Hornby Annual Results year ended 31 March 2018

[adb968008]

Novelties sell, but do they sell well enough ?

 

2020 is indeed 190 years since Rainhill, a bit of an odd number but Rocket would be a nice return, you could even throw in Novelty, Sans Peril and Cycloped. (I am joking FYI...)

It’s just a pity 4472 didn’t come off the drawing board in 1919, it could have been the eternal panacea yet one more time.

 

However these ones are a bit unique, look at the Bachmann pway trolley and compare it to the Peckett... which has the better potential ?

 

I do think exploring coaches, especially 1900:1920’s designs that may have propagated into the 1960’s or even survived as far as PWay uses in the 1970’s would be a route worth exploring. This gives wide ranging of liveries, sets and longevity.

Niche coaches seem to fetch high prices right now, and if designed like the railroad mk1’s could be assembled in 60 seconds or less (I know ..I’ve tried it!).

 

People buy multiples of coaches than locos, and the competitive situation is much more advantageous than locomotives. SECR and LSWR have made a start.. MR, LYR, GCR, GER etc could have a play.

 

Coaches need gimmicks too.. if Bachmann DCC sound enabled coaches actually do sell well, it opens the door for Hornby to be very competitive with TTS sound coaches.

 

Coaches could lead into “Crosti” Quality DMU/EMUs too.. the Crosti 9f, was really Railroad+ That same standard, on a 60seconds to assemble EMU coach with a railroad motor could make RTR multiple units viable.

 

And whilst i’m On the carriage bandwagon, how about some LMS or LNE push pull stock, or even a GWR slip coach ?

 

Coaches in my mind offer greater volume, less parts, easier to assemble, less competitive risk and higher margins than locos, and offer a variety that has previously been reliant on 1980’s Ratio/etc kits with many livery options.

 

Finally though, as we all like a gimmick, the best engine to compete across 100 years of railway history against the Single has to be the one and only Liverpool and Manchester no57 Lion...it could even find a place in a Titfield Thunderbolt set with the 14xx... if it works out, design the chassis clever enough to fit under the Furness 0-4-0 too.. tender and tank versions... tiny toolings of bodies that size don’t cost tens of £k.

Edited June 19, 2018 by adb968008

[The Stationmaster]

For it to be worthwhile for him, I'd think his total package if the targets in the 3 year plan are met has to be of the order of £5m. What he's paid on an annual basis is probably less relevant.

 

I agree with your other, longer, comment that this is "last chance saloon" territory. I noted above that the bank is monitoring covenants on a monthly basis. That's incredibly frequent for any borrower. I'm thinking that their strategy will be to pull the plug and enforce whilst there's still some value in unsold stock (they may even covenant to maintain stock levels) and bet that they can make a full recovery on their loan with a top up from sale of tooling etc. For that to work, they will need to act as soon as there is a negative deviation from the financial plan that has been explained to them.

 

On the 2019/2020 range, whilst it may be true, its all a bit Mandy Rice-Davies. If you plot out how many new toolings per year there have been, I think there may be one less this year. Typically its 4 to 5 and there may have been three (King Arthur, 87, 800). What we may not know is that for the 2019 launch catalogue that development was stopped a while in advance and it is shaping up to be a thin catalogue. However, whatever the truth is, you're pretty much bound to say that there will be good times ahead!

 

In terms of the statement, if Hornby is going to look more to the collector market to drive its revenue growth with a 'wow' factor, I wonder if that means more iconic/one-off type locos rather than some of the more humble workaday 0-6-0 goods types. Perhaps the Bugatti P2 will appear, perhaps a W1 (in whatever form). Things that everyone of us will say "its not my period but I want that" which can sell at full and higher price. With Kohler back on board, I foresee more tie-in type packs to exploit relatively current toolings. The Mallard Great GAthering/Goodbye was a success - if you tot up they sold 6,000 A4s in that range but that was a fairly unique event. Maybe a Pendennis Castle and Flying Scotsman "Empire Exhibition" twin pack. A "One with the Bell" triple pack of KGV in GWR livery with 6223 masquerading as 6220 with its bell and 4489 Dominion of Canada. Bundling to create more collectible items to increase sales.

 

I'm sure they look on enviously at the Rapido's imminent success with the Single. Ditto Bachmann and its Blue Pullman. If you look back, some of Hornby's bigger successes have similarly been the slightly unusual. The live steam was a good example though I'm not suggesting they repeat that. However they do need something that has the buzz that created and the hype that the Single's getting. How about an RTR broad gauge starter set? As Edwardian commented on another thread, the trick is making products that people don't yet know they want to buy. Could you get a simple oval plus two coaches and a loco to market for say £350-400 and sell a few thousand? A novelty item? For sure. A collectible - definitely. How many on here would buy one? A fair number I bet. Will the publicity drive broader sales of their brand? Probably. I don't think their fortunes will be turned around by say releasing an ex-LNWR Cauliflower or a GWR Aberdare attractive as I'd personally find both. It has the have some pizzazz and wow factor.

 

David

 

I don't argue with some of what you say David but I seriously wonder if they actually currently have the marketing nous and market understanding to be able to do it (and LCD's words suggest that he too thinks they haven't and that marketing needs a lot of work).

 

So if you start from there and then pin against it model development time cycles the way Hornby have run them in the past (which LCD is changing for the better) effectively their 2019 range in the model railway field was decided several months back if not earlier.  If you stifle or take away the market contact they had through The Engine Shed and with development guys fronting their stand at major shows (as happened until this year) they have probably done more to damage their closeness to the end buyer market in the past 7 months than they have to develop it.  So they have to start by grabbing back those lost 7 months - well changing production schedules has grabbed 6 months back hopefully but the rest should be happening now.  

 

But what of the two year plan they already had for model railway items? Has that suddenly become dust or do they now have to retackle their market connectivity to see if its right?  Or do they ask the guys who were doing the development work and had the market connectivity plus the added contact via The Engine Shed (which of itself probably boosted their connectivity as well)?  Hopefully theh 2019 new models will reflect the work the development guys were doing last year - time will tell. If LCD has been reading threads on here and is looking to take advantage of the folk who were already inside the company before he arrived we might see them get their marketing buzz back.  Note I did say 'might'

 

And yes, as I have been saying for some time what the market craves is novelty - that comes in two forms, new items being announced, with occasional  leaks and hints to get the froth going and encourage reaction, plus announcements every now and then to confirm the hints with some special things kept for a year end or major show announcement.  and secondly novelty is exactly what it says on the tin, those very things that you didn't know you wanted until they announced they are going to make it and show some very tasty indications of how nice it is going to be  - such as the Broad Gauge starter set or something equally off the wall and out of the general run.  But that of course assumes they've got some original thinking in their marketing dept or they could possibly - once again - leave the ideas to the development guys and help keep them in touch with the marketplace.

 

Then with a lot of internal goodwill - and maybe not bothering with things which unsettle staff, such as possibly issuing new contracts of employment (always a big demoraliser) or moving folk to other locations or whatever - and good financial control they might hit their targets.  But the chiefs won't get there unless the indians are following close behind them. 

[robmcg]

A very interesting thread, and I have been trying to absorb both the report by LCD and various responses by RMweb readers before adding my twopennyworth.

 

Alas I cannot make any wise and thoughtful offering beyond my feeling that Hornby is in good hands, and I wish it well.

 

I am an enthusiast and collector of British outline RTR steam era models, so fit the description of the buyer described as being in Hornby's sights. With limited capital available for Hornby I do hope they can find their target with good profitable new offerings. A real challenge, methinks.

 

My feeling is also that even while I and many others might buy quality models at good prices, we also have the choice of good models in the second hand market. Niche markets are well-served by other possibly more nimble and lower-overhead operators, so I am unsure about the opportunities to grow sales volumes unless by offering markedly desirable 'mainstream' models, and I don't see models from 'outside the square' as saving Hornby.

 

What I do see saving Hornby is the team described working well with constrained costs and producing the brilliant models they have proven time and again that they are capable of producing, it truly has been a golden era for buyers of RTR 00 steam. The skills of design, tooling, specification, and marketing are already in Hornby's team, I'm not sure where production and delivery fit in, but the will is there.

 

It may not be as exciting as the last few years in terms of new models but if Hornby can keep my enthusiasm alive, and whet my appetite for delicious new examples of RTR modelling art, I will be well pleased, will like many others spend money, and bring profitability back to the company.  Sounds simple.  I think it will require the energy and skill which LCD and the Hornby team display to make it happen.

 

There is certainly a great deal of goodwill out here in the 'market', well, my part of it, the fussy relatively well-heeled ageing end of it, which even though capable of spending money can be rather Scrooge-like too.  So come on you great team of designers, produce irresistible models,  fulfil wish lists, and if you haven't got the capital to do that immediately, we will be understanding.  To a point.

 

Getting that detailed specification exactly right and produced on time is of course something which may require more than ordinary skills, good luck! 

[Ozexpatriate]

I thought they'd pulled the plug on their US outline? Maybe their US presence is now about marketing their non-US ranges? There is also Airfix and Scalextric, they have a good international presence.

The US business is mostly Scalextric and Airfix. You can find them in most general purpose hobby shops.

 

The US facility is a warehouse. My guess is that it has very few employees.  It's not likely to be a big cost drain. The segmental reporting does not make the actual costs very clear..

[Ozexpatriate]

Sad news this, and, I hate to say it, but wholly anticipated. I apologize for the pun and for what people will perceive as negativity but this PLC continues to be a financial trainwreck and the fundamentals don't seem to change much year over year.

 

 

I happily agree with posters who like Mr Davies' plainspoken style. What he says is forthright, but as he presages in his comments about not offering a blueprint for his competitors, he offers very little in the way of material details about what the turnaround strategy really is.

 

It is none of our business, but we don't know where the fundamental problems in this business lie beyond the deep harm the discounting (greeted with such enthusiasm by so many here on RMweb) did to the company. We often overlook the impact of the non-railway brands to the company's bottom line, and Hornby PLC rarely shares insights there.

 

From a model railway standpoint, they have addressed the shoddy design practices of a few years ago (led in part by a desire for cheap products by many consumers) and now produce excellent products - which enthusiasts readily purchase on release. I do suspect that there may be some over/under production problems in terms of manufacturing the right number of units to sell at the right price. Mr. Davies does mention this and I think there is probably a lot there.

 

I don't see promotional marketing as the problem per se. If "we" are their most important customers, "we" know full well what they are producing. That isn't to say that some of their very welcome but recently discontinued marketing practices don't deserve to be reinstated, but I'm not convinced that is holding them back. Mr. Davies' references to "austerity" makes me think that we won't see the sort of promotional marketing, popular with many here whose opinions I hold in very high regard, anytime soon.

 

RMweb threads do flow in and out of different topic areas and I am certainly not a thread moderator. Having said that I do think we should stay away from topics like Brexit, speculative Trumpian tariff impacts and other manufacturers. Despite their appeal they're probably not suitable.

 

This is a brand we love. Hopefully Mr. Davies and his team can make a difference and move this company back into profitability. It's going to take some really hard choices. I hope they can find the right answers..

Edited June 20, 2018 by Ozexpatriate

[Legend]

Legal requirement.  If you have people (salesmen) working exclusively in a country they are employed in that country and you need a legal entity (a company) in that country - if only to pay the local income and employment taxes.  If Brexit goes badly these companies may prove a life saver for H's international operations since they represent EU arms of Hornby.

 

You can set up your registered office in a lawyers/solicitor and probably elsewhere. You don’t actually have to physically locate your office there

[jjb1970]

To be honest I think the marketing issues are symptomatic of a deeper management problem. For several years now they seem to have been lurching from one initiative to another and carrying a lot of baggage. The message from LD is quite interesting in that he blames the current mess on the last top team and then goes on to basically restate the same turn around measures that had already been identified by the last team. There is a huge risk in any business of lurching from change initiative to change initiative with none of them ever delivering much simply because they're never given time to before the next big idea hits the street and I've felt that Hornby have been suffering from that for a while.

 

Compounding their internal problems, Hornby (and to a lesser extent Bachmann and Dapol) face some pretty fundamental problems that are more the result of a changed market than internal management issues. They continue the traditional business model of providing a full range, a product catalogue and distribution etc. However they face increasing competition from more lithe new entrants who seem to have a better connection to their customers, manage production and inventory by using pre-ordering, in many cases sell direct so removing additional cost layers and in some cases rely on customers acting as their bank. In absolute numbers the products entering the market through these channels probably aren't that great, but they're successfully cherry picking quite a bit of the big ticket locomotive segment and soaking up modeller budgets for buying new stuff and I suspect the influence they're having on the market is much greater than a statistical analysis of production numbers might suggest.

 

I think the whole global economy is going through a period of disruption and we have seen several technological discontinuities (the most obvious being the transformation of services and retail made possible by the Internet), disruption brings both risk and opportunity but business as usual generally isn't an option. I repeat my analogy that what I see indicates the same mentality as generals preparing to fight the last war again and Hornby starting another loop of the same steadily decreasing circle they've gone around several times already. They need to get their internal house in order and respond to a fundamentally changed market and I'm not confident they can do it, sadly. The figures are dire, and I can't add anything to what Ozexpatriate and Clearwater have said on that side.

[Legend]

Completely agree. These figures are so dire , it really needs a radical approach. As I said, I really don’t know if the independent retailer can survive . He is being squeezed out by direct sellers . I think Hornby need to react to this . Face up to the fact that they no longer have a High St presence, if we ever visit the High Street that is . Sell direct, at least for a detailed range, with perhaps Railroad through traditional route. But really I think this is only postponing the inevitable . Reluctantly , because I used to enjoy visiting model shops too , go for a full Direct Sell Model. Ironically they were doing this three years ago, but the time wasn’t right then. You could argue now (hindsight is a great thing) they should have persevered , braved the storm and gone mainly direct. I think retaining retailer and their own margins is the only way out now , coupled with securing manufacturing capacity.

 

What I’m reading from this report , as JJB says is another iteration of the circle. The Chairman’s report reads well in plain language but doesn’t really say much that we don’t already know.

 

Sorry time is running out . Time for something radical . And in these times you have to connect with your customer base- use The Engine Shed for this!

Edited June 20, 2018 by Legend

[adb968008]

Completely agree. These figures are so dire , it really needs a radical approach. As I said, I really don’t know if the independent retailer can survive . He is being squeezed out by direct sellers . I think Hornby need to react to this . Face up to the fact that they no longer have a High St presence, if we ever visit the High Street that is . Sell direct, at least for a detailed range, with perhaps Railroad through traditional route. But really I think this is only postponing the inevitable . Reluctantly , because I used to enjoy visiting model shops too , go for a full Direct Sell Model. Ironically they were doing this three years ago, but the time wasn’t right then. You could argue now (hindsight is a great thing) they should have persevered , braved the storm and gone mainly direct. I think retaining retailer and their own margins is the only way out now , coupled with securing manufacturing capacity.

What I’m reading from this report , as JJB says is another iteration of the circle. The Chairman’s report reads well in plain language but doesn’t really say much that we don’t already know.

Sorry time is running out . Time for something radical . And in these times you have to connect with your customer base- use The Engine Shed for this!

Cake and eat it...

 

There’s no reason why they couldn’t direct sell and supply the retailer.

A specialist collectors brand of limited editions could be kept in house, and close associate retailers, whilst regular editions could go out to wider high st retailers.

 

They did start this with the two Terriers, white roof Scotsman, Manston and LNER green B1 for the collectors club but money issues got in the way.

 

The bigger problem I see is product price.

 

The club models of both Bachmann and Hornby used to rapidly sell out, and appear on ebay £50 higher a few weeks later. Since their price went up £50, the carpet baggers seemed to have stopped buying enmass and, Bachmann and indeed Dapol’s club* now seem to be holding stock for much longer.

* collectors club class 73 now available to general sale at £85.

 

In the case of Hornbys Green B1, its been in Hattons bargain bin for several years now, another frustrating model which I bought from the club to see discounted 50% and nice as it is.. I just don’t need two even if it’s 50% off.

 

They answer one issue in respect to discounting but ignore the underlying problem about product price, which leads to the discounting. In my mind there is probably too many models being made for the price point, but if they need to make more product to cover costs they need a shallow and wide strategy.. a lot of models in small quantities. Modellers have to pick / choose their models they can afford, but at least they know the small quantities are less likely to end up discounted, even if they cannot afford them all.

 

An easy one is just to issue multiple running numbers in the same livery, in small quantities and supply them to regional retailers. R1234a goes North West R1234b goes South West etc, whilst R1235/6/7 are special liveries for x,y&z. I might even suggest tampo printing the running numbers in the UK to give Hornby some control of product issuances and import the painted/finished but unnumbered locos from China... similar to Dapol with its unnumbered Westerns.

Edited June 20, 2018 by adb968008

[JSpencer]

Sorry time is running out . Time for something radical . And in these times you have to connect with your customer base- use The Engine Shed for this!

 

Radical will almost definitely sink the ship. He did say he was building a foundation of experts which was something a bit new vs the previous top team. They have a huge challenge though and the 200 years of experience can go in one of two directions. Either they are too attached to what worked in the past and try to repeat it with failure OR they will really be able to read the situation effectively and pull the right levers.

Another bug bear here is that they may not be able to get a decent amount of sales data before placing orders with manufacturers (whom seem to want production numbers before determining a price), there are doubtless still going to be frustrations of over and under producing. Some cases are easy to put figures on but others - like the Streamlined Duchess - will be harder since while there is doubtless a market wanting a better model, there will be others whom are happy with the previous incarnation and see no need to spend a bigger sum buying the new one.

All they can do is set the production figures to conservative values which then puts the unit price up (less models to divide tooling costs across) and will annoy some people because they cannot find one anywhere (all being sold out) on release. They can do further runs but as SWS shows, follow up runs are more expensive.

 

On the other hand, they really should have bread and butter items like track, flocking, paints etc... in stock all the time. Model shops will constantly place orders for these. This is Hornby's toothpaste part of the market and sales should be easy enough to predict to know how much stock you should carry at any given time.

[JohnR]

Sad news this, and, I hate to say it, but wholly anticipated. I apologize for the pun and for what people will perceive as negativity but this PLC continues to be a financial trainwreck and the fundamentals don't seem to change much year over year.

 

Hornbyplc2018.jpg

 

 

 

Looking at this graph, it seems that the disaster actually happened in 2012, and the company has simply been unable to recover since then. What caused that? Was it an over reliance on Olympic tat? (Jumping on previous fads have caused problems for Hornby in the past). 

[jjb1970]

On direct sales vs. sell via retailers, I think if a company is serious about direct sales in a market like model railways it is probably either/or rather than both.

 

If you support retailers then you can't undercut their prices on your own web site (some seasonal sales or promotions being allowed), as who is going to order stock which is then offered at a lower price by the suppliers direct sales channel? And if you impose that limitation then most people will probably still buy from retailers.

 

There is no reason why pre-ordering can't be applied to conventional distribution channels, that has been the norm in the North American market for years but if you go the extra step of direct sales then for it to work I think it is hard to develop that business whilst also supporting a retailer network.

 

The benefit to the customer of direct sales should be lower prices (or perhaps more accurately, reduced price increases....) but that can't really work alongside distribution to retailers, if used with manufacture to order then the risk of the supplier being the one that could end up with ££££££££££'s of stock losing money on warehouse shelves is also removed.

 

I have other hobbies where direct sales only is quite widely used and it can work very well is well implemented.

[BWsTrains]

 

19 June 2018

 

Hornby PLC

 

 Strategic Report

Executive Chairman's Report

 

On behalf of the Board

Lyndon Davies

18 June 2018 

 

Thanks Andy,

 

Clearly LD needed to say all the right things with new funding just in place and at least he's ticked that box.

 

As others have noted there are a number of clues as to the revised focus, viz. removing issues that force discounting and the negative flow-ons from that etc and then better meeting the needs of ".....on the whole, discerning customers who require only very specific models for their layouts, collections, gifts or playrooms.....".

 

As this latter part is music to the ears of many here I thought I'd run a quick reality test as to the recovery potential from this sector. Now not being based in the UK or ever having gone to a club meeting I'm supremely ignorant in the facts department but that hasn't stopped me making a range of estimates as a Straw Man for others to challenge.

 

I've been very generous with the Gross Cash Margin per unit (no depreciation or allocated cash costs in this number) to play on the safe side. Derived values are appropriately rounded.

 

 

The inputs are pitched to give a wide range of outcomes but unless there is something I've woefully underestimated, revitalising this sector from its current volume levels will be nowhere near enough to turn the ship around.

 

Feedback is welcomed but I'm not going to recalculate this for everyone's pet data-set so the calculator is here.

 

https://1drv.ms/x/s!Au252AreD6BYlD2mGiRi0BteRnWe

 

Blue numbers are inputs, shaded are calculations. It opens in Protected mode but you can choose to edit for calculations.

Anyone opening it is doing so directly off the MS Outlook site so there should be no security issues. It's clean at my end.

 

Regards,

 

Colin

 

Edited June 20, 2018 by BWsTrains

[JSpencer]

The USA was never the under dog, there is a difference between being caught with your pants down and being the under dog.

 

Going OT, Overall I agree. My comment was for the first 6 months, militarily the US was in the underdog position. The difference between the US and Japan was that the US could suffer disasters repeatedly like a Pearl Harbour (or the US loosing a Midway instead of winning) and replace all the material lost (with lessons learned) and come back stronger. They had the resources and learning skills to cope with them. A disaster like Midway was going to happen sooner or later to Japan and they could never make good their losses lacking both resources and being too hierarchical to learn adopt quickly.

 

Hornby don't have resources to cope with disasters but hopefully they have the skills to learn and make the best use with what they have.

[Winter123]

Just a quick mention on lead times. Hornby have recognised this in the report as an area to improve significantly but they are certainly not the worst in the market.

 

For example, the Class 87 was announced Oct/Nov 2016 and is scheduled for next month-approximately 20 months from announcement to delivery for a new tooling which has suffered several delays. The Bachmann Class 90 was launched as their 25th anniversary "flagship" announcement but is against the clock to hit their 30th anniversary!! This is one of the biggest frustrations in the hobby for both the suppliers and the consumers and furthermore, clearly affects profit margins for the companies involved.

 

However, the most immediate area Hornby can address is the marketing and disjointed thinking. The embarrassing summer announcement. More in depth research on polls/wish lists to determine what the punters actually want and would pay good money for. Launching an HST set but not complementing it with the relevant coaches and vice versa. 

 

I wish them well....

[Andy Hayter]

You can set up your registered office in a lawyers/solicitor and probably elsewhere. You don’t actually have to physically locate your office there

 

Legally it is still an office.  That sort of operation may be all that Hornby has, but the office does have to manage the employee(s) working there so I would doubt that a solicitors office would do the trick.  I have worked for a company that needed a legal presence in a country and it consisted of two rooms, a manager who largely was not there and a secretary who largely was, and a brass plate by the door.

[adb968008]

Legally it is still an office. That sort of operation may be all that Hornby has, but the office does have to manage the employee(s) working there so I would doubt that a solicitors office would do the trick. I have worked for a company that needed a legal presence in a country and it consisted of two rooms, a manager who largely was not there and a secretary who largely was, and a brass plate by the door.

Ugland House, Grand Cayman. A small non-descript office, with 18,000 companies registered there.

 

I actually worked in a Data Centre in the caymans, not very big, but a huge amount of colo customers renting shared server usage (not hosting or VMs but just sectored disk space / cpu time for short specific transactions which qualify as processed in the Caymans), with not very much data residing. But I understood that small IT facility actually represented the most valuable sq ft in the Caribbean when it came to local income tax revenues ( I think it was 0.5%) earned from transactions going thru it. Similar set ups exist in Bermuda, Bahamas and other places. Requires few permanent staff, to service many customers who have no locally employed staff of their own, but have “presence” in country because of it.

Edited June 20, 2018 by adb968008

[60027Merlin]

Direct sales would appear to be attractive however on reading various threads over the recent years on this site there have been numerous problems regarding locomotives not being manufactured properly, quality control etc. (Not just for Hornby models)

 

For selling direct confidence in the product is key.

 

To succeed, there must be total confidence by the purchaser that what they receive will be of the quality as described. Where there is doubt, which seems to be the norm now, then purchasing from a retailer in person where the model can be checked and test run is safer. If there are no model shops within easy travelling distance of course then that option does not apply.

 

Another option, is by purchasing models from a retailer at exhibitions but the retailer should be obliged to have a test track on the stand for this purpose thus saving the trouble, cost and time of returning a faulty loco. 

 

As a general point, it would be interesting to know the breakdown in Hornby's report for each brand i.e. Humbrol/ Airfix/Railways etc. which would throw light on where some of the problems lie.

Edited June 20, 2018 by 60027Merlin

[34theletterbetweenB&D]

...The inputs are pitched to give a wide range of outcomes but unless there is something I've woefully underestimated, revitalising this sector from its current volume levels will be nowhere near enough to turn the ship around...

 Basing your estimate on the microscopic MRC sector of the hobby is the glaring error. Better to look at the model railway publication's circulation figures as a guide. My guess at the order of magnitude of the active interest in all its forms is circa 100,000. Particularly significant is that most retailers I have got to know somewhat over the past near twenty years typically reckon somewhere between 60 and 80 % of their sales are to collectors, and they are consistently the most reliable source of sales. (Never buy points, point motors, control gear, modelling supplies. Just locos, possibly the odd vehicle.)

[The Stationmaster]

. They continue the traditional business model of providing a full range, a product catalogue and distribution etc. However they face increasing competition from more lithe new entrants who seem to have a better connection to their customers, manage production and inventory by using pre-ordering, in many cases sell direct so removing additional cost layers and in some cases rely on customers acting as their bank. 

 

Let's not forget that until they made a total hash of the process Hornby worked very much to a model of production matched to pre-orders.  Retailers put in their orders in the New Year via the reps and once those orders were collated the factory produced what was wanted.

 

Two things served to disrupt that ideal - firstly moving production offshore, and then the collapse of Sanda Kan left them scrambling for any sort of production capacity anywhere and it seems to be the case that they still haven't got things right although LCD's approach suggests things could improve in the not too distant future.  The second problem was discounting, initially deep discounting by certain retailers which grossly distorted the market, but massively compounded then by the double whammy of seriously and progressively reducing trade discount and finally by bulk fire sales.  LCD has very sensibly stopped the latter, even if it messes up part of the company's numbers game, but while retail trade confidence has partly recovered the old system of early New Year ordering no longer works well as many retailers are acting cautiously.

 

Now interestingly Rapido can make the system work - they produce/decide to go ahead on a mix of individual and retail trade pre-orders.  Moreover they appear to do it on what might best be described as a moving timescale - no big bang annual announcement but progressive announcements at various times of year and the process for each model or group of models starts there. (someone will correct me if I've got that wrong).  UK commissioners basically work in the same way and both they and Rapido tend to work with factories they know and can potentially (definitely in Rapido's case of course) offer a steady stream of business.

 

So in Hornby's case there's no reason to offer an exclusively retailer or exclusively direct sale model - if others can do the two why can't they?  Are they too stupid to be able to do it (I think not) or do they in any case already go part way towards it?  So is part of Hornby's failure to adapt to today's more rapidly moving market as much an adherence to an outmoded reliance on a traditional ordering calendar which mismatches with the way Chinese factories work with their need for constant production (except at CNY)?  Is a very simple answer for Hornby to actually get more nimble and move new releases and some re-runs (if they can actually get the numbers right for the latter?) to a different and far more flexible system which helps smooth workload at factories and avoids them having to fight for production line time after the bulk of orders come in at the New Year?  And as even the latter has lost its punch and reliability as an indicator of quantities needed why bother with it at all?

[Mike Storey]

Not much we didn't already know or suspect, from either the figures or the statement, apart from the extension of lead times by a further 6 months.

 

The extensive posts on costs, marketing, production etc are very interesting. Not sure what to make of it all.

 

I found the CEO's most poignant comment surrounded the need to understand better what they need to make and in what quantities and how to get it to market (and reading between the lines, for the least price sensitive part of the market), and that he is bringing in and internally promoting people to improve that. That's the most important thing (assuming overheads costs will come down to a reasonable level as already planned). If they don't get that right, the rest is just fluff.

[Legend]

Looking at this graph, it seems that the disaster actually happened in 2012, and the company has simply been unable to recover since then. What caused that? Was it an over reliance on Olympic tat? (Jumping on previous fads have caused problems for Hornby in the past). 

 

Olympic Tat and if you remember correctly there was starvation of models as Sanda Kan imploded. So they had nothing to sell and because they had no manufacturing strategy other than buying from Sanda Kan they had to scurry around for other manufacturers. 

Edited June 20, 2018 by Legend

[BWsTrains]

 Basing your estimate on the microscopic MRC sector of the hobby is the glaring error. Better to look at the model railway publication's circulation figures as a guide. My guess at the order of magnitude of the active interest in all its forms is circa 100,000. Particularly significant is that most retailers I have got to know somewhat over the past near twenty years typically reckon somewhere between 60 and 80 % of their sales are to collectors, and they are consistently the most reliable source of sales. (Never buy points, point motors, control gear, modelling supplies. Just locos, possibly the odd vehicle.)

If you look back you'll see I specifically said  "I thought I'd run a quick reality test as to the recovery potential from this sector". (i.e the Quality Loco Sector)

 

So it's not an error as I defined what I was doing,

 

I was not trying to cover the whole of their vast range of business, just looking at where serious MR folk, collector or not, can spend big money on the higher margin quality end of the market IF they can get what they want.

One small tranche of the whole I'd agree but like top end of other markets I guess its highly profitable. I wanted to get an idea of how much that sector could contribute to the whole Hornby turnaround story.

 

I reckoned that the majority of these enthusiasts would be in a club, and probably a fair share of pure collectors might be likewise if they like to see models running / play themselves sometimes. Happy to be proven wrong if someone has the data.

 

If a decent share of the other 95,000+ mag readers will buy multiple GBP 150-200 priced quality locos if can Hornby produce them, I think their problems might just go away. However I suspect many will be happy continuing to buy the lower priced "Railroad" Halls Flying Scotsman and Class 43s (or whatever) that surely must be much lower margin.

 

The other factor that suggests it is the lucrative sector is it's where the fleet-of-foot new entrants have been targeting for a few years and have been hurting Hornby. Quality models, not competition for "Railroad" or entry level kits. Again my educated guess is that's because there's limited scope for growth down market, they're lower margin and already well covered by H.

 

I hope this clarifies my intent

 

Colin

[Legend]

I've never been in a club . I really don't think the majority of MR folk are in clubs  and that therefore you have understated the market .  But I have no data on this , other than the other 2 people I know that buy model railways are also not in clubs.

[LBRJ]

There are about 400 model railway clubs (of all types) in the UK.

If they have an average membership of 25 people each thats 10 000 "club memebers" out of probably 100 000 "enthusiasts".