Hornby secure £18 million loan

[Andy Hayter]

The difference in distribution costs is indeed stark but do not fool yourselves that we are anyway close to comparing like for like.

 

I doubt that B's costs would cover even the simple shipping costs from China to the EU let alone anything else.

[Andy Hayter]

  

Biggest issue will be any currency movements. A 10% devaluation would wipe out the profit margin. Also if Brexit damages the UK economy, will that mean weaker sales for Hornby in its core UK market? Jury's out on that one.

 

I agree totally but that affects H pretty much as a whole (and B as well for that matter) and is not specific to the European ranges, which was the basis of the original question.

[The Stationmaster]

Back catalogue of model railway locos and stock alone, produced under the Triang, T-H and Hornby brandnames since the 1950s. Well, I may be wrong but other than IC225, LOTI and 123 singles, 'Nellie', diesel dock shunter, Trestrol and Bogie brick wagon, that's it for their back catalogue that has not already been upgraded, by themselves or competitors. (There are three groups of product that might be added: TT, failed long ago,  TTTE, recently announced as ending, and 'Battlespace' long ago dropped.)

 

Other than the IC225, which I believe needs a current standard model, it is wholly new product subjects or nothing in my opinion.

 

Ah - TTTE - dropped but being promoted by an advert in at least one of the current/upcoming mags.  Which suggest to me they've made an error in their marketing somewhere or they think they can get rid of any remaining stock onto the collector market before it vanishes.

On staff costs, note 24 to the accounts sets out a material 20% reduction at y/e 2027. If apply the reduction to the 2016 cost figure, the projected figure would be c£9m suggesting there is c£1m of saving relative to the reported 2017 figure.

 

I know it wont be popular with the independent retailers, but for every item Hornby sell directly through their website relative to through a retailer, Hornby captures the retail margin (and presumably saves some distribution costs). Every sale that switches to the Hornby website will increase the net margin by more than 10%...I'm sure the retailers who read this page can work that out given they know what wholesale they are charged and their own net profit.

 

However, I appreciate that a) Bachmann doesn't sell direct (does Oxford? Doesn't look like it) so we're back to the question as to why are they give or take profitable but Hornby isn;t and b) does selling in volume to independent retailers actually make the cake bigger by increasing the overall market? If so, by how much, and the anecdotal analysis to date suggests that gaining that margin is a short term gain but with a long term expense.

 

As an aside, previous management may well have diagnosed the problem, taken action and its their ill luck to see their strategy concluded by someone else who takes the credit...

 

Some excellent points made in your series of posts - most of which I agree with absolutely although I do wonder about them being capable of marketing initiatives judging by what we have seen so far of the new regime (which seems to intent on going backwards rather than forwards in that respect) and that could be as important in the overall situation as raising prices by above inflation levels (but they'll have to get the quality right - and that too seems to be presenting difficulties for them). 

 

But let's look at another possible course they could take and that is to reshape their seemingly extremely expensive distribution method and at the same time trim their costs by withdrawing from selling direct to retailers and instead letting their existing trade distributor assume that mantle.  What we don't know is how much of Hornby Group's sales to retailers are actually achieved via the distributor rather than direct but they obviously play a significant part although some pricing by those who clearly buy from the distributor suggests the distributor probably gets a pretty good margin for his trouble.  So sales via the distributor might reduce margin but effectively will simplify part of Hornby's organisation - do the sums make sense? (Again we of course don't know - do Hornby?)

 

The rep organisation could then, to any extent it is retained, become more wholly a marketing team rather than mainly being a sales force with a sort of 'just growed' marketing role and this might allow overall economies in marketing.  Direct sales would become, to any extent which it isn't currently, the main Hornby based selling arm albeit still having to price in order not to hit retailers.   Would such a change work, would the distributor be prepared to take on extra business, would the changes shake out sufficient cost at Hornby to make any possible reduction of trade margin on a greater volume of sales worth making such a change?  

 

Yet again lots of questions which we can't answer because we don't know the numbers but surely the question is one - of many - the new regime will have been asking as it looks at potential savings and business opportunities?  And having now had 7 months in the chair as CEO Lyndon Davies along with Tim Mulhall as his Chief Operations Officer have no doubt had sufficient time to fully review the Group's overall situation and presumably the upcoming final results will give us some idea of the strategy they intend the company to follow although we will of course have to wait a bit longer for the Annual Report.

Edited June 13, 2018 by The Stationmaster

[adb968008]

[ And having now had 7 months in the chair as CEO LCD, along with Tim Mulhall as his Chief Operations Officer, the new regime has no doubt had sufficient time to fully review the Group's overall situation and presumably the upcoming final results [/i]will give us some idea of the strategy they intend the company to follow?

I think that may be too soon to show up in the accounts (other than a decline in position due to the advertised immediate changes).

 

2018 at least to me feels like a brakes been applied.. 8% price increases, reduced range and I’ve seen a lot less Hornby boxes arrive at my place in Q1 2018.

 

My guess is this years numbers will be bad, very bad, I suspect increased losses, reduced sales and increased costs, and if sensible depreciate all that old stock that’s going to linger too.

Get it out of the way, blame it on the old management so next years accounts the CEO can start to look better.

Of course if Hornby do downsize, many staff have been there many years and parting isn’t cheap, that too could come to bear on 2018’s accounts next year (if that was to happen), whilst nothing has been said regarding staffing, a reduced range is harder to justify the same headcount, when costs are so high.

 

I guess we will all find out the future on June 18th when the turnaround strategy is announced.

Edited June 13, 2018 by adb968008

[rockershovel]

The impression I have formed, over quite a long time, in quite a number of places, is that outsourcing to the extent that you are effectively only a distributor, is a recipe for failure in the medium to long term.

 

The reason is simple. Management are the people most likely, and more importantly most able, to cling to their positions and shape the structure to suit that aim. Quality of management will also deteriorate as the actual product and manufacturing knowledge stagnates and is lost, never to be regained. Shareholders continue to expect that share price will be maintained although added value is now, in most cases, nil.

 

Your manufacturing provider is now free to seek other outlets, with or without your consent; this is particularly true of manufacturers in Far Eastern countries, where transparency is low to zero and laws protecting intellectual property rights, non-existent or completely disregarded.

 

Hornby are, in effect, a distributor of their Far Eastern suppliers, seeking to maintain a structure inherited from a manufacturing company. Good luck with THAT...

[graveand]

 

 

However, I appreciate that a) Bachmann doesn't sell direct (does Oxford? Doesn't look like it)

 

Oxford sell direct via their own website but always full list price unless you are a member of their collectors club and then not all items are available at discount

[adb968008]

However, I appreciate that a) Bachmann doesn't sell direct (does Oxford? Doesn't look like it)

Oxford sell direct via their own website but always full list price unless you are a member of their collectors club and then not all items are available at discount

I don’t see how Oxfords sales model translates into Hornby’s..

However I could see how there technical model could, but that’s a double edged sword.

Given costs are a drag on the company, and time and financing is something they now have, it to me suggests Quality could end up the victim that reduces cost and time to produce.

Edited June 13, 2018 by adb968008

[jjb1970]

A former colleague I used to work with was fond of saying that if you can't get the basics right then there's not much point trying the more difficult stuff. I think there is mileage to be had in Hornby exploring ways they could develop technologies for the hobby at some point and various other product related opportunities but their fundamental challenge at the moment is to control costs and manage themselves effectively and efficiently. No amount of great product development will offset top heavy and ineffectual management. Personally I thought the last senior management team had a better grip on things and were moving in the right direction.

[Mike Storey]

The impression I have formed, over quite a long time, in quite a number of places, is that outsourcing to the extent that you are effectively only a distributor, is a recipe for failure in the medium to long term.

 

The reason is simple. Management are the people most likely, and more importantly most able, to cling to their positions and shape the structure to suit that aim. Quality of management will also deteriorate as the actual product and manufacturing knowledge stagnates and is lost, never to be regained. Shareholders continue to expect that share price will be maintained although added value is now, in most cases, nil.

 

Your manufacturing provider is now free to seek other outlets, with or without your consent; this is particularly true of manufacturers in Far Eastern countries, where transparency is low to zero and laws protecting intellectual property rights, non-existent or completely disregarded.

 

Hornby are, in effect, a distributor of their Far Eastern suppliers, seeking to maintain a structure inherited from a manufacturing company. Good luck with THAT...

 

Completely agree, if that was the case. But Hornby have a major R&D team, with initial design capability. They are not, therefore, an uninformed commissioner/wholesaler. They need to re-introduce CAD ability (IMHO) to take greater control over their production line. That initially increases costs, but leaves them far more capable in determining ultimate practicability against target cost.

 

Apart from getting their overheads well down, which they have already acknowledged and are actioning, their key objective must then be to create a production strategy which fulfills demand at a marketable price. Understanding whether that demand is more of the same, but better, or radical change, is the 64 thousand dollar question. We will know more next week, I hope.

[The Stationmaster]

I think that may be too soon to show up in the accounts (other than a decline in position due to the advertised immediate changes).

 

2018 at least to me feels like a brakes been applied.. 8% price increases, reduced range and I’ve seen a lot less Hornby boxes arrive at my place in Q1 2018.

 

My guess is this years numbers will be bad, very bad, I suspect increased losses, reduced sales and increased costs, and if sensible depreciate all that old stock that’s going to linger too.

Get it out of the way, blame it on the old management so next years accounts the CEO can start to look better.

Of course if Hornby do downsize, many staff have been there many years and parting isn’t cheap, that too could come to bear on 2018’s accounts next year (if that was to happen), whilst nothing has been said regarding staffing, a reduced range is harder to justify the same headcount, when costs are so high.

 

I guess we will all find out the future on June 18th when the turnaround strategy is announced.

 

I seem to remember reading or hearing somewhere that LCD has some sort of clause in his contract relating to Year 1 performance of the company.  Whether that applies to his first year or the first full accounting year during his tenure I really don't know.  Of course if, as is expected, future plans are announced next week that could presumably count as the start of Year 1?

[adb968008]

.

Edited November 6, 2018 by adb968008

[Legend]

I suspect a marketing guy would say the final product has to look good , hence the printed boxes. But I do agree with you, seems an obvious cost saving . Added to that the logistics of sourcing various types of boxes . I also think someone from marketing would say it’s a seemless offering or some marketing speak like that because the image in the catalogue carries across to the image of the box. So clever.

 

Actually I find the catalogue images quite boring . How about halfing the size of the catalogue , 64 page landscape format , giving views of the locos on a layout setting, much like the catalogues of the 70s, after all you are supposed to be appealing to the older Modeller. These are the catalogues we remember, not the highly glossy boring ones of today. Build on your heritage.

 

Would people go for generic boxes with labelling. Would we care that much , if the product inside is detailed, works and arrives in one piece surely it would sell itself. If you really need a picture on front , have a generic box with a window and a card insert. Still cheaper than individual boxes. With increasing sales direct, or through Hattons, Rails, Kernow by parcel post does anyone see the picture on the box before buying anyway?

[tomparryharry]

So one thing did strike me...

 

The marketing, Hornby seems to spend a lot on this, £10mn in 2017.. (selling and Marketing).

Similarly when I did some old fashioned internet research, I find a lot of marketing/graphics people associated with Hornby, and not all in Kent. It seemed odd to me why this figure represented 20% of Hornbys annual turnover, and why so many people.

 

I know the marketing is expensive, adverts, shows etc etc, plus the figure includes sales (reps and their cars), but there is one thing Hornby does, that I don’t believe anyone else does, that surely must be unnecessarily additional expense...

 

Every Hornby loco box, has a designer artwork sleeve, exclusive to each and every model.. there wasn’t 1 box for the Coronations, there was 5 boxes.. one each for 46229 (both of them),46256, 6231 and 46235. Same too for every other model made in the last few years.. that’s literally several hundreds of different sleeves produced !!!

 

Now I have a friend of mine who’s a graphics designer, he’s getting getting a good wage, a box design surely would take more than a day to research, design, tweak, sign off etc.. i’m Sure more than 1 person is involved in the design too !! He’s suggested each box like this could be a 4 figure sum from concept to manufacture.

 

The last few years where they were making several models per month, this year with a much reduced range.. so if they are not contractors but FTE’s, what are all those designers doing all day with a reduced workload ?

 

Looking at other manufacturers out there have 1 box design per class... that’s 14 P classes from Hattons.. 1 box... 10 Barclays.. 1 box.. 20+ different Westerns.. 1 box (well actually 4., Steam/CMC and D1062 LE’s included)...

 

Heljan, Oxfords boxes are generic to nearly every loco they make regardless of class.

 

Bachmann boxes are near identical style.. generic colour, only textual differences on the lids/back.

 

You can’t even attribute this to brand awareness.. ever seen a rack of Schwarz spices in the supermarket..hundreds of identical jars just a different content name) ?- but collectively you can’t miss the product of the brand in the aisle..it’s an army of jars looking at you.

 

If i’m Not wrong in the above, then there’s one place that looks simple to my humble eyes to make an immediate and substantial saving is back to the 1980’s standard generic box, with a label on the end... There should be production efficiencies there too.. thousands of one box is easier to manage than hundreds of dozens of boxes.

 

I don’t know about anyone else but my boxes immediately go in a storage box and are stashed never to be seen again, for me it could be a plain brown cardboard box.. it’s the model i’m buying after all..

 

Aaah! So you're the cardboard hoarder! Return that cardboard at once, reclaim your 5p!

 

In all seriousness... Your complaining about 2-6 pence/per on a cost of £175-ish retail. With information like that, I'll wind up my business forthwith. It's clear you've seen all of my overheads.

 

Brand identification is a key marketing ploy, and it's worth millions of pounds every minute, every day. Mars, Nestle, coke, Walkers to name but a few.

 

If you buy it in a brown cardboard box, people will think you're buying a mucky video.... 

 

Cheers,

 

Ian.

[adb968008]

I suspect a marketing guy would say the final product has to look good , hence the printed boxes. But I do agree with you, seems an obvious cost saving . Added to that the logistics of sourcing various types of boxes . I also think someone from marketing would say it’s a seemless offering or some marketing speak like that because the image in the catalogue carries across to the image of the box. So clever.

Actually I find the catalogue images quite boring . How about halfing the size of the catalogue , 64 page landscape format , giving views of the locos on a layout setting, much like the catalogues of the 70s, after all you are supposed to be appealing to the older Modeller. These are the catalogues we remember, not the highly glossy boring ones of today. Build on your heritage.

Would people go for generic boxes with labelling. Would we care that much , if the product inside is detailed, works and arrives in one piece surely it would sell itself. If you really need a picture on front , have a generic box with a window and a card insert. Still cheaper than individual boxes. With increasing sales direct, or through Hattons, Rails, Kernow by parcel post does anyone see the picture on the box before buying anyway?

The questions to ask are like:

 

if you didn’t like the box,would it stop you buying the product ?

If the box didn’t stand out, would you buy a competitors ?

 

A retail manager from retail sale background would say yes to both.

 

I as a modeller, am quite happy to Pre-order 7 years before I even get to see a 3D printout of what the model might someday look like when it’s eventually produced.

For the second question, most models produced today you don’t have that choice of competition, it’s that model or a different prototype class... box or brand has nothing to do with it.

Edited June 14, 2018 by adb968008

[Keep the Faith]

Every Hornby loco box, has a designer artwork sleeve, exclusive to each and every model.. there wasn’t 1 box for the Coronations, there was 5 boxes.. one each for 46229 (both of them),46256, 6231 and 46235. Same too for every other model made in the last few years.. that’s literally several hundreds of different sleeves produced !!!

 

Now I have a friend of mine who’s a graphics designer, he’s getting getting a good wage, a box design surely would take more than a day to research, design, tweak, sign off etc.. i’m Sure more than 1 person is involved in the design too !! He’s suggested each box like this could be a 4 figure sum from concept to manufacture.

 

 

 

Four figures for a box design might be about right if using an outside agency.  However, if Hornby are employing an in-house group of designers who are working repeatedly from a templated design for multiple sleeves then the costs per unit are likely to be considerably lower.  The trick if you employ a designer full-time is ensuring that they are always creating content rather than waiting for work to be briefed.  As they release fewer products it is reasonable to assume that they will need fewer designers.  

 

Also a lot of their products use a standard red box with a bespoke sleeve.  The cost of a sleeve will be quite a bit lower than the cost of a fully designed box - something that Hornby seem to restrict to their limited edition runs.

 

If i’m Not wrong in the above, then there’s one place that looks simple to my humble eyes to make an immediate and substantial saving is back to the 1980’s standard generic box, with a label on the end... There should be production efficiencies there too.. thousands of one box is easier to manage than hundreds of dozens of boxes.

 

I don’t know about anyone else but my boxes immediately go in a storage box and are stashed never to be seen again, for me it could be a plain brown cardboard box.. it’s the model i’m buying after all..

 

 

Don't forget that this market is split between collector and modellers.  You might not want special packaging but for collectors the packaging is a big part of the appeal of a product.  Hornby will have to weigh up the enhanced collector appeal of bespoke packaging with the additional cost.  Having said that, making this decision assumes they even know the modeller:collector ratio in the market.  There is probably a lot more gut-feel than science behind these decisions.

Edited June 14, 2018 by Keep the Faith

[adb968008]

If you buy it in a brown cardboard box, people will think you're buying a mucky video....

.

My postman thinks i’m importing cigarettes when he sees the brown carton arriving.

 

Boxes might be low cost to manufacture, it’s paying the person who designs the ink used on the box i’m aiming at.

Graphics designers from Central London agencies designing branded boxes get £10ks per week working for businesses.

 

 

Your complaining about 2-6 pence/per on a cost of £175-ish retail.

I don’t know what Hornby pay, but I doubt it won’t be a few pennies per loco.. I wouldn’t work for a company that gave me even 10p per box to design a 350 piece limited edition on the quality of Hornbys artwork... that’s a grand total of £35 ! - how long would it take you to draw / colour a fully lined Duchess in different perspectives and design the rest of the box, plus 2-3 alternatives designs for consideration, approval meetings (it’s never just 1 person alone making a decision), amendments, checking, prototyping, sign off etc.., ?

 

Remember 1 unique sleeve per loco produced... not 1 per class of model. There’s also some coaches and EMUs too that have their own box sleeves.

 

It’s an overhead other manufacturers don’t have.

Edited June 14, 2018 by adb968008

[Keep the Faith]

My postman thinks i’m importing cigarettes when he sees the brown carton arriving.

 

Boxes might be low cost to manufacture, it’s paying the person who designs the ink used on the box i’m aiming at.

Graphics designers from Central London agencies designing branded boxes get £10ks per week working for businesses.

 

But if Hornby are employing a graphic designer in East Kent they can probably pay less than £25k-£30k PA for a graduate.  Less than £150 a day.  They just need to be good and kept busy!

[Keep the Faith]

But if Hornby are employing a graphic designer in East Kent they can probably pay less than £25k-£30k PA for a graduate.  Less than £150 a day.  They just need to be good and kept busy!

 

£22k to £28k for a Product Designer for Scalextric.

 

https://www.jobsinkent.com/job/1014173

[adb968008]

£22k to £28k for a Product Designer for Scalextric.

 

https://www.jobsinkent.com/job/1014173

Plus he needs a desk, hardware, software licenses benefits, pension etc. (Software isn’t free).

 

Now will he have fully autonomous sign off on all decisions (no manager, no one else in the company to discuss with) and an ability to produce at least c300 designs for c100 of this years locomotives, to allow himself choice from 3 to select the best,... oh and articulate the design to China, quality check not just his spelling, but research the data he’s writing.. and produce a full coloured 5 perspective render every loco ? Oh and add effects like back ground effects and smoke etc as deemed necessary on some designs, plus ensuring what he produces is in alignment with the rest of the company and it’s marketing activities.., wouldn’t be good if he prints Duchess in Maroon on the box, but the other side of the office advertises a Coronation in Blue .. not too mention unexpected production changes that may make his artwork completely null and void requiring him to start again, such as changing the name, style or shade of a livery ?

 

If so then he’s well worth the £30k... he’ll be very busy.

 

I obviously got it wrong, and £10mn spent in Sales and Marketing was actually the Champagne and Caviar lavished in retailers up and down the country

perhaps this guys just getting £30k to draw pictures as part of a much wider team, strategy and cost base that costs multiples more, and in part could be because of the sheer volumes of artwork being made that could be reduced ?

Edited June 14, 2018 by adb968008

[Keep the Faith]

Plus he needs a desk, hardware, software licenses benefits, pension etc. (Software isn’t free).

 

Now will he have fully autonomous sign off on all decisions (no manager, no one else in the company to discuss with) and an ability to produce at least c300 designs for c100 of this years locomotives, to allow himself choice from 3 to select the best,... oh and articulate the design to China, quality check not just his spelling, but research the data he’s writing.. and produce a full coloured 5 perspective render every loco ? Oh and add effects like back ground effects and smoke etc as deemed necessary on some designs, plus ensuring what he produces is in alignment with the rest of the company and it’s marketing activities.., wouldn’t be good if he prints Duchess in Maroon on the box, but the other side of the office advertises a Coronation in Blue .. not too mention unexpected production changes that may make his artwork completely null and void requiring him to start again, such as changing the name, style or shade of a livery ?

 

If so then he’s well worth the £30k... he’ll be very busy.

 

I obviously got it wrong, and £10mn spent in Sales and Marketing was actually the Champagne and Caviar lavished in retailers up and down the country

perhaps this guys just getting £30k to draw pictures as part of a much wider team, strategy and cost base that costs multiples more, and in part could be because of the sheer volumes of artwork being made that could be reduced ?

 

Gosh, someone got out on the wrong side of bed this morning.  You quoted "a 4 figure sum" for each box and "Graphics designers from Central London agencies designing branded boxes get £10ks per week" and I have suggested that Hornby are spending a whole lot less than that by employing graphic designers who know the brand inside-out and produce artwork in the house style every day.

 

You've also pointed out that packaging is irrelevant to you but you are just one consumer.  Retailers, collectors and the brand owner themselves almost certainly have another opinion.

 

As for some of your comments above, how many locomotives a year do you think get "5 perspective render(s)", "back ground effects and smoke etc" and three design options prepared?

 

If I were you I'd give Simon Kohler a call, I am sure he would value your input.

[LBRJ]

I suspect that to the three-quarters of the market that could be classed as "Collectors" the box is just as important as the contents- It may be the only part of the product they actually see on a regular basis.

[stewartingram]

Aaah! So you're the cardboard hoarder! Return that cardboard at once, reclaim your 5p!

 

In all seriousness... Your complaining about 2-6 pence/per on a cost of £175-ish retail. With information like that, I'll wind up my business forthwith. It's clear you've seen all of my overheads.

 

Brand identification is a key marketing ploy, and it's worth millions of pounds every minute, every day. Mars, Nestle, coke, Walkers to name but a few.

 

If you buy it in a brown cardboard box, people will think you're buying a mucky video.... 

 

Cheers,

 

Ian.

Do you have a link?

 

 

 

Stewart

[adb968008]

Gosh, someone got out on the wrong side of bed this morning. You quoted "a 4 figure sum" for each box and "Graphics designers from Central London agencies designing branded boxes get £10ks per week" and I have suggested that Hornby are spending a whole lot less than that by employing graphic designers who know the brand inside-out and produce artwork in the house style every day.

 

You've also pointed out that packaging is irrelevant to you but you are just one consumer. Retailers, collectors and the brand owner themselves almost certainly have another opinion.

 

As for some of your comments above, how many locomotives a year do you think get "5 perspective render(s)", "back ground effects and smoke etc" and three design options prepared?

 

If I were you I'd give Simon Kohler a call, I am sure he would value your input.

The point i’m making, is no one but Hornby has this overhead... everyone else is using a generic box, occasionally with text or an outline specific to the class of model...

 

It’s a job creation scheme that seems unique to Hornby in model railways sector and i’ll guess that it costs far more that 1 person at £30k a year to do it. I’ve been trying to think of overseas model railway companies that make artwork specific to each individual loco number/livery made but I can’t... not even in Brass rtr. There own European lines don’t do it either.

 

 

If they’ve got enough money for that kind of luxury, best of luck to them.

Edited June 14, 2018 by adb968008

[LBRJ]

Think of the box as a work of art that is thrown in for free to encourage the R number collectors to part with thier money!

[jjb1970]

There is a sort of inverted elitism when it comes to brass. Plain boxes tend to be the norm. Happiness comes in a plain green box I always say (although at the end OMI changed to a glossy blue box with yellow trim. Tenshodo used a plain silver box, Metropolitan a gold box, Fulgurex brown, Musashino a maroon box etc. However the boxes had a nice quality feel and conveyed a premium feel.