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Retailer reveals his profit on the sale of a loco


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6 minutes ago, Jol Wilkinson said:

 

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.

Mr Spamcan captured the figures from the video in this post :)

 

On 01/01/2022 at 19:15, spamcan61 said:

Agreed: having watched the video, this is what it seems to boil down to (roughly) :-

 

image.png.03a95f3db2b253ce84a57a55cdbe1fee.png

 

 

 

 

 

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On 02/01/2022 at 00:58, col.stephens said:

 

Why would any seller want the hassle of posting items abroad?  As soon as an item leaves the UK shores it becomes untraceable, but the intended recipient would expect the seller to make good the loss when it disappears.  Internal post can be tracked from the moment it leaves the seller's hands to the moment it is handed to the recipient.

 

Not traceable. Utter tripe. Services have access to registering mail. The only thing that can go wrong is accidents or crime, but that could happen posting local too.

Edited by eagleeyemark
posted before typing anything, doh!
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44 minutes ago, OnTheBranchline said:

You can't blame the consumer because they want the lowest prices (especially these days when everything costs so much). If people didn't care about the lowest prices, then why is Tesco/Walmart a thing?

We all want the lowest price, but we also need to be realistic when it comes to quality v price, generally a lower price means less detail and features on a model. We also cannot begrudge a manufacturer and a retailer making a reasonable profit on their sales.

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1 hour ago, OnTheBranchline said:

You can't blame the consumer because they want the lowest prices (especially these days when everything costs so much).

Does it though? Or do ‘we’ western society, have an unrealistic expectation of what things cost? (NB not just toy trains). 
I found the original Vid interesting, especially as the first big deduction was the discount off the RRP which was implied as expected, and therefore matching/close to ‘box shifter’ prices.
 

There’s a traditional model shop near me that visibly appears to meet ‘Tier1’ standards. Four Honby brands stocked, high street, tidy well presented. They often have Hornby products that are sold out elsewhere. Interesting that their prices are RRP, and presumably the business model still works without heavy discounts.

 

 

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3 hours ago, PaulRhB said:

Mr Spamcan captured the figures from the video in this post :)

 

 

Thanks Paul, I had forgotten that.

 

Some of it doesn't seem to stack up but as they are rounded up (or down) figures that is quite possible. Of course, those figures relate to discounted high ticket price items, whereas it is possible to make better margins on less expensive items, but you need to carry a good selection of stock and sell them in greater quantity. 

 

The Corporation Tax at 3% seems a bit odd as I would expect it to be levied on annual net profit,  i.e. 19% of the £3 profit = £0.6. But then it is a long time since I did a course on business accounting.

 

Edited to correct Corporation Tax calculation. :scratchhead:

 

 

Edited by Jol Wilkinson
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One Sunday morning I met up with my daughter in the city centre. First thing she wanted to do was get a battery for her watch. There was a Timpsons outside the station. The shop was empty so we went in and the man got up from reading his newspaper and came to the counter to serve us. He looked at the watch (nothing special) and said "£17.50". Knowing that watch batteries cost buttons we left and went across the road into the precinct. There is a Kiosk in there that does shoe repairs, engraving, watch batteries, etc, so we asked there and he said "£3.50, leave it and come back in an hour" which we did. He was busy, most probably had no time to read the newspaper.
Later, on returning to the station we saw the Timpsons man in the empty shop was still reading his paper.

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1 minute ago, Jol Wilkinson said:

 

 

The Corporation Tax at 3% seems a bit odd as I would expect it to be levied on annual net profit,  i.e. 19% of the 3% profit = 0.6%. But then it is a long time since I did a course on business accounting.

 

 

You're right the figures don't add up very well, corporation tax is 19% of net profit, so on a 3 quid profit, as tabulated from the video, it should be around 60p not the 3 quid in the table. The figures in the table are GBP not percentages incidentally.

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40 minutes ago, PMP said:

 

There’s a traditional model shop near me that visibly appears to meet ‘Tier1’ standards. Four Honby brands stocked, high street, tidy well presented. They often have Hornby products that are sold out elsewhere. Interesting that their prices are RRP, and presumably the business model still works without heavy discounts.

 

 

More towards the  Olivia's Trains end of the spectrum one might say. Fair enough, a low volume high margin approach can work better than the box shifter "pile it high, sell it cheap" approach. Indeed I'd say the way toy train manufacturing now works, with single batches of a wide variety of products only available for a short time, the RRP approach might well work better.

Edited by spamcan61
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1 hour ago, Free At Last said:

One Sunday morning I met up with my daughter in the city centre. First thing she wanted to do was get a battery for her watch. There was a Timpsons outside the station. The shop was empty so we went in and the man got up from reading his newspaper and came to the counter to serve us. He looked at the watch (nothing special) and said "£17.50". Knowing that watch batteries cost buttons we left and went across the road into the precinct. There is a Kiosk in there that does shoe repairs, engraving, watch batteries, etc, so we asked there and he said "£3.50, leave it and come back in an hour" which we did. He was busy, most probably had no time to read the newspaper.
Later, on returning to the station we saw the Timpsons man in the empty shop was still reading his paper.

I remember my watch stopping when I was working in Fleet Street, and I found I was able to buy a new digital wristwatch in Leather Lane market for less than the cost of a battery.  I don't wear a watch these days - my mobile keeps time more accurately than a cheap watch.

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On 01/01/2022 at 19:15, spamcan61 said:

Agreed: having watched the video, this is what it seems to boil down to (roughly) :-

 

image.png.03a95f3db2b253ce84a57a55cdbe1fee.png

 

I think part of the problem is the level of discount - thats 16% he's giving away. Hornby & Bachmann will only allow a new loco to be discounted by 10%. That alone makes his gross margin £27. And as a retailer, I wouldnt be subsidising postal costs - but I wouldnt be making money from them either - its not ebay!  I think the bank charges are card processing fees? That £3 on a sale of £125 is just over 2% which is typical. 

 

I'm assuming the "other costs" category are the fixed costs, which presumably would be lower, if the number of units sold was higher, and its not usual to allocate them in this way - rather to look at how much you need to sell to cover your fixed costs. 

And I think its those fixed costs which are the real test of profitability for a retailer. If the rent and rates are high, then there needs to be a lot more sales volume. 

 

 

 

 

 

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14 hours ago, JohnR said:

 

I think part of the problem is the level of discount - thats 16% he's giving away. Hornby & Bachmann will only allow a new loco to be discounted by 10%. That alone makes his gross margin £27. And as a retailer, I wouldnt be subsidising postal costs - but I wouldnt be making money from them either - its not ebay!  I think the bank charges are card processing fees? That £3 on a sale of £125 is just over 2% which is typical. 

 

I'm assuming the "other costs" category are the fixed costs, which presumably would be lower, if the number of units sold was higher, and its not usual to allocate them in this way - rather to look at how much you need to sell to cover your fixed costs. 

And I think its those fixed costs which are the real test of profitability for a retailer. If the rent and rates are high, then there needs to be a lot more sales volume. 

 

 

 

 

 

 

I suspect he is discounting to match/beat what other online retailers are doing. Retail Price Maintenance doesn't permit the manufacturer to stipulate retailers selling prices, so Hornby or Bachmann can't really influence that, although there are ways of doing so.

 

Motor industry new car discounts were 17% of list price in the 1970s. Dealers invariable gave away nearly all of that, relying on volume bonuses for profit.  Offering the lowest price has always been the poor salesman's first resort. In the 1980's, led by Ford IIRC, the discounts were reduced to 10% and the list prices were lowered to match. The idea was that the dealers were therefore able to offer a smaller discount and keep a slightly larger profit margin, while the customer perceived they were getting reasonable "deal".

 

If Hornby and Bachmann followed that approach - lower RRP and less discount - would the retailer be able to take advantage to make a more reasonable margin? It would also impact the "commissioner manufacturers" such as Locomotion, ROS, TMC, etc. as it would make their RRPs look high.

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14 hours ago, JohnR said:

 

I think part of the problem is the level of discount - thats 16% he's giving away. Hornby & Bachmann will only allow a new loco to be discounted by 10%. That alone makes his gross margin £27. And as a retailer, I wouldnt be subsidising postal costs - but I wouldnt be making money from them either - its not ebay!  I think the bank charges are card processing fees? That £3 on a sale of £125 is just over 2% which is typical. 

 

I'm assuming the "other costs" category are the fixed costs, which presumably would be lower, if the number of units sold was higher, and its not usual to allocate them in this way - rather to look at how much you need to sell to cover your fixed costs. 

And I think its those fixed costs which are the real test of profitability for a retailer. If the rent and rates are high, then there needs to be a lot more sales volume. 

 

 

 

 

 

To be fair to the guy I don't think he was trying to file his annual accounts in video form, just illustrating his costs. For sure my accountant would charge me extra if I sent him a YouTube link as my annual account summary!

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It was mentioned a few pages back that it was simplified because the people it’s aimed at don’t have any understanding of the retail taxes etc ;) It was a broad attempt to create an understanding that the model-shop owner wasn’t financing a Rolls Royce off us buying one loco ;) 

As the guy in question has run a successful model shop for many years he obviously does know what he’s doing and his comments agree with at least two other shop owners in the trade I’ve talked to. 
The only quibbles have been about small percentages and ‘what he should do’ with post and don’t affect the final net profit much at all. Those decisions are his because of the experience he has and I’ve seen similar variation from others. 
It was brave to put it out there and as it’s been removed no doubt the comments went mad with this too ;) 

 

 

 

Edited by PaulRhB
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13 minutes ago, PaulRhB said:

It was mentioned a few pages back that it was simplified because the people it’s aimed at don’t have any understanding of the retail taxes etc ;) It was a broad attempt to create an understanding that the model-shop owner wasn’t financing a Rolls Royce off us buying one loco ;) 

As the guy in question has run a successful model shop for many years he obviously does know what he’s doing and his comments agree with at least two other shop owners in the trade I’ve talked to. 
The only quibbles have been about small percentages and ‘what he should do’ with post and don’t affect the final net profit much at all. Those decisions are his because of the experience he has and I’ve seen similar variation from others. 
It was brave to put it out there and as it’s been removed no doubt the comments went mad with this too ;) 

 

 

 

I think it was useful in generating an overall appreciation for people not familiar with some of the retailers side of the hobby. I think the ‘presentation’ slightly fell down in the final outcome no doubt leaving many with the thought, what’s the point of retail if that’s all you get out of it on such an expensive item.

Edited by PMP
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39 minutes ago, PMP said:

I think it was useful in generating an overall appreciation for people not familiar with some of the retailers side of the hobby. I think the ‘presentation’ slightly fell down in the final outcome no doubt leaving many with the thought, what’s the point of retail if that’s all you get out of it on such an expensive item.

Unfortunately to explain it all you could do an hour on how different products have different margins vs volume of sales and probably confuse them even more ;)  
I think he tried valiantly to explain one and as we’ve seen here it opens a can of worms if looked at in the wider context. 

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28 minutes ago, PaulRhB said:


I think he tried valiantly to explain one and as we’ve seen here it opens a can of worms if looked at in the wider context. 

I respectfully disagree, I think this topic has been pretty wide ranging and has generated an interesting discussion.

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16 hours ago, JohnR said:

 

I think part of the problem is the level of discount - thats 16% he's giving away. Hornby & Bachmann will only allow a new loco to be discounted by 10%. That alone makes his gross margin £27. And as a retailer, I wouldnt be subsidising postal costs - but I wouldnt be making money from them either - its not ebay!  I think the bank charges are card processing fees? That £3 on a sale of £125 is just over 2% which is typical. 

 

I thought the Bachmann figure was 15% for the first 8 weeks (unless it has changed recently)?

 

Andy

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Theres no doubting that retailers have a tough time at the moment, and specialist retailers like Model shops are no different. 

 

Survival depends on keeping fixed costs low, and generating enough volume to cover them, and provide an income, given the pressures on margins. 

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1 hour ago, PMP said:

I respectfully disagree, I think this topic has been pretty wide ranging and has generated an interesting discussion.

Sorry Paul, I didn’t mean that in a negative way,  I just meant that he focused on one thing and we extrapolated a lot more from it that he couldn’t answer in that limited view ;) 

I have no issues with the good natured discussion in the thread as points have been discussed and clarified. 

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1 hour ago, JohnR said:

Theres no doubting that retailers have a tough time at the moment, and specialist retailers like Model shops are no different. 

 

Survival depends on keeping fixed costs low, and generating enough volume to cover them, and provide an income, given the pressures on margins. 

 I think you'll find that the ONS data shows that retail sales are up on pre-Covid levels. I find that hardly surprising, given that spending on hospitality and holidays has been rather curtailed for nearly two years. The mix of spending has certainly changed but looking at some of the new RTR releases topics, there seems to be a strong appetite for buying models. Has Covid benefitted the large online sellers owing to its impact on "normal" retail shopping?

 

Fixed costs aren't easy to reduce as they are already fixed, e.g. rent and business rates. What are termed variable and semi variable expenses (heat, light, advertising, telephone costs, wages, etc.) can be more readily managed.

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2 hours ago, Jol Wilkinson said:

 I think you'll find that the ONS data shows that retail sales are up on pre-Covid levels. I find that hardly surprising, given that spending on hospitality and holidays has been rather curtailed for nearly two years. The mix of spending has certainly changed but looking at some of the new RTR releases topics, there seems to be a strong appetite for buying models. Has Covid benefitted the large online sellers owing to its impact on "normal" retail shopping?

 

Fixed costs aren't easy to reduce as they are already fixed, e.g. rent and business rates. What are termed variable and semi variable expenses (heat, light, advertising, telephone costs, wages, etc.) can be more readily managed.

 

By retailers, I mean physical High Street retailers. I have no doubt that the overall retail market has increased, but the amount people are buying in shops has decreased.

 

Also, fixed costs can be reduced. Instead of a High Street location, you can move to out of town - look at what Hattons have done, for instance. There are many other Model Shops that are based in Business Parks, etc, so that they take advantage of lower rents/larger space.

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1 hour ago, JohnR said:

 

By retailers, I mean physical High Street retailers. I have no doubt that the overall retail market has increased, but the amount people are buying in shops has decreased.

 

Also, fixed costs can be reduced. Instead of a High Street location, you can move to out of town - look at what Hattons have done, for instance. There are many other Model Shops that are based in Business Parks, etc, so that they take advantage of lower rents/larger space.

 

When, since the demise of Beatties, has there been such a thing as a High Street model shop? Apart from that chain, I've never known a model (railway) shop in anything other than a run-down low-rent 19th-century building away from the town centre, usually with dodgy parking!

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13 minutes ago, Compound2632 said:

 

When, since the demise of Beatties, has there been such a thing as a High Street model shop? Apart from that chain, I've never known a model (railway) shop in anything other than a run-down low-rent 19th-century building away from the town centre, usually with dodgy parking!

 

By High Street, I mean one with a physical store in an area with other retailers, obviously. 

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