Retailer reveals his profit on the sale of a loco

[PaulRhB]

42 minutes ago, phil-b259 said:

Because to a large chunk of the non modelling public 'Hornby' IS model railways!

 

To them the fact that there are other manufacturers / retailers out there is irrelevant - indeed as some shop owners will attest some such 'unknowledgeable' will insist on only buying Hornby as it is 'the best'

Oh I’ve seen that in action  but it’s always been supported by a plethora of stock on the shelf in shops and at shows.
I was in another general model shop and a twentyish chap and girlfriend came in to buy a Hornby train, the owner was great chatting to find out what they wanted to do and they walked out with Peco track a Bachmann loco and a mix of stock. Similarly new starters pop up on here and other forums and get similar advice, that’s where social media can support the other players just as well. 

 

What I question is can you focus on that to the detriment of the established market? Plenty of big brand names have fallen, and Hornby has come very close twice in recent years focusing on big ideas like ‘design clever’ and random products like the Olympic range. They aren’t hooked into Thomas anymore which was the main recognisable draw from tv and other retail markets. So if you now buy a Thomas electric train you get used to Bachmann branding  

I just think it’s an oversight to rely on your brand name over a character brand like Thomas that stretches across many media, internet, film, tv and books. 
 

Anyway it will be interesting to see where this push goes compared to their other big ideas of the last twenty years. 
I can only go by my own disenchantment with the way they do business recently and it’s us that friends and colleagues turn to for advice when they want to buy the kids a train  

I don’t want them to fail but I think they are being rather careless with an established market over an unproved one because of too much faith in the name. It’s not just pre orders either, both my locals have moaned because they’ve been dumped with a pallet of random stock from the warehouse just before pre orders arrive wiping out the money in their shop account. Then they have to borrow money from their own money to get the pre orders in! It’s difficult to budget and they can’t risk holding more in their credit account in case Hornby take that as a cue to dump more stock on them. 
If shops like my local are now actively looking at Accurascale accounts because of continuing Hornby issues I’d say there’s a problem  

 

The others are catching up and surpassing the quality and modern consumers are very savvy to checking the internet and ‘making’ new companies from nothing over the big names, remember Nokia and Blackberry?  

[woodenhead]

2 hours ago, andyman7 said:

If we take that viewpoint as fact (and without evidence it is just a viewpoint) we can add in the issue that Hornby has been making losses for the past few years and needs to find a way back to profitability. In that circumstance, targeting the internet bulk sellers and removing the middleman is not greed, it's survival.

 

(I realise that there are a number of armchair experts on RMWeb who know exactly why Hornby is loss-making and could successfully run it profitably from the pub counter in between reading the paper but for the purposes of this point I'll stay in the real world )

 

This gets to the heart of the problem, which is not about Hornby's distribution strategy per se, it is the struggle to get sufficient quantities of goods manufactured in China and shipped to the UK. This is not an easy thing to solve because it is a small cog in much wider global supply and economic issues. I'm not claiming that Hornby's alleged communication is perfect, but it is fairly evident that stock expected when order were taken has not equalled stock available for distribution.

And that is the big issue, why is Hornby consistently loss making that it needs to sell so much direct to try and claw back profit.

 

If the model industry was in such dire straits that Hornby cannot turn a profit, then why do we see so many new entrants to manufacturing.  What has Hornby got so wrong that with it's massive customer base (the collectors and the modellers) that it cannot obtain enough of it's product that it has to keep recasting it's estimates down, that it dissappoints when the trains are delivered broken and it doesn't seem to communicate very well what is going on.

[Legend]

3 hours ago, PaulRhB said:

Then there’s a serious problem somewhere in understanding what’s been ordered or fulfilling a contract!

This is what’s so irritating to trade and customer, why are they taking orders in January then allocating what you can have and yet changing it again 12, 18 and  24 months later? It’s not been a one off either and has been happening since at least the initial Pecketts were released! 

It just keeps happening and why are so many shops and customers now in doubt if they’ll actually get their order?

This started before the pandemic problems and they’ve had what, four years to get a grip on it? 
Why have several reputable shops suddenly put March as the expected date for the APT? You have to assume that’s from Hornby yet it is different to what they are saying on Facebook, quoted on here in that thread. 
 

 

The communication isn’t allegedly poor it’s non existent or contradictory. They still can’t answer direct questions as to whether two NDM’s are required for a 14 car set on average layouts gradients and are selling the 7 car set with one dummy and no relevant second powered option to join the extension packs. 

 

I feel for the shops and I can see some just not bothering with Hornby as the new producers get bigger and favour their version over a competing one from the ‘big H’.

 

Personally I’m not seeing that their starter end of the range is that big a part of the market that they can afford to keep disappointing the collector end where traditionally the better margins are. LGB (part of Marklin group) have openly admitted they are focused on that end and they have a similar investment ownership structure. 
 

It will be interesting to see how it goes but my loyalty is swinging to the shops and other manufacturers because I’ve been mucked around repeatedly and due to the info available I’m placing that confusion at Hornby’s door  

 

I think in fairness the APT is in a container(s) somewhere and there really is uncertainty as to when it will arrive , so it could be anywhere between now and March 

 

But I completely agree with you . If indeed they have always known how much goods they were going to receive then how come they've either taken more orders than they knew they had stock available for , more likely, they've rearranged everyones allocations several times and intend selling a larger portion direct .  It really doesnt give you confidence to pre order does it !   The feedback I got was that Hornby (in the wider sense Airfix , Humbrol etc etc) are a very difficult supplier to deal with . You certainly wouldn't build a business plan around the vagueries of their supply . 

[Phil Parker]

5 hours ago, woodenhead said:

Which is what I was trying to suggest earlier, Hornby using a greater push on direct sales means they restrict sales through shops to allow them more earnings - in a direct sale they get the profit margin for wholesale plus the whole retail element is profit having already accounted for most of their costs in the wholesale element.  It's a massive win and once the shops have used up their allottment people have only got the full RRP Hornby prices

 

But you only get your paws on the money from a direct sale when the model is actually sold. All those APT coaches sitting on the shelves of model shops? They have been paid for by the shops already. OK, it's slighty less cash, but it's cash NOW, which is very helpful in an industry where liquidity matters.

[Compound2632]

On 01/01/2022 at 11:06, Michael Hodgson said:

Why should model railway retail be any different from grocery retail?

Customers buy on price and convenience, 

 

Do they? Or do they also buy on quality and suitability for purpose?

 

(For either model railway equipment or groceries. Coming home with a bag of carrots rather than a bag of aubergine, if the recipe called for aubergines, isn't a good plan, in my experience.)

Edited January 3, 2022 by Compound2632

[woodenhead]

20 minutes ago, Phil Parker said:

 

But you only get your paws on the money from a direct sale when the model is actually sold. All those APT coaches sitting on the shelves of model shops? They have been paid for by the shops already. OK, it's slighty less cash, but it's cash NOW, which is very helpful in an industry where liquidity matters.

Which only makes the online push more interesting, given big sales of APT coaches to Hattons and Rails would be good for cash flow.

[PMP]

3 hours ago, Compound2632 said:

 

Do they? Or do they also buy on quality and suitability for purpose?

 

They do both, and in my experience and observation price and convenience are key. Suitability for purpose is does it run on their track, and quality, well it’s Hornby, everyone knows it’s a quality product.

[HonestTom]

On 03/01/2022 at 14:09, PaulRhB said:

 

 

What I question is can you focus on that to the detriment of the established market? Plenty of big brand names have fallen, and Hornby has come very close twice in recent years focusing on big ideas like ‘design clever’ and random products like the Olympic range. They aren’t hooked into Thomas anymore which was the main recognisable draw from tv and other retail markets. So if you now buy a Thomas electric train you get used to Bachmann branding  

I just think it’s an oversight to rely on your brand name over a character brand like Thomas that stretches across many media, internet, film, tv and books. 
 

 

They do have the rights to Harry Potter, which I'd say is the other big railway-related media brand. Okay, there's less you can do with that, there's only one Hogwarts Express, but I'd also say that it's a brand that appeals to an older audience and clearly has staying power.

[newbryford]

On 03/01/2022 at 12:58, phil-b259 said:

 

Because to a large chunk of the non modelling public 'Hornby' IS model railways!

 

To them the fact that there are other manufacturers / retailers out there is irrelevant - indeed as some shop owners will attest some such 'unknowledgeable' will insist on only buying Hornby as it is 'the best'

 

 

 

My bold.

 

It's not necessarily that Hornby is "the best", but more so that the unknowledgeable are exactly that, and untrusting of an unknown - to them - name.

 

I have said before that the hobby needs the name Hornby, but unfortunately bad experiences with the big H - from those that think H is is the only name in town - will put people off the hobby forever and they'll never discover other manufacturers.

 

[phil-b259]

On 03/01/2022 at 14:31, woodenhead said:

And that is the big issue, why is Hornby consistently loss making that it needs to sell so much direct to try and claw back profit.

 

 

 

As I understand it Hornbys financial woes are not so much the result of day to day activities, - its more the huge amount of debt the group is carrying from the misguided adventures of previous management teams.

 

There are hundreds of cases in recent retail history where you find a company goes under not because they are making a trading loss, many are in fact making enough profit to pay suppliers, staff, rents, etc - but instead its the big banks who they are in debt to got fed up waiting for the money to be repaid and force the company to close and the assets flogged off to the highest bidder.

 

The key to stopping this eventuality is confidence - and because the banks have precious little knowledge of the intricacies of the consumer base the company is serving, what the banks are looking for to provide the necessary confidence is profits increasing year on year such that the accumulated debt is getting smaller.

 

Direct sales are valuable to Hornby because they usually receive the full RRP, thus improving the profits and if these increase year on year they can be used as a confidence boots to the banks that the current management are heading in the 'right' direction (i.e. will be reducing the debit mountain)

[Jol Wilkinson]

I have only just found this interesting discussion.

 

I ran a model shop specialising in RC models and static kits (but not model railways) in the early 80's. Discounting was not so common except for some retailers who saw it as the easiest way to get sales of the most popular biggest ticket items such as Tamiya RC kits, probably a bit like selling Hornby, etc. today.  The large range of spares, paint, glues, etc. which had better margins were a significant contributor to making an acceptable (but not brilliant) return. After several years I went back into a job in the motor industry.

 

One of the things I learned at the time was that quite a few of of the modelling fraternity (especially some local RC club members) thought that retailers should provide a comprehensive service but not make a reasonable living from doing it.

 

My model railway activities have for many years revolved around pre-grouping kit making so I have little interest in the RTR side of things other than finding its development and "culture"  interesting. Kit producers/suppliers are reliant upon mail order/internet sales and shows/exhibitions to maintain contact with customers. Because they produce largely unique products, customers don't look for or ask for discounts, recognising the mutually beneficial relationship between the producer and their modelling. In nearly thirty years of helping out one kit producer (on an unpaid basis) on his trade stand at shows I have only been asked for a discount once. That was from someone we had never seen before (or since). Many kit suppliers make little profit or sometimes even a good living from their activities. A look around the exhibitors/traders car park at a show is evidence of that.

 

The RTR side of railway modelling will probably continue to develop as it has for many years, even before the advent of the internet. Large online/mail order retailers will continue to compete for sales of big ticket price items by offering discounted prices. It is probably the level of competition that has caused some of them to move into commissioning their own unique products, to enable them to control the pricing and margins. Smaller retailers will have to rely on providing a a quality service and support to attract customers buying the more everyday items modellers need. Hopefully they will continue to succeed.

 

 

[OnTheBranchline]

Another thing is people complaining that brick and mortar shops are going out of business and then they order 500 quid of stuff online from a major distributor - do they not see the irony?

[Legend]

4 minutes ago, OnTheBranchline said:

Another thing is people complaining that brick and mortar shops are going out of business and then they order 500 quid of stuff online from a major distributor - do they not see the irony?

 

Yep but maybe thats because the model shop hasnt got a known allocation . Its Hornbys actions that have resulted in this . They are the ones to blame .

[Jol Wilkinson]

4 hours ago, Legend said:

 

Yep but maybe thats because the model shop hasnt got a known allocation . Its Hornbys actions that have resulted in this . They are the ones to blame .

 No, it's the consumer that is to blame, Hornby were responding to the market. 

[Legend]

33 minutes ago, Jol Wilkinson said:

 No, it's the consumer that is to blame, Hornby were responding to the market. 

 So Hornby rationing new models to model shops where there would be a demand is responding to the market?

Edited January 14, 2022 by Legend

[PaulRhB]

46 minutes ago, Jol Wilkinson said:

 No, it's the consumer that is to blame, Hornby were responding to the market. 

Sorry Jol but they invited orders in 2020 & 2021 and then told them a month or so later what percentage of that order they would get, on locos most got cut by 20-30%. Then a year or more later, a few weeks before release they cut it further and deliver 50-70% of that. That’s not responding to the market when you don’t deliver items ordered a year ago. 
They also still advertised stock in their own store they said was ring fenced so could not supply the later cut items. 

This year they’ve sent out a much reduced list of what they can order on the day it’s announced. By the end of that day, before they can even upload to their website, they have sold out several items from the allocation on the phone with no prospect of getting any more and after the last few years no confidence in getting all they’ve ordered. 
Hornby isn’t responding to their stockists market very well at all. 
 

 

Edited January 14, 2022 by PaulRhB

[Jol Wilkinson]

It sounds as though Hornby may also have supply issues which would restrict availability. In that case it is sensible, if unpopular, to look at how you  can sell your products to maximise turnover and profit. Market conditions impacts on that. If people are willing to pay RRP and you have a direct sales outlet, then the obvious way is to sell direct rather than through discounted wholesale. Clearly deliberately limiting production will also drive up prices.

 

Let me clarify that I don't buy RTR, nor am I a fan of Hornby, Bachmann or any of the RTR producers/commissioners. Whether they have created the current market environment is open to debate, but the market is heavily influenced by the consumer, their wants and perceptions. How a supplier responds to that is always going to upset some people nowadays. 

 

I do however have a degree of sympathy for Hornby and Bachmann. They were producers and wholesalers, supplying the traditional model shop sector. The internet changed that as the big retailers captured a significant share of the market through discounting and many local shops closed - something often bemoaned by people as they can't locally get the bits and pieces they want,  having bought the big ticket items online. That may have strengthened the buying power of the internet warehouses. So what would you do? Marketing directly was the way Hornby and Bachmann chose as far as I can see. They were also faced with  a shrinking share of the market, as those large retailers they were supplying, started to commission and sell their own high ticket price models to increase their revenue and profit. So what price loyalty in either direction?

 

No doubt this view will not be shared by many RMWeb members. As I don't buy RTR I may not be regarded as  a qualified observer, but do have some experience of how retail and wholesale markets operate in the UK.

 

 

[drduncan]

On 01/01/2022 at 12:07, Andy Hayter said:

 

 

While the analogy may be an accurate one I think there is a big difference.

 

My corner shop sold fresh fruit and veg, tinned goods, buckets, cakes and brooms.  I can get all of these at my supermarket.

 

When I left the UK, my local model shop sold model trains from the rtr producers, plasticard, plastrut, glues and solvents, paints, white metal castings, kits in plastic, brass and white metal, replacement wheels for locomotives, wagons and coaches, scenicing materials, plaster bandage and a whole lot more.

 

I don't think I can now go to a single website to get even half that range.

And I’m afraid I can’t get that range at my local model shops,(I wish I could) but I can at an exhibition…and let’s not go done the rabbit hole of small traders and e-commerce or not (suffice to say you need to allow your customer a means of giving you their money that suits their needs not just yours…)

 

Anyway…

 

Everything needs a unique selling point to get customers, especially those whose customer base can and will go elsewhere. It is however a two way relationship. The sellers USP may not work for all potential customers. My limited experience of the box shifter end of the market (buying n gauge for my son to make sure there is no confusion between his and daddy’s trains) is that their usps cluster around the price/speed of delivery/ease of purchase area. But for my own modelling purchases that is not an attractive usp as I like building things not opening boxes. The model shop that used to meet my modelling needs unfortunately seems to have gone the way of the dodo (think the Train Shop,Warwick when it was still at St John’s and Dick Hewins was the manger and that was over 30 years ago).
 

Indeed, I wonder if the range of products that are available is the root of the problem. Take paints: 30 years ago just humbrol. Now people are using/advocating (and thus wanting to buy) a much wider range to get the quality  of finish they want. Can a local model shop afford to stock multiple ranges of low volume low profit ranges? I don’t know but suspect (on the basis of what I can buy locally) not.

 

Duncan

[PMP]

14 hours ago, Jol Wilkinson said:

 No, it's the consumer that is to blame, Hornby were responding to the market. 

Absolutely in agreement with this. And it’s been heading this way since the likes of Railmail of Watford in the late 1970’s.

‘We’ consumers of RTR are largely reaping the whirlwind of the seed we sewed 35 years ago. Back then the smaller retailers were complaining about large mail order operations like Beatties, Railmail being able to massively undercut them on Lima/Airfix/Mainline/Hornby RTR. Enter  the Internet and mass production with the RTR feeding frenzy’s of 5-10 years back, the consumer is bloated on the excess of cheap prices and easy production. 
Anyone whom is thinking new tooled items are overpriced hasn’t understood that manufacturing at source (China), is changing, and we need to accept it. I was speaking to a manufacturer in the past week, they said in as many words the new normal is going to be around the £200 mark for a new tool locomotive, to the standard ‘we’ want. And there’s likely to be less of them, because they don’t make money hanging on a manufacturers shelf waiting to be sold.

 

The smaller retailers can still offer USP’s the big boys can’t in terms of customer service and experience. It’s not going to be easy, and ‘we’ need to support them if we want them to survive.

 

(And a quick thought about the photographic market, the same happened there, whatever happened to Spectrum, and Dixon’s?)

Edited January 15, 2022 by PMP

[PaulRhB]

1 hour ago, PMP said:

The smaller retailers can still offer USP’s the big boys can’t in terms of customer service and experience. It’s not going to be easy, and ‘we’ need to support them if we want them to survive.

 

(And a quick thought about the photographic market, the same happened there, whatever happened to Spectrum, and Dixon’s?)

Dixons just got absorbed into the larger Curry’s stores, it had been on the cards a long time simply for competition within the same group as the staff to revenue ratio was better in the superstores. It wasn’t the internet that closed the small branches really. Many of the smaller stores used the big stores for local stock when I worked for them in the 90’s. Store transfers were common. Note it’s still Dixons stores group even today. 
 

We certainly can support the local shops and maybe the experience part is what they need to sell. Why have Costa etc thrived when we know we can buy the same coffee at a fraction of the price in a superstore? Making the shop a nice place to be, and the staffs welcome is what really stands out at both my local shops. I feel like it’s a nice place to go and chat and make an effort to go and never feel like I have to buy, but often see something that prompts a thought or even the dreaded impulse buy

One has finished models on display from customers and ones he’s built, they act as a talking point, the other has books and various new products on the long counter and will have a relaxed chat if you show an interest. There’s no pushy sales just a talking point. I’m not suggesting they need chairs etc but that does work well in a couple of shops I’ve visited. Sat on the sofa in the Titfield Thunderbolt was a very pleasant place to be with various Rmwebbers and people I’d never met before browsing and chatting  

[Andy Hayter]

@drduncan

 

What is this exhibition thing of which you speak?  

 

Seriously though, we have never been graced with a lot of exhibitions here in France.  The last 3 I have attended were respectively a 500km round trip, a 200km round trip and a flight to the UK for Warley 2017.  I do accept however that that is now the place where I would get the majority of my purchases.

 

On paints, while I accept that there is now a greater range of paints and paint effects (washes, tints etc) I think you underestimate the producers back  in the early 90s.  In addition to Humbrol, I was using Tamiya acrylics, Precision paints (enamel/oil based),  Revel (enamel).

[PMP]

1 minute ago, PaulRhB said:

Dixons just got absorbed into the larger Curry’s stores, it had been on the cards a long time simply for competition within the same group as the staff to revenue ratio was better in the superstores. It wasn’t the internet that closed the small branches really. Many of the smaller stores used the big stores for local stock when I worked for them in the 90’s. Store transfers were common. Note it’s still Dixons stores group even today. 

Correct. However during the late 80’s Dixon’s was very much the photo retailer ‘box shifter’ along with Spectrum. Both grew rapidly as they undercut high street shops with bulk purchases from manufacturers, and grey imports. At the time there was much complaining from the traditional photography shops about ‘cheap’ prices ruining the retail market. As a retailer if you had a Dixon’s or Spectrum account you had access to cheap photo/computer products. Many small retailer’s went out of business, Spectrum was taken over by Dixon’s, and the internet took no prisoners with remaining high street retailers, including Dixon’s. The common factor being consumers opting for the cheapest deals. 

[Jol Wilkinson]

1 hour ago, PaulRhB said:

Dixons just got absorbed into the larger Curry’s stores, it had been on the cards a long time simply for competition within the same group as the staff to revenue ratio was better in the superstores. It wasn’t the internet that closed the small branches really. Many of the smaller stores used the big stores for local stock when I worked for them in the 90’s. Store transfers were common. Note it’s still Dixons stores group even today. 
 

We certainly can support the local shops and maybe the experience part is what they need to sell. Why have Costa etc thrived when we know we can buy the same coffee at a fraction of the price in a superstore? Making the shop a nice place to be, and the staffs welcome is what really stands out at both my local shops. I feel like it’s a nice place to go and chat and make an effort to go and never feel like I have to buy, but often see something that prompts a thought or even the dreaded impulse buy

One has finished models on display from customers and ones he’s built, they act as a talking point, the other has books and various new products on the long counter and will have a relaxed chat if you show an interest. There’s no pushy sales just a talking point. I’m not suggesting they need chairs etc but that does work well in a couple of shops I’ve visited. Sat on the sofa in the Titfield Thunderbolt was a very pleasant place to be with various Rmwebbers and people I’d never met before browsing and chatting  

 

I don't think Costa and the other coffee shop chains are a valid comparison. They provide a meeting place where you have to buy something. I have always wondered about their financial model when you see customers (often young mums with buggies taking up a large floor area or laptop users using the place as an office for hours on end around here).

 

I usually  bought at exhibitions, mainly because that is where I could get what I wanted and the traders usually knew what they were talking about. I once tried to buy some plastic solvent in a local model shop, only to be told they didn't stock it because it evaporated in the bottle. Fortunately someone sensible now runs that shop. 

 

Covid made it necessary to buy online when shows were not possible, but I usually do so with those traders I got to know at exhibitions.

[PaulRhB]

19 minutes ago, Jol Wilkinson said:

I don't think Costa and the other coffee shop chains are a valid comparison. They provide a meeting place where you have to buy something. I have always wondered about their financial model when you see customers (often young mums with buggies taking up a large floor area or laptop users using the place as an office for hours on end around here).

I was really comparing the atmosphere rather than the business model, Anyone who can sell you a £3-4 cup of coffee at probably 14% net profit after staff etc costs doesn’t need to sell as much as a model shop on the 2-2.5% net profit.  quoted in the video.  Six or seven cups of coffee at 2022 prices gets you the same profit as a loco according to that link from eight years ago. 

 

2 hours ago, PaulRhB said:

and maybe the experience part is what they need to sell.

 

 

2 hours ago, PaulRhB said:

Making the shop a nice place to be, and the staffs welcome is what really stands out at both my local shops.

Costa and it’s like make it a nice place to be for an hour or so, maybe having a percolator on hidden behind the counter?  Supermarkets do it with smells enticing you to shop. What is it that makes it a nice relaxing place to be even with people all around? The decor, smell or just the drinks? 

 

Edited January 15, 2022 by PaulRhB

[Jol Wilkinson]

11 minutes ago, PaulRhB said:

I was really comparing the atmosphere rather than the business model, Anyone who can sell you a £3-4 cup of coffee at probably 14% net profit after staff etc costs doesn’t need to sell as much as a model shop on the 2-2.5% net profit.  quoted in the video.  Six or seven cups of coffee at 2022 prices gets you the same profit as a loco according to that link from eight years ago. 

 

 

I wanted to revisit the original post to study the video again but it is no longer available (removed from Youtube?). I wasn't very clear about how the various piles of coins were described and how much actual profit they ended up with. As Miss Prism said, some simple figures - or just percentages of the items selling price - would have been clearer.