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Bachmann - why price increases are necessary





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#1 Andy Y

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Posted 30 April 2014 - 17:52

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.

 

Bachmann_BY_DL.jpg

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.

 

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Graham Hubbard

 

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.

 

Comment

 

It's evident from conversations that one of the elements is the way costs have (not) been accounted for in the manufacturing process to accurately reflect the multitude of stages in production and decoration and that it's necessary to re-balance this. Previously published accounts show that the model railway manufacturing side of the business lost money or failed to deliver as those making plastic toys which simpler production processes than our finely detailed models. Therefore this re-adjustment of pricing is necessary to ensure that model railways continue to be a viable business for Kader. 
 
I know you may not think that any of that is the buyer's fault but it's also not the fault of Bachmann Europe as a subsidiary of the group; they simply deal with the costs given and generate a margin based on that. So these price increases are not just about paying Chinese factory workers a fair and increasing wage but it's also about ensuring that we in the UK have the proper infrastructure and support to deliver planned models and generate sufficient revenue to continue to invest in the R&D of new models.
 
There's a lot of competition for labour in China, an electronics manufacturer making high value high volume consumer goods (think of all those tablets and smartphones) may be able to give workers a higher wage or better working conditions. Every year model manufacturers face a labour recruitment and training issue after Chinese New Year when habitually a percentage of their workforce moves on elsewhere. Maybe with the right profit from the right items manufacturers can build better pay and working conditions into their plans and improve the retention of production staff.
 
Should manufacturers look to other parts of the world where labour is cheaper just to keep prices low or should we adjust our expectations so that the last 20 years of development of continually improving quality products is not thrown away for the sake of market expectations?
 
We've seen what transferring production from one factory to another can do to a model manufacturer and the angst that it causes consumers so it's apparent that sustainability and dependability now have a price.

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#2 Fenman

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Posted 30 April 2014 - 18:04

Thanks, Andy, for a fascinating report.

 

This one caught my eye:

 

Derby Lightweight DMU  - Current Price £114.95  -  New Price £144.95

 
...which makes an interesting comparison with Hornby's 2014 RRP for 2-car EMUs (both 2BIL and 2HAL) at £130.25.
 
I'm looking forward to seeing the whole price list (or, rather, knowing how much pain we're in for).
 
Paul

Edited by Fenman, 30 April 2014 - 18:04 .

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#3 S.A.C Martin

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Posted 30 April 2014 - 18:08

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.

 

That's somewhat gutting, especially given how brilliant the Robinson J11 model is. However this could give Bachmann the opportunity to develop something else. There is another GER tender locomotive which was equally long lived that is still around: that would give Bachmann two E4s in the catalogue…!

 

Given it's been cancelled, is it possible to find out how far into development the Bachmann J15 was?

 

Thank you for the update and it makes interesting reading.


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#4 Andy Y

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Posted 30 April 2014 - 18:11

 is it possible to find out how far into development the Bachmann J15 was?

 

 

I couldn't say categorically how far anything had developed in terms of CADs for production but the research elements and raw data will have been done.



#5 4630

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Posted 30 April 2014 - 18:12

Thanks Andy.

I think Bachmann are to be commended for being open, upfront and candid about the pressures in the industry.
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#6 S.A.C Martin

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Posted 30 April 2014 - 18:27

I couldn't say categorically how far anything had developed in terms of CADs for production but the research elements and raw data will have been done.


Fair enough, thank you Andy.

#7 Oldddudders

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Posted 30 April 2014 - 18:31

This is an excellent insight into things behind the scenes, thanks Andy. But Andy's very presence at such a key event indicates how his/our Forum is regarded. I feel in the 5 years I've been a member, an increasing maturity has developed here - and this just shows the commercial world sees it the same way. And I'll still cheerfully buy an E4 at £100 thanks.


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#8 pointstaken

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Posted 30 April 2014 - 18:39

May be advantages in repatriating manufacture to the West ?

 

Dennis


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#9 Andy Y

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Posted 30 April 2014 - 18:41

May be advantages in repatriating manufacture to the West ?
 
Dennis


I've covered that in the OP and the answer's pretty much "No".
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#10 Tase

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Posted 30 April 2014 - 18:41

Although the prices increases only take effect for stock leaving Barwell tomorrow I wonder how many retailers will push up their prices almost immediately? Time to get an order in quicktime....
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#11 newbryford

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Posted 30 April 2014 - 18:41

 

 

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.

 

 

 

Is that called "design clever"?

 

Cheers,

Mick


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#12 Removed a/c_Belgian

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Posted 30 April 2014 - 18:42

May be advantages in repatriating manufacture to the West ?

 

Dennis

Andy covered this - "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."



#13 Tom J

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Posted 30 April 2014 - 18:42

I think the illustration suggests to me that I would rather pay a higher increase and know the increase is buying the benefit of not fuelling the Chinese economy.
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#14 Tase

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Posted 30 April 2014 - 18:45

If only my salary went up 20% too..
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#15 John B

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Posted 30 April 2014 - 18:50

Good update, full marks to Bachmann for their transparency - and frankly, their products have been much cheaper (and of consistently equivalent, if not better) quality than their competitors over the past couple of years - so this is a long time coming.

 

Shame about the Q6, though...


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#16 Ronny

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Posted 30 April 2014 - 18:59

Yikes. 20% increase is a hard pill to swallow and as Paul noted, in some cases a darn sight larger. And that's just until next March when they may put it up again.

 

Maybe I've been snoozing but I've not seen 20% price hikes for TV's, camera's or other hi-tech goods made in China. In fact their prices continue to decline.


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#17 Coombe Barton

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Posted 30 April 2014 - 19:02

Maybe I've been snoozing but I've not seen 20% price hikes for TV's, camera's or other hi-tech goods made in China. In fact their prices continue to decline.

The manufacturing process for electronic goods is largely automatiic with little human intervention. Not so for model railway items. And the batch size is much, much smaller.


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#18 Jol Wilkinson

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Posted 30 April 2014 - 19:13

If only my salary went up 20% too..

I doubt that you would be starting at £3:00 per hour though.


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#19 Stevelewis

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Posted 30 April 2014 - 19:18

Having been  a  buyer  of  European   and  USA outline  Model   railway items (Not  for  the  same  layout!!!)  for  several  years,  I have  often  considered  that  UK outline  has  been  relatively  inexpensive  in comparison,  ( considering  that  UK Model quality in the  last  few  years has equalled in many cases that  of European & USA outline).

 

No one  likes  price  increases  but  I feel  that   the  new  price  structure will  allow  Bachmann  to  continue  to  thrive  as  a manufacturer in  what  are  still uncertain  times.

 

It will be  interesting  to observe  what occurs  with  their  competition.


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#20 Talltim

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Posted 30 April 2014 - 19:18

. 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.

Could they be a bit more pointed with those statements? :-D
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#21 Tase

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Posted 30 April 2014 - 19:21

I doubt that you would be starting at £3:00 per hour though.


In fact that's exactly what I started at in my first job 17 years ago and it took more than five years to be doubled.

#22 Adams442T

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Posted 30 April 2014 - 19:22

This shows, IMHO, the basic core differences between Bachmann's approach and that of Hornby.  Being upfront about production problems, price increases and viability of models in that light is a mile away from the sorry state that Hornby bumbles along in. 

 

I personally wouldn't want some poor, benighted individual to be slaving to produce my 'toys' just so I can get them cheaper.  20% of 'bu&&er all' is still 'bu&&er all', just ask anyone on zero hour contracts in the UK how they feel about exploitation.

 

If we can continue to get highly detailed models, even if at a higher price, it has to be worth it.  The wonder is that the market has continued to provide such splendid models for a narrow (pun intended) specialist gauge for so long at such low prices.


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#23 Oldddudders

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Posted 30 April 2014 - 19:24

Derby Lightweight DMU  - Current Price £114.95  -  New Price £144.95

 

A well known Merseyside retailer seems to have suddenly sold a few of these in recent hours, to judge by stock levels on the website. It's an ill wind.


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#24 gc4946

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Posted 30 April 2014 - 19:26

I'm happy about the way they've been upfront about why they've had to increase their prices by the amount they're proposing.

 

The next thing is, how many of us will revise our purchasing intentions as a result?

 

In my case I'll have to be even more careful on what I buy in the future - there's going to be less prospect of me buying new releases on a whim.

 

Finally, OK, they've cancelled the J15 but instead might go for a J17 and/or E4, as they could then offer special editions in conjunction with the NRM.

 

 

 


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#25 2ManySpams

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Posted 30 April 2014 - 19:29

Thanks for the detailed report Andy and thanks to Bachmann for their open and honest treatment of the issue. 

 

In terms of manufacturing volumes I think we have to face the fact that model railways really is a low volume, niche area and that this naturally results in higher unit costs. Price reductions come from higher volumes - stack 'em high, sell 'em cheap as per the electronics business. 

 

We also have to face the fact that Hornby / Bachmann etc have done their best to off-set the high unit costs for low volume products by moving production to locations where labour costs have been lower. People being people will always seek to increase their own incomes to improve their standard of living for themselves and future prospects for their families. I really can't blame them especially having been recently brought down to earth by seeing the conditions in South Africa that factory workers paid 50p / hour live in - and they are the lucky ones others look up to.

 

Moving production has had quality and production issues though and constantly moving from cheap labour area to cheap labour area isn't going to work. in any rate, at some point we'll run out of cheap labour areas that have the right skills and facilities!

 

Not great for the wallet but I think the high quality / low price bubble has finally burst. The answer is to be more targeted with purchases, buy what you can afford and to carefully consider if our RTR modelling 'wants' and 'needs' are actually that important in the global scheme of things.

 

This is a pastime and hobby - something that enriches life rather than an essential. Despite this I'm sure that the thread will be filled with rants and ventings concerning how this announcement really is the end of the world.


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