Hornby's financial updates to the Stock Market

[ruggedpeak]

I thought the consensus was that those "endless sales" are a result of a desperate need for cash and to bail excess stock overboard ASAP, rather than a result of a lower price policy?

 

 

Possibly a further indication that they are producing too many models and more volume than the market can sustain?

That might suggest that they should rationalise what they are offering; e.g. reduce the production runs of the more detailed and expensive models and raise prices accordingly and, if they wish to maintain a budget offering, rationalise the Railroad catalogue to a smaller, more clearly defined and focussed range.

That might just introduce the sort of differentiation between high detail main range and Railroad, that so many people have been calling for.

The problem could be that such a course of action might require Hornby's domestic model train arm to be downsized into a slightly smaller business. Will their need to recover from debt allow that?

 

 

Surely nobody is going to set out to be "semi-profitable".

That's a sure fire road to ruin.

Hornby's pricing activity has led to a perception of lower prices, even if that was not the intention. Brand and product value has been eroded in the eyes of customers and retailers alike.

 

The excess stock is a direct result of various factors, a key one being the absence of a proper understanding of the market and its customers, as I have explained pursued a digital/IT and direct sales strategy that has damaged relationships with customers and retail channels, undermined the brand and failed to capitalise on the most basic marketing opportunities that generate actual sales rather than tweet or Facebook likes that generate the square root of zero cash. Shrinking the business does not ovecome a fundamental inability to make and sell stuff people want.

 

As for semi-profitable (not a technical terms), some times a company has to run at a loss e.g. cover its variable costs of production and some of its fixed costs to stay afloat. Hornby seems to be approaching that position where it will have to (again) forget profitability and focus on cashflow to keep it afloat, pay its bills and loans and sub-contractors etc.

Edited March 6, 2016 by ruggedpeak

[dibber25]

Only we weren't asked to pay up front in this case.  We paid a £50 deposit to an off-shoot of the national museum.  If the project completely failed (unlikely) I'd assumed we'd get our money back from Locomotion models.  There was and is some risk that the model may not be to our liking, but Rapido are well regarded in their market.  I saw this as a low risk.

That's absolutely right. There seems to be some confusion between the terms pre-order and pre-pay. To the best of my knowledge none of the manufacturers is asking for pre-payment. (CJL)

[The Stationmaster]

Hornby's pricing activity has led to a perception of lower prices, even if that was not the intention. Brand and product value has been eroded in the eyes of customers and retailers alike.

 

The excess stock is a direct result of various factors, a key one being the absence of a proper understanding of the market and its customers, as I have explained pursued a digital/IT and direct sales strategy that has damaged relationships with customers and retail channels, undermined the brand and failed to capitalise on the most basic marketing opportunities that generate actual sales rather than tweet or Facebook likes that generate the square root of zero cash. Shrinking the business does not ovecome a fundamental inability to make and sell stuff people want.

 

As for semi-profitable (not a technical terms), some times a company has to run at a loss e.g. cover its variable costs of production and some of its fixed costs to stay afloat. Hornby seems to be approaching that position where it will have to (again) forget profitability and focus on cashflow to keep it afloat, pay its bills and loans and sub-contractors etc.

 

But the latter seems to have been exactly what it has been doing (although not necessarily as cashflow per se).  It has been going hard for cash with such things as underselling and effectively cutting its own throat with ludicrous offers which put people off paying the normal price in anticipation - sometimes fulfilled - of getting a later reduction.

[Hroth]

Precisely my point: Given the amount of unsold Great Western stuff piled up in Newcastle they are obviously not tailoring their stock distribution.

 

Conversely of course we've had this silly business of manufacturing equal numbers of suburban coaches despite everybody at this end of the food chain knowing that for some trains all you need is a brake composite and that for bigger trains you need a brake composite at each end. Instead we find a world shortage of brake composites and Hornby effectively saying they're fed up telling people there's no demand.

And with the GW, for branch line trains (unless you're running an autocoach), all you need are two non-corridor brake ends......

[jjb1970]

Pre-pay, pre-order, the fact is if you wanted a non-DCC APT-E you had to pay £50 up front with delivery following on almost a year later, or alternatively pay approx. 22% up front and wait. So the supplier Rapido has the surety of pre-selling the whole run to Locomotion (an entity which is ultimately under written by the tax payer) who then manage their cash flow for the project by charging a significant deposit. Hence Rapido de-risk by manufacturing to order for a commissioning party, that party de-risks by using the deposit to cover a large part of their up front cost. Now don't get me wrong, if the market will accept it then that is a brilliant scenario for the supply chain as the party actually dealing with the factory has minimal risk and the party managing sales minimises both inventory risk and also avoids the very real risk of having to fund development up front and not receive any return until the models are shipped. I don't see anybody else applying such a model, people may not like Hornby, Bachmann, Heljan, Dapol, DJM prices but all those parties are sinking serious money into product development and are running two major risks, one that nobody buys the models produced, and second that they are committing their funds up front which is locked up in the project. To me it is that very risk which justifies their profit and returns as if a business is going to take on such a risk then it is quite right that if they're running the risk of losing £££££'s then they also reap the rewards if it all goes well.

[dibber25]

Pre-pay, pre-order, the fact is if you wanted a non-DCC APT-E you had to pay £50 up front with delivery following on almost a year later, or alternatively pay approx. 22% up front and wait. So the supplier Rapido has the surety of pre-selling the whole run to Locomotion (an entity which is ultimately under written by the tax payer) who then manage their cash flow for the project by charging a significant deposit. Hence Rapido de-risk by manufacturing to order for a commissioning party, that party de-risks by using the deposit to cover a large part of their up front cost. Now don't get me wrong, if the market will accept it then that is a brilliant scenario for the supply chain as the party actually dealing with the factory has minimal risk and the party managing sales minimises both inventory risk and also avoids the very real risk of having to fund development up front and not receive any return until the models are shipped. I don't see anybody else applying such a model, people may not like Hornby, Bachmann, Heljan, Dapol, DJM prices but all those parties are sinking serious money into product development and are running two major risks, one that nobody buys the models produced, and second that they are committing their funds up front which is locked up in the project. To me it is that very risk which justifies their profit and returns as if a business is going to take on such a risk then it is quite right that if they're running the risk of losing £££££'s then they also reap the rewards if it all goes well.

My experience has been that most of the expensive items that I order (garden sheds, carpets, building work etc) require a deposit to be paid with the order and the balance before delivery, so I didn't find anything unusual in paying the £50 deposit for the APT-E. However, that is a deposit paid to Locomotion, not to Rapido. I have several  items on direct order from Rapido and no deposits have been taken, so the de-risking for the manufacturer is very limited - purely orders placed in good faith which give the manufacturer an idea of how many to order. (CJL)

[The Stationmaster]

My experience has been that most of the expensive items that I order (garden sheds, carpets, building work etc) require a deposit to be paid with the order and the balance before delivery, so I didn't find anything unusual in paying the £50 deposit for the APT-E. However, that is a deposit paid to Locomotion, not to Rapido. I have several  items on direct order from Rapido and no deposits have been taken, so the de-risking for the manufacturer is very limited - purely orders placed in good faith which give the manufacturer an idea of how many to order. (CJL)

 

Actually paying a deposit on building work shouldn't be necessary as it does not fit with the industry's normal pattern of staged payments which is wholly based on payment for work done.  However it seems many builders ask for deposits for small jobs but if they say it's for materials just make sure you get the materials and not them!

[ruggedpeak]

For those who are looking longer term to the future of the the hobby there are several pertinent articles in the Graun on the wider and social and economic issues. It is a running features on the economic woes of the 'milennials' or Generation Y.

 

"Middle-aged western consumers who are at the peak of their earning potential have been the central plank in the development of the world’s postwar economy. They have been key to purchasing all sorts of goods from washing machines, microwaves, cars and houses, to life insurance, as well as putting money away in savings."

 

Or indeed buying model trains.

 

http://www.theguardian.com/world/2016/mar/07/generation-y-pay-price-baby-boomer-pensions

 

And the lack of wage growth for the younger generation

 

http://www.theguardian.com/business/2016/mar/06/wage-growth-george-osborne-budget-obr-pay

 

Why is this relevant to Hornby? Well for whatever reasons those with decent pensions will be dying off, those with decent wages will retire but with lower pensions, and the workers behind them as a mass have little or no spare cash for leisure activities and no doubt be taxed to death to pay the pensions of the every growing numbers of elderly.

 

Model trains won't die, but running a profitable £50m t/o model company could get a bit tricky over the next 10-15 years. I suspect the more collector and wealthy customer  orientated business models of the Continental and North American firms, especially getting some commitment from punters before spending on design etc is going to be the norm. This may not be good for us modellers (if you don't have the dosh you miss out) or retailers. But people will still be modelling.

[ruggedpeak]

Pre-pay, pre-order, the fact is if you wanted a non-DCC APT-E you had to pay £50 up front with delivery following on almost a year later, or alternatively pay approx. 22% up front and wait. So the supplier Rapido has the surety of pre-selling the whole run to Locomotion (an entity which is ultimately under written by the tax payer) who then manage their cash flow for the project by charging a significant deposit. Hence Rapido de-risk by manufacturing to order for a commissioning party, that party de-risks by using the deposit to cover a large part of their up front cost. Now don't get me wrong, if the market will accept it then that is a brilliant scenario for the supply chain as the party actually dealing with the factory has minimal risk and the party managing sales minimises both inventory risk and also avoids the very real risk of having to fund development up front and not receive any return until the models are shipped. I don't see anybody else applying such a model, people may not like Hornby, Bachmann, Heljan, Dapol, DJM prices but all those parties are sinking serious money into product development and are running two major risks, one that nobody buys the models produced, and second that they are committing their funds up front which is locked up in the project. To me it is that very risk which justifies their profit and returns as if a business is going to take on such a risk then it is quite right that if they're running the risk of losing £££££'s then they also reap the rewards if it all goes well.

Not great for retail, though, is it? Much as the Rapido business model has brought new models to market, it is undermining independent retailers by cutting them out the value chain.

[Ian Hargrave]

Not great for retail, though, is it? Much as the Rapido business model has brought new models to market, it is undermining independent retailers by cutting them out the value chain.

 Yes...but that is already a business model being used by retailers themselves....Hattons and Kernow for instance.Maybe the next step is a consortium of smaller retailers ? Surely in any case Locomotion is an 'independent retailer' who just as the other two mentioned here regularly commission models.Contrast that with Hornby's ongoing  accident prone excursion into the realms of direct sell

[davknigh]

Not great for retail, though, is it? Much as the Rapido business model has brought new models to market, it is undermining independent retailers by cutting them out the value chain.

The Rapido model allows you to order through your local dealer if you have one as explained here

 

"Rapido Trains Inc. products can be ordered from any hobby retailer or directly from us. All prices shown are MSRP (Manufacturer's Suggested Retail Price). Dealer may sell for less.

With the exception of some accessory items, all Rapido Trains Inc. products are produced strictly to reservations placed before the appropriate order deadlines. Avoid missing out by reserving in advance with your dealer. To make sure that you do not miss a deadline sign up for our newsletters."

 

Rapido has long realized that they can't go it alone in this game and wants dealers on side.

 

Cheers,

 

David

PS, usual disclaimer applies, lest anyone think otherwise, I'm just a happy punter.

[Ozexpatriate]

Not great for retail, though, is it? Much as the Rapido business model has brought new models to market, it is undermining independent retailers by cutting them out the value chain.

The Rapido model allows you to order through your local dealer if you have one as explained here

In fact RapidoTrains wants to increase their presence with US retailers.

 

I'm a bit skeptical about exactly where Jason and Bill found their Rapido Ambassador in the picture.  Also she's also been Photoshopped inside the yellow line. Fortunately the BTP won't be involved.

 

(I placed my pre-order for the CPR Royal Hudson with my local retailer. No form of up-front payment was required)

Edited March 7, 2016 by Ozexpatriate

[ruggedpeak]

 Yes...but that is already a business model being used by retailers themselves....Hattons and Kernow for instance.Maybe the next step is a consortium of smaller retailers ? Surely in any case Locomotion is an 'independent retailer' who just as the other two mentioned here regularly commission models.Contrast that with Hornby's ongoing  accident prone excursion into the realms of direct sell

Indeed, and as per the quotes above (and the odd picture ) I'm pleased Rapido use retailers and look forward to this occuring in the UK very soon. In terms of risk and commissioning they have a clear model:

 

"With the exception of some accessory items, all Rapido Trains Inc. products are produced strictly to reservations placed before the appropriate order deadlines. Avoid missing out by reserving in advance with your dealer." Clearly de-risking the process. I assume US retailers don't have large quantities of heavily discounted Rapido stock clogging up their shelves......

[dibber25]

Not great for retail, though, is it? Much as the Rapido business model has brought new models to market, it is undermining independent retailers by cutting them out the value chain.

Rapido sells through independent retailers - Gaugemaster in the UK - in Canada and the USA. As I understand it, they simply have to place their orders by the pre-order cut-off date. The APT-E is different because it is a special commission for Locomotion and is only available from the Shildon and York stores. (CJL) 

Edited March 7, 2016 by dibber25

[autocoach]

Rapido in the US and I assume Canada as well.  MSRP is generally not legally enforceable in the US. A retailer can charge what price they want. Their profit margin is up to them and their accountants. Actually Rapido charges full price if you order directly from them. My local hobby shop marks everything down by 5-10% (except magazines) and I do not pay shipping charges resulting in a substantial savings from ordering direct from manufacturer/importer. Almost nobody in the model train business in North America offers free shipping on a regular basis. Some do limited time free shipping promotions. Amazon doesn't count. Prime membership for free shipping is $90 per year and going up so unless you get your groceries from amazon there is little saving. 

 

There may be occasional specials at some internet retailers but they usually make up for their discount with possibly padded shipping charges.

[Guest]

Amazon doesn't count. Prime membership for free shipping is $90 per year and going up so unless you get your groceries from amazon there is little saving.

Oh, Amazon does count. Prime gives you free next day shipping but you can get slow free shipping on most orders over $49

[Ronny]

Oh, Amazon does count. Prime gives you free next day shipping but you can get slow free shipping on most orders over $49

For books it is even less for free shipping: $25. And not that slow. Maybe I've been lucky but I rarely have to wait for more than a few days.

[andyram]

Interesting to see Hornby's latest move us to start promoting their international range over here.

[Oakydoke]

Interesting to see Hornby's latest move us to start promoting their international range over here.

Yes, if they can ween UK modellers off British outline 00 and onto European H0, it could save them a fortune in product development, production and marketing.

Ramping up the H0 production runs to cater for the additional UK sales will improve the economies of scale too and larger batches should help to hold down retail prices of the models.

It sounds like a recovery plan. They just have to scrap their 00 range and convince British outline modellers to convert to modelling continental European railways instead.

[Revolution Ben]

<snipped>

 

Why is this relevant to Hornby? Well for whatever reasons those with decent pensions will be dying off, those with decent wages will retire but with lower pensions, and the workers behind them as a mass have little or no spare cash for leisure activities and no doubt be taxed to death to pay the pensions of the every growing numbers of elderly.

 

 

A very helpful post which puts me in mind of this article, written by Nick Hanauer, a wealthy American capitalist:

 

http://politi.co/1PEVzoN

 

For those without time to read it, the thrust of his article is that the current disparity between the wealth of the super-rich and the rest of is, as much as anything, a problem for the super-rich.  After all, they can only use one yacht at a time, and if they keep hoovering up all available wealth (so they can buy 10 or 20 yachts) then there will be no one left to by the goods and services their companies provide.

 

cheers

 

Ben A.

[JSpencer]

Yes, if they can ween UK modellers off British outline 00 and onto European H0, it could save them a fortune in product development, production and marketing.

Ramping up the H0 production runs to cater for the additional UK sales will improve the economies of scale too and larger batches should help to hold down retail prices of the models.

It sounds like a recovery plan. They just have to scrap their 00 range and convince British outline modellers to convert to modelling continental European railways instead.

 

We are probably edging towards that in the future. Certain locomotive types now appear both sides of the English Channel such as the class 66. As time goes buy, I expect to see more and more locomotive types being standard across the continent including the UK.

Couple this to increased cost of making models, it could come down too producing a model either for 00 or HO and going with the latter.

 

Newcomers won't really be bothered about starting in HO rather than 00, while most old comers are nostalgic about the way things were and can rest in 00.

 

Ok, dubious at best, but you never know.

[Crichel Down]

I vaguely recall that this thread began several millennia ago as a discussion of Hornby's financial position.

 

Maybe everyone has given up hope of that company, or are they just getting bored waiting for further news later this month as to whether they have negotiated some sort of bail-out with Barclays, or whether the bank will finally have had enough, and will decide to pull the plug?

 

Discussion of other topics may well be fascinating to the particpants, but is totally irrelevant to the question in hand.

 

Will they?  Won't they.  Maybe we have only a few more weeks to wait for the answer.

[Trains4U]

We need to make it clear to all rolling stock manufactuers (are you listening Siemens/ Hitachi/ Alsthom etc...?)

They have to make all locos/wagons/multipe units etc EXACTLY the same design for Europe and UK markets, just build the UK ones 12.65% smaller. (But be careful with the gauging please)

 

 

Then us modellers can enjoy cheaper models on both sides of the channel as the HO and OO mouldings will be exactly the same!

[KalKat]

^^^^ pricing being cheaper.......... yeah right !

Edited March 10, 2016 by KalKat

[Fat Controller]

A very helpful post which puts me in mind of this article, written by Nick Hanauer, a wealthy American capitalist:

 

http://politi.co/1PEVzoN

 

For those without time to read it, the thrust of his article is that the current disparity between the wealth of the super-rich and the rest of is, as much as anything, a problem for the super-rich.  After all, they can only use one yacht at a time, and if they keep hoovering up all available wealth (so they can buy 10 or 20 yachts) then there will be no one left to by the goods and services their companies provide.

 

cheers

 

Ben A.

This is something Henry Ford realised over a century ago; he realised that he would have to pay reasonable wages in order to have a mass market for his products. I believe George Soros reiterated the point fairly recently.