of whom will have made enough in bonuses to seek a job closer to home or take the time to change to a competitor offering more money meaning that it's often only 50% of the workforce who return after the New Year. Replacement staff need to be recruited and trained which can lead to gaps in the product flow (as we're still seeing at this point in the year).
The products from China are bought in US$ so currency variations can come into play in the three-way balancing act of how much a product will actually cost at the point of shipment; add in increases in the cost of raw materials and manufactured components due to continued expansion of 'hi-tech' and there's pressure from all sides. But that's not the end of it; transport and shipping costs have doubled during the worldwide recession as shippers strive to get a return on each container and boatload. Another complication is that the worldwide recession has resulted in a reduction overall in the demand for model railway products although there's only been a marginal decrease since the middle of 2013 in the UK spending, part of which may be explained by losing some retailers to economic circumstances. Although Kader, smilar to most other factories, owns the land the factory was built upon and paid for the construction of the factory buildings it's still owned by the local government and leased back (wow!) and then has to pay a levy to the provincial government on goods leaving the factory gate (a form of rates).
From tomorrow through to 1st May 2019 there are wage increases dictated by government which will come into effect roughly at an increase of 20% per annum for those five years meaning that wages will effectively double from around £3/hr to £6/hr. It will probably cost employers another £1/hr to cover the mandatory free medical insurance and pension rights their employees will now have.
All of the above is a given largely outside the control of Kader but there has also been an appraisal of exactly what time and materials go into every product and it's become apparent that some products need adjustment. Some items have a lot more hand-applied detail, decoration or stages in the manufacturing process so a decision was made to ensure that prices reflect the cost to produce an individual item.
So; if you've read all that you may have your head in your hands wondering what's coming but Graham, and David Haarhaus have recently been in China fighting their corner to manage costs as much as possible. We were given some sample indicative costs shown below but the full price lists will be released in a week or so when finally checked.
These prices will be for goods leaving Bachmann's warehouse from tomorrow to retailers and obviously it doesn't apply to stock already held on retailers' shelves.
E4 Class 0-6-2T - Current Price £89.95 - New Price £99.95
Class 47 - Current Price £92.75 - New Price £109.95
Derby Lightweight DMU - Current Price £114.95 - New Price £144.95
Mark 1 coach - Current Price £28.35 - New Price £32.95
7-plank wagon - Current Price £10.20 - New Price £12.50
Farish Presflo - Current Price £12.75 - New Price £15.95
There's variations in the increases for the reasons given above but they average around 20% increase on the RRP so the prices quoted above may see discount from some retailers, there are no changes to the retailers margins nor the limitation on discounts in the first 90 days of availability.
Given the above Bachmann have, and will continue, to look at how models are made and determine the most efficient methods of manufacture to deliver quality products at a reasonable price, an example was given about a potential forthcoming N gauge product where the buffers could be moulded as part of the body without loss of finesse and to construct the trussing as a single part to reduce the labour content.
Although Bachmann are still committed to upgrading older models to ensure DCC compatability and NEM coupling pockets they are questioning what levels of detail the marketplace is prepared to pay for; opening doors and revolving fans would be prohibitive and it's surprising to tell that adding sprung buffers can increase the RRP of a loco by around £15.00, a feature which most customers would have no need or use of the feature as they wouldn't even operate as a real buffer would.
The Sanda Kan factory was discussed having been purchased in 2008 it continued to produce goods as an independent OEM plant with different supply streams for different customers. Market forces meant the factory lost some contracts and former employees set up in localised smaller competition meaning the factory will close and the plant and machinery will be transferred to Kader's own factory and still accommodate former Sanda Kan customers.
The Liliput range continues to go from strength to strength in Germany through offering good quality products at a competitive price whilst competitors see reductions of around 17% in their sales.
There has been recent speculation about the Thomas the Tank Engine brand and potential for Bachmann. Bachmann hold licenses to supply TtTE products to mainland Europe through Liliput as well as the rest of the World. Bachmann, holding a licence to produce G scale products within the UK and ROI have approached the lidence owners to see if they could supply the OO/HO products into the UK as the current licence was expiring on 01 April 2014 but they have been advised that the licence for that remains exclusively with another manufacturer.
New product announcements
As previously mentioned Bachmann will be announcing new products at their forthcoming 25th Anniversary on 20th July and this will include 3 new tooling items for OO and 3 new tooling items for N; they're not giving any clues away but intimate it will be worth the wait. The next announcements will return to March 2015 so it won't be a 'fantasy catalogue' year of releases and they're hard at work on moving these items forward.
One story which can be told though is that one of the products which would have been announced was the J15 but this has been cancelled with Hornby announcing it and showing recent progress samples. I know that this is a hard one for them to accept as they had carried out major work on recording the necessary information on the North Norfolk Railway last summer in conjunction with the loco owners, the M&GN Society. The loco's now in bits for an overhaul and there hadn't been an approach from anywhere else to record the information.
A few people spotted the small clue in the last copy of the Bachmann Times with a picture showing Merl Evans measuring it up (as part of the story of his retirement) but sad to say we won't see that happen.
I asked Graham what he felt the future may bring in terms of market trends and he replied "We have a commitment to a quality product at a reasonable price and we listen to modellers through wishlists, direct approaches and at shows, with a good measure of gut feeling and give them what they want if it's feasible. A loco, for example the Q6, which has limited geographical usage and livery variation is unlikely to attract sufficient buyers".
Asking the question about whether UK production would ever be viable solicited a response that they'd looked at bringing undecorated wagons into the UK for tampo printing and it would have resulted in wagons nearer the £20 mark, in fact to produce a loco such as the A1 would mean a price around £250.