Hornby's financial updates to the Stock Market

[JSpencer]

Perhaps they are pulling out of the model train market. I mean, if they target school kids normally and these are not selling to them, then there is no point in taking up shop space that could be better used elsewhere.

[Ozexpatriate]

However, some people do seem to think that it's wrong to set prices based on what price maximises profit, rather than cost prices plus a "reasonable" margin.

...

Of course the pricing model shouldn't really depend on whether Hornby is making a loss or not.

In Hornby's case there is no question of maximizing profit. There hasn't been any profit for the last five years. While there may be some inefficiencies in their cost structure, they are evidently not gouging the public.

 

I'm not sure that I follow the second comment that I quoted.

 

I think that many enthusiasts are under a fundamental misconception that the cost of a product is established based on cost of production + X%.

And of course there are many costs in running a business in addition to the "cost of goods sold", which is something I anticipate would include product development costs, not just payments made to the contract manufacturer. Marketing, sales, distribution and administrative costs can be significant.

 

Most of us enthusiasts have no idea what the contractual relationships between a supplier and a contract manufacturer look like. I certainly don't.

 

The contract manufacturer has a lot of up front costs in the area of CAD and tooling before a single piece is cast. These days the contract manufacturer develops the tooling, not the supplier. Presumably there is some exclusive use of that tooling rights 'owned' by the supplier, but each factory will have separate tools. The exact structure of these contracts is unknown to us and might vary slightly factory to factory.

[Grovenor]

 

These days the contract manufacturer develops the tooling, not the supplier. Presumably there is some exclusive use of that tooling rights 'owned' by the supplier, but each factory will have separate tools

However, the Hornby reports do state that Hornby are investing significant sums in new tooling, so i would expect that to involve 'ownership' by Hornby.

Regards

[Ozexpatriate]

... Hornby reports do state that Hornby are investing significant sums in new tooling, ...

How much of that is Hornby R&D?

How much of that is done by the contract manufacturer?

Are there up-front payments to the contract manufacturer, or does the contract manufacturer incorporate their tooling expenses in the piece price?

Are there performance bonuses for fast turn around by the contract manufacturer on new tools?

 

We don't (nor should we expect to) know the answer to these type of questions.

 

So much of the debate here focuses on manufacturing, yet most of the actual cost of manufacturing (outside of how many parts need to be assembled and how complex the livery application is) are completely outside Hornby's control.

[Chris M]

Perhaps they are pulling out of the model train market. I mean, if they target school kids normally and these are not selling to them, then there is no point in taking up shop space that could be better used elsewhere.

If this relates to Oakes shop the answer is no they are not pulling out of model railways, well at least not in the near future. I’m pretty sure the model railway side will be there until the owner retires. He looks happy enough running the shop at the moment. This little department store started in 1905 and has been owned by the same family ever since. Perhaps I should start a new thread as it has nothing to do with Hornby.

[The Stationmaster]

All of which is absolutely true although currency moves are still very volatile for all sorts of reasons so the £ being 10% up this week doesn't mean it will still be 10% up when the bills arrive from China.  But the message through all of that is that increasingly players in the UK model railway market have to be fleet of foot and not carry massive overheads which hit their profitability.  So on that last point alone the ones that fail to adapt their business model will likely be the ones that suffer - Hornby's new management has in my view made a good move in restoring brand position with retailers through stopping what amounted to bulk stock dumping but at the same time what strike me as some bad decisions have been made with a major failure to recognise that the market has moved on considerably from the 'good old days' of an annual product launch being the only way to keep your end consumers interested.  

 

Hornby needs to get back to the fleetness of marketing foot we were getting well used to a year ago,  apart from tackling its major problem that it is a fairly small company behaving as if it was a big one with high overhead costs at its top end, remote from the end market.

 

Regrettably it appears from a recent BRM  interview with someone at Hornby that 'fleetness if foot' looks more likely to be replaced with 'flatness of foot' and a retreat into the ways of yesteryear although at least a promise that if we list it for this year it will actually be available this year.  If that is the way they intend to carry on I seriously wonder about their ability to actually remain in the fast moving marketplace for higher fidelity models and could end up wasting lots of money on developments they don't reveal but which are pipped to market by more dynamic companies.  

 

Maybe they don't see their future in that market but if they do then they seriously need to get back with being in touch with end purchasers the way they were a year ago.  Sorry but in my view 'hail fellow well met' approaches to marketing will not work in the age of of short lines of communication to end customers particularly in a market area which has become used to and expects the novelty of a stream of new products and hints and information about them but has a widening choice of where to spend its money (especially if the availability of amount of money might well be constrained by wider economic factors).

[truffy]

There is one way of doing it.

 

If they buy in 10 items at £50 each, (£500) and sell 9 at £75 each. (£675) they have overall made £175 profit with 1 still remaining. They could GIVE it to you and still be in profit!

 

Stewart

 

As log as they don't have to account for boring things, like fixed and variable overheads. 

[Coryton]

As log as they don't have to account for boring things, like fixed and variable overheads. 

 

I think the point was that if you look at the gross profit overall for a batch of something, you could sell one or two at a huge discount (or indeed give them away) and still consider yourself to have made a profit.

 

Clearly there needs to be enough gross profit to pay overheads. And ideally have a bit left over at the end...

[Legend]

Regrettably it appears from a recent BRM  interview with someone at Hornby that 'fleetness if foot' looks more likely to be replaced with 'flatness of foot' and a retreat into the ways of yesteryear although at least a promise that if we list it for this year it will actually be available this year.  If that is the way they intend to carry on I seriously wonder about their ability to actually remain in the fast moving marketplace for higher fidelity models and could end up wasting lots of money on developments they don't reveal but which are pipped to market by more dynamic companies.  

 

Maybe they don't see their future in that market but if they do then they seriously need to get back with being in touch with end purchasers the way they were a year ago.  Sorry but in my view 'hail fellow well met' approaches to marketing will not work in the age of of short lines of communication to end customers particularly in a market area which has become used to and expects the novelty of a stream of new products and hints and information about them but has a widening choice of where to spend its money (especially if the availability of amount of money might well be constrained by wider economic factors).

If it’s the same interview I saw I thought it was classic Kohler. What did we actually learn that was new at the end........

[Widnes Model Centre]

There is one way of doing it.

 

If they buy in 10 items at £50 each, (£500) and sell 9 at £75 each. (£675) they have overall made £175 profit with 1 still remaining. They could GIVE it to you and still be in profit!

 

Stewart

 

Hi Stewart, I see your point. If we had a mark up of 50% I would be reading your post with total agreement: However I had a look around the shop today and determined the only item in there with this sort of mark up were the carrier bags. But only if we charged 5p for them and were allowed to keep all the profit.   As it is we give them away free and further errode our profit margin. But even then we would have to pay VAT on the profit margin on the bags. We have overheads of  approx £2600 per month to cover rent, rates, electric, telephone, insurance, alarm, service charges etc. That is before anybody gets paid, including any department operated by HMRC. At that sort of mark up it would be, dare I say it... easy.

 

As someone pointed out earlier turnover is one thing and profit is totally different. Hornby have a high turnover and are making high losses. They are trying to reduce overheads and return to profitability.

 

The only way I could reduce overheads would be to either get rid of one or both staff. When one's my wife and the other my son that would be making things difficult. Hornby I am sure have a rocky road ahead, with many difficult decisions to be made.

 

Discounting? That is what got Hornby in this situation IMHO. One major company we dealt with had extensive discounting on what seemed like every other Friday. What did retailers do? They wait for the Friday offers to come through. Why order at a higher price when you know it will be discounted at a later date? That company and they were huge, no longer realistically operate in the UK.

 

Hornby put retailers in the same position why order when it will be reduced sooner or later ? Lyndon Davies promise to do away with discounting gave retailers hope that what they bought from Hornby on Monday would not be devalued the following week. That takes time to build that confidence and I don't think it will happen as quickly as possibly Hornby need it to.

 

My best guess on the past few weeks is that the division making the money is probably Airfix. Scalextric is generally a Christmas sales product. Humbrol seems to disappearing from a product availability point of view. Issues with Humbrol were there before the fire at Rustons, yet no one at H has offered any explanation as to what is happening with these products. Then there is Hornby Model Railways with the highest turnover but any profit, gross or net in amongst that turnover?

 

Edited as pressed "send" when I hadn't finished typing!!

Edited January 29, 2018 by Widnes Model Centre

[adb968008]

We have overheads of  approx £2600 per month to cover rent, rates, electric, telephone, insurance, alarm, service charges etc. That is before anybody gets paid, including any department operated by HMRC. At that sort of mark up it would be, dare I say it... easy.

Sounds like my house, mortgage, running costs and domestic HMRC (little and large cost centres).

[Western Dave]

Hi Stewart, I see your point. If we had a mark up of 50% I would be reading your post with total agreement: However I had a look around the shop today and determined the only item in there with this sort of mark up were the carrier bags. But only if we charged 5p for them and were allowed to keep all the profit.   As it is we give them away free and further errode our profit margin. But even then we would have to pay VAT on the profit margin on the bags. We have overheads of  approx £2600 per month to cover rent, rates, electric, telephone, insurance, alarm, service charges etc. That is before anybody gets paid, including any department operated by HMRC. At that sort of mark up it would be, dare I say it... easy.

 

As someone pointed out earlier turnover is one thing and profit is totally different. Hornby have a high turnover and are making high losses. They are trying to reduce overheads and return to profitability.

 

The only way I could reduce overheads would be to either get rid of one or both staff. When one's my wife and the other my son that would be making things difficult. Hornby I am sure have a rocky road ahead, with many difficult decisions to be made.

 

Discounting? That is what got Hornby in this situation IMHO. One major company we dealt with had extensive discounting on what seemed like every other Friday. What did retailers do? They wait for the Friday offers to come through. Why order at a higher price when you know it will be discounted at a later date? That company and they were huge, no longer realistically operate in the UK.

 

Hornby put retailers in the same position why order when it will be reduced sooner or later ? Lyndon Davies promise to do away with discounting gave retailers hope that what they bought from Hornby on Monday would not be devalued the following week. That takes time to build that confidence and I don't think it will happen as quickly as possibly Hornby need it to.

 

My best guess on the past few weeks is that the division making the money is probably Airfix. Scalextric is generally a Christmas sales product. Humbrol seems to disappearing from a product availability point of view. Issues with Humbrol were there before the fire at Rustons, yet no one at H has offered any explanation as to what is happening with these products. Then there is Hornby Model Railways with the highest turnover but any profit, gross or net in amongst that turnover?

 

Edited as pressed "send" when I hadn't finished typing!!

Until you have a business you really don’t appreciate exactly what is involved and it makes no difference if the business is big or small it basically has the same issues proportionately and it’s often difficult to decide which is the more difficult customers or suppliers (both of which you can’t survive without)

[RAF96]

Without requoting any of the who, why, where and when to buy comments above please let me relate a recent query to Peters Spares.

 

I asked why an assembly listed as stripped from a new Hornby loco was disproportionately higher in price than the separate items it comprised. Their response was that Hornby sets the prices.

 

One of the main cries on the Hornby forum is few or no spares available yet they obviously sell them on even if stripped from duff returned items rather than new packaged spares.

 

Make of that what you will.

Rob

[bigherb]

I asked why an assembly listed as stripped from a new Hornby loco was disproportionately higher in price than the separate items it comprised. Their response was that Hornby sets the prices.

 

Make of that what you will.

Rob

I have never found Peters spares to be particularly cheap, but if they come from Hornby someone at Hornby has to be paid for stripping and packaging the spares.

. 

[Western Dave]

Without requoting any of the who, why, where and when to buy comments above please let me relate a recent query to Peters Spares.

 

I asked why an assembly listed as stripped from a new Hornby loco was disproportionately higher in price than the separate items it comprised. Their response was that Hornby sets the prices.

 

One of the main cries on the Hornby forum is few or no spares available yet they obviously sell them on even if stripped from duff returned items rather than new packaged spares.

 

Make of that what you will.

Rob

This applies to anything you buy in pieces "parts" go to your local car dealer and buy a engine, gearbox and clutch and it will add up to more than half the cost of a new car, or buy a new motor for a Dyson on line and pay about 45% of the complete new unit price. Like it or not that's the going rate.

[Fenman]

This applies to anything you buy in pieces "parts" go to your local car dealer and buy a engine, gearbox and clutch and it will add up to more than half the cost of a new car, or buy a new motor for a Dyson on line and pay about 45% of the complete new unit price. Like it or not that's the going rate.

I once asked a furniture company how much it would cost to buy an extra shelf for a 4’ wide bookcase I’d bought. Basically a correctly-sized plank.

 

“£95+vat, sir.”

 

Paul

 

 

Edit: autocorrect decided there was no such word as “wide”, and I must have meant “wise”.

Edited January 30, 2018 by Fenman

[stewartingram]

Hi Stewart, I see your point. If we had a mark up of 50% I would be reading your post with total agreement: However I had a look around the shop today and determined the only item in there with this sort of mark up were the carrier bags. But only if we charged 5p for them and were allowed to keep all the profit.   As it is we give them away free and further errode our profit margin. But even then we would have to pay VAT on the profit margin on the bags. We have overheads of  approx £2600 per month to cover rent, rates, electric, telephone, insurance, alarm, service charges etc. That is before anybody gets paid, including any department operated by HMRC. At that sort of mark up it would be, dare I say it... easy.

 

As someone pointed out earlier turnover is one thing and profit is totally different. Hornby have a high turnover and are making high losses. They are trying to reduce overheads and return to profitability.

 

The only way I could reduce overheads would be to either get rid of one or both staff. When one's my wife and the other my son that would be making things difficult. Hornby I am sure have a rocky road ahead, with many difficult decisions to be made.

 

Discounting? That is what got Hornby in this situation IMHO. One major company we dealt with had extensive discounting on what seemed like every other Friday. What did retailers do? They wait for the Friday offers to come through. Why order at a higher price when you know it will be discounted at a later date? That company and they were huge, no longer realistically operate in the UK.

 

Hornby put retailers in the same position why order when it will be reduced sooner or later ? Lyndon Davies promise to do away with discounting gave retailers hope that what they bought from Hornby on Monday would not be devalued the following week. That takes time to build that confidence and I don't think it will happen as quickly as possibly Hornby need it to.

 

My best guess on the past few weeks is that the division making the money is probably Airfix. Scalextric is generally a Christmas sales product. Humbrol seems to disappearing from a product availability point of view. Issues with Humbrol were there before the fire at Rustons, yet no one at H has offered any explanation as to what is happening with these products. Then there is Hornby Model Railways with the highest turnover but any profit, gross or net in amongst that turnover?

 

Edited as pressed "send" when I hadn't finished typing!!

You have totally missed the point in what I was trying to say there!

 

The figures I used were just easy numbers to show the principle, not to reflect actual prices in the market.

So, a retailer buys his batch in at trade price, puts a mark up on and sells at his retail price. Some way through selling that batch at his retail price, he breaks even; from then on his sales bring in a profit. Hopefully fairly quickly, as stock laying around costs him money (no income from it, bank charges, cost of providing storage space etc). 

After a period of time, he may decide to introduce a SALE, at a lower retail price, to get cashflow, even clear his stock on the shelf. Anything in that sale is still profit on that batch though.

Every retail organisation does it to a certain extent. Normal business trading.

 

Stewart

[40F]

There is one way of doing it.

 

If they buy in 10 items at £50 each, (£500) and sell 9 at £75 each. (£675) they have overall made £175 profit with 1 still remaining. They could GIVE it to you and still be in profit!

 

Stewart

 

 

If only it were that simple. If it is as simple as you think why not open a shop and try it ???

[Widnes Model Centre]

You have totally missed the point in what I was trying to say there!

 

The figures I used were just easy numbers to show the principle, not to reflect actual prices in the market.

So, a retailer buys his batch in at trade price, puts a mark up on and sells at his retail price. Some way through selling that batch at his retail price, he breaks even; from then on his sales bring in a profit. Hopefully fairly quickly, as stock laying around costs him money (no income from it, bank charges, cost of providing storage space etc). 

After a period of time, he may decide to introduce a SALE, at a lower retail price, to get cashflow, even clear his stock on the shelf. Anything in that sale is still profit on that batch though.

Every retail organisation does it to a certain extent. Normal business trading.

 

Stewart

 

Sorry for missing your point, having read it again and read the above reply. Using easy numbers makes things look "easy". Harsh reality is just like Hornby, we have to use reallistic figures. The breaking even and then profitability even after reducing items in a Sale which still creates even more profit? Normal business trading in this industry and day and age, managing to stay in business.

Edited January 30, 2018 by Widnes Model Centre

[Chamby]

There is one way of doing it.

 

If they buy in 10 items at £50 each, (£500) and sell 9 at £75 each. (£675) they have overall made £175 profit with 1 still remaining. They could GIVE it to you and still be in profit!

 

Stewart

You principle holds true but reality is so much more complicated... items can be good ‘uns or bad ‘uns and you have to make the money where you can. Take Rails, they are still trying to sell Windhoff MPV’s at less than half RRP, but in contrast were able to hike the price of their last Ivatt Coronation’s well above RRP because they sold so well. They do this because they have to look at aggregated performance across their entire range, not just at individual item level.

 

I doubt if many sale items are reduced just because the trader is being philanthropic. There is always a business imperative for price reductions - to increase sales volume with the intent of improving profit in the short term (in £, not % margin), or gaining market share, or clearing out poor performing product lines to make way for new stuff, or maybe a competitor has dropped their prices for one of these reasons, and you need to remain competitive.

[Chris M]

I was once involved in organising production runs for spare parts I the automotive industry. It was only after doing this that I understood why spare parts are so expensive. It’s all the overhead, production set up and storage costs that do the damage. Standard production runs are so much cheaper specials.

[Western Dave]

Sorry for missing your point, having read it again and read the above reply. Using easy numbers makes things look "easy". Harsh reality is just like Hornby, we have to use reallistic figures. The breaking even and then profitability even after reducing items in a Sale which still creates even more profit? Normal business trading in this industry and day and age, managing to stay in business.

The harsh reality is it’s expensive doing business whatever the trade is your in. Even Tesco have a very small profit margin, I know people will raise an eyebrow but when you consider their turnover against actual profit as a margin in reality it’s small and they have to shift a lot of product to achieve it and they have a lot of resources. So imagine what it’s like for smaller companies with not so many resources and a competive market with fickle customers who’s total spend is discretionary

[Legend]

Tesco lives on high turnover small margins, as do all other supermarkets and things like petrol stations . On the other hand something like an Antiques shop, or a jewellers has relatively low turnover but much higher margin. Between them is a whole range. There is no way a model shop can be compared to Tescos

[Ozexpatriate]

There is no way a model shop can be compared to Tescos

I think that was the point.

 

Some enthusiasts seem to expect grocery chain-level discounting and pricing in their model railway items.

Edited January 30, 2018 by Ozexpatriate

[Coryton]

Tesco lives on high turnover small margins, as do all other supermarkets and things like petrol stations . On the other hand something like an Antiques shop, or a jewellers has relatively low turnover but much higher margin. Between them is a whole range. There is no way a model shop can be compared to Tescos

 

Going back to previous comments about cashflow, one big advantage that supermarkets have is that they are generally paid for things they sell long before the supplier has to be paid. So cashflow isn't the problem it can be for a lot of companies.