Hornby's financial updates to the Stock Market

[Mike Storey]

Yes, this is part of the key thing when it comes to studying how the market has changed and is changing.  Train sets in toyshops and the large multiples are a vanishing thing and Hornby's High Street exposure is pretty minimal, and shrinking, when it comes to model railways.  I suspect the only 'wider retail' area where sales might be doing something (I do not say 'better') are sure/heritage railways with shops and possibly garden centres and some other out-of-town shopping venues.  the whole approach from customers to retail has changed significantly as the numbers of empty shops in so many towns reveals.

 

Equally the 'new & upcoming' market has very limited contact with railways, a factor which might have once encouraged purchase of models - station platform ends throughout the country are near totally bereft of youngsters collecting numbers if what I haven't seen is any kind of guide.  The main place where children come across trains nowadays is likely to be a santa special, or other visit, to a leisure/heritage railway/preservation site and occasionally on an organised school outing to 'have a ride on a train' (as I noticed one day last week at Reading.  The principal retail front is the dwindling number of model railway shops (where most of my purchases come from as it happens) and some of those shops which are online or offer mail order - but in most cases that is known only within an established market group, i.e. us.

 

To break back into the High Street toyshop (where they exist, they're increasingly rare birds too judging by what I see) is something Hornby have tried in the past and are already trying again but to compete that needs marketable prices and marketable features where volume is a potentially difficult matter so large volume sales probably won't support marketable prices.  It would be a very clever trick if Hornby's new boss can pull that one off when you consider that the business he has controlled up until now is seeing its latest 0-6-0 (the Dean Goods) retailing at c.£90- £100, a price hardly likely to appeal to a newcomer father buying something for his offspring if what many people say about the financial situation is true.  Railroad could well be re-marketed, and priced, to a sort of 'tempt them in' model but that could be an interesting gamble when the current theme seems (rightly IMHO) to protect the brand name and higher priced products.  Sorting out the UK model railway area of Hornby is likely to be a far more difficult task than a few glib words and accompanying smiles - if it needs sorting at all that is.

 

Airfix and Corgi brands almost certainly need to re-find their low cost ('pocket money price') roots alongside what might remain of their hi-fi (and in the case of Corgi very pricey) sectors.  LCD could no doubt - given a free hand - sort Corgi almost in his sleep, it's a business he is not only familiar with but where he clearly understand how the modern market works as his success in it testifies.  Airfix would probably be a bit more difficult because it would rely, at the lower price point, on people actually wanting to build models.  Humbrol is probably a lost cause as it stands - the name is acquiring a patchy reputation and needs a major product overhaul if it is to fully re-establish itself in the UK market.  As for Scalextric - I really don't know but it too might well be suffering the lack of lo-fi, lower priced, product with too slim a top end market to fully support it?

 

Then we come to the oddball in the announcement where it is said that developing the continental model railway ranges is considered as a great opportunity.  No doubt some truth in that but surely the market for expensive hi-fi model trains in mainland Europe faces precisely the same thing as the similar market here - it too relies on folk having the wherewithal to purchase the expensive models and it is a very competitive market place with lots of duplication (where have I heard that recently?).  I don't doubt there is opportunity there but I do wonder if that opportunity is a magic bullet?

 

All that is true of course, but we are forgetting the recent tie-up with Argos, and now Sainsbury, so that field is being attempted again.

 

No-one has mentioned the new Hornby Junior (on this thread since the latest announcement anyway), which could have good potential if expanded. I have not seen how this is selling, but I guess the Christmas market will be the first major test. Perhaps some of that £1m will go there?

 

For the rest of Europe, Jouef is the Hornby of France, and Lima of Italy, although my personal observation is that Rivarossi gets more attention on model releases now. They still have high brand recognition and much warm feeling, despite their British ownership now. Apart from Piko, there is little other competition in the lower to middle end, the vast majority of the many new and existing players seemingly going for ever higher detail and price. So, there is a market to be exploited, if Piko and one or two others, such as Mehano, don't take it all. I think perhaps this is a promising avenue, if done properly.

 

On top of which, nothing has been mentioned of N gauge or 0 gauge. Possibly too late to the game now for 0, but the trend by other, smaller players, to release much of their new model ranges in N, suggests it is a market they should at least consider? This would tie in with the smaller homes, lower age bracket they appear to want to attract more of.

Edited November 19, 2017 by Mike Storey

[Clearwater]

Hornby Junior is listed in their top five sellers. Quite what that actually means is anyone’s guess!

 

David

 

Edit - the other items in the list include an ancient car carrier, the annual wagon and the Christmas themed set...

 

https://www.Hornby.com/uk-en/shop/this-months-top-10-bestsellers.html

Edited November 19, 2017 by Clearwater

[adb968008]

How about some kidonomics here...

 

When I was a teenager, I did a paper round.. mornings £4.50 a week, Sunday’s earnt £5 in one day, but you did a weeks worth of papers in a few hours that morning. Evenings earned £4 a week, and the Thursday free paper (200+) got a whopping £8.

 

This translated into a new Lima loco, or a second hand Bachmann/Hornby loco every week.

Christmas, bonus rounds excluded from this lot.

 

Whilst the pay sucks, the investment paid off ok, i’m Surrounded by Lima 30 years on, which i’m Slowly passing back to the market and I’ve not lost out to inflation in the last 30 years.

 

In 2017, it looks like the paperound is £26, £15, £22 and the free one well didn’t inflate as well.. £16.

(Source is mumsnet).

 

So that gets a paperboy..£79 a week if they went all in like I used to...

This translates into... a Hornby Railroad exLima loco every week, or a second hand Bachmann/Hornby loco every week.

 

In short nothing changed, except the focus since year 2000 has been on super detailed high end models unaffordable to a paperboy enthusiastic about trains. One disadvantage today is those Lima’s models reflected what was running around the network on that day, today’s paperboy can only look at aged models of yesteryear that are now in museums.

Edited November 19, 2017 by adb968008

[Chamby]

Hornby Junior is listed in their top five sellers. Quite what that actually means is anyone’s guess!

David

Edit - the other items in the list include an ancient car carrier, the annual wagon and the Christmas themed set...

https://www.Hornby.com/uk-en/shop/this-months-top-10-bestsellers.html

. I think this only reflects sales from their own website. Also, you overlooked the fact that four out of the five top pre-ordered products are premium priced models...

[asmay2002]

No-one has mentioned the new Hornby Junior (on this thread since the latest announcement anyway), which could have good potential if expanded. I have not seen how this is selling, but I guess the Christmas market will be the first major test. Perhaps some of that £1m will go there?

Modern children have computer games which grab their attention and are addictive to play.  One way to kill the hobby completely for the young is to try to persuade then that something which just goes around in a circle is entertaining.  Something which provides active modelling might stand a chance but that almost certainly won't be the traditional train set.

Edited November 19, 2017 by asmay2002

[Clearwater]

. I think this only reflects sales from their own website. Also, you overlooked the fact that four out of the five top pre-ordered products are premium priced models...

I’d assume it’s their website but it’s ambiguous and I take with a pinch of salt. On your other point, I had seen that. Again, it depends on the measure. I’d expect an model, which previously sold out, to be selling on the “I’d better pre order so as to get one stakes”. What we don’t know, is how many sales make the top 5; or what the balance is between pre orders and total sales. For example, a pre order of 200 pecketts might qualify but be dwarfed by 5000 orders of the annual wagon. Equally, profitability could be heavily weighted one way or the other. I’m sceptical of unsupported stats (I appreciate I was quoting them in thecontext of Hornby junior) but I do think it is noticeable that the “top 5 sellers” are broadly not at the high fidelity end of the spectrum.

[Ron Ron Ron]

Do we know if that's 70% by volume or turnover?

 

They didn't say at the time.

 

 

 

"A large part of Hornby's business is in peddling nostalgia....

....70% of sales of model railways are to adult collectors and hobbyists and 30% to children....

....the Harley- Davidson effect.

Edited November 19, 2017 by Ron Ron Ron

[APOLLO]

Time to "split the range" a bit further ?

 

I'm thinking Hornby Railroad, pile em high sell em cheap(ish), The Railroad range could be the main models toy / smaller model shops sell (along with of course the box shifters) If priced right they sell well. Hornby Railroad are damn fine models in my opinion. Worth the money.

 

As to the "Hi-Fi" super detailed range - first it needs a range name (remember "Silver Seal" ?). Sell at / near RRP, little discounting so all retailers have a slice of the pie.

 

As to road vehicles - again split the range - Oxford the cheaper stuff, Corgi the detailed more expensive (both though need the brand name Hornby on the box - to let people know who makes it. As mentioned earlier the brand name "Hornby" is very well known.

 

Not sure about the other ranges - Lima, Rivarossi, Airfix etc.

 

Anyway - my best wishes for Hornbys future.

 

Brit15

[jjb1970]

I'd urge a note of caution in any ideas that the European market is the path to riches and recovery. The European model market has been a financial mess in terms of manufacturers going in and out of bankruptcy for something like 20 years (it predated the 2008 unpleasantness by many years so is not just linked to the economic cycle), competition is already very intensive and companies like Piko have already disrupted the market by pitching products at a level which most "serious" modellers are very happy with but which undercut the traditional market leaders on price. Easy to foget that the reason Hornby picked up their Euro ranges is because Lima/Rivarossi went down the pan. Look at most of the bigger European manufacturers (Fleischmann, Roco, Marklin, LGB etc) and it has been a very rocky couple of decades, not to mention the proliferation of new entrants such as ACME, LS etc. Which is not to say Hornby cannot find success in Europe, but if they think it will be a softer option than making their UK option work then they're delusional.

[Coryton]

and occasionally on an organised school outing to 'have a ride on a train' (as I noticed one day last week at Reading.  

 

The primary school near me is probably somewhat unusual in that when they go into town for a school trip they tend to catch the train rather than hiring a coach.

 

(It didn't work so well the time the train was cancelled and they discovered that getting 60 children onto a train is easier than on a service bus...)

 

. Interesting... but I reckon it is mostly the Railroad stuff that has been heavily discounted, and we are led to believe that this strategy is what has compounded their recent woes.

 

 

That wasn't my impression.

 

Certainly there have been some Railroad models discounted (like some of the 0-4-0 and 0-6-0 tank engines) but there have been a lot of very heavily discounted high end models. E.g. 2-HAL: RRP £150, available from Hattons now at £62. Now maybe Hattons ordered too many and they are taking the hit...but I suspect not.

 

All that is true of course, but we are forgetting the recent tie-up with Argos, and now Sainsbury, so that field is being attempted again.

 

And ASDA.

 

How about some kidonomics here...

 

When I was a teenager, I did a paper round.. mornings £4.50 a week, Sunday’s earnt £5 in one day, but you did a weeks worth of papers in a few hours that morning. Evenings earned £4 a week, and the Thursday free paper (200+) got a whopping £8.

 

<snipped>

In short nothing changed, except the focus since year 2000 has been on super detailed high end models unaffordable to a paperboy enthusiastic about trains. One disadvantage today is those Lima’s models reflected what was running around the network on that day, today’s paperboy can only look at aged models of yesteryear that are now in museums.

 

Indeed. It's easy to ignore inflation and think that things are much worse now than they are.

 

But yes - it would be nice to have some more modern stock at the train-set end of things. They did the 395's in the Railroad range I think but there's not a lot.

 

On the other hand, for children who only go on a train on a trip to a heritage railway, maybe that's not so much of a problem.

 

 

 

They didn't say at the time.

  

 

That's very interesting - 30% of sales to children, not 30% of sales are of train sets and Railroad stock.

 

Now this presumably includes parents/grandparents etc. buying a train set out of nostalgia that gets used once and chucked away (still a sale, but not likely to lead to more), but it's still a lot higher than you'd think from reading discussions here.

[jjb1970]

I'm of an age where almost all my friends at school went through at least a phase of making plastic kits or an interest in model railways or scalextrix. We have memories of those days and also we were conditioned to view things in terms of having a tangible, physical quality. And trains still had some air of romanticism and an aspirational quality (it was the era of the HST, the brave new world of the APT).

Nowadays, people have embraced connectivity (how many people buy music on a physical carrier? More and more people watch movies or listen to content via web based services or via their devices). Looking around my kids and their friends yes you see a lot of traditional toys but not models or model trains, and the aspirational toys they all lust after seem to be electronic devices and games. Train travel is just commoditised mass transit, I'm a train enthusiast and love modern trains but even I view it very much as just commoditised mass transit with no emotional attraction and to most non-enthusiasts trains are in the same bracket as washing machines or ironing boards to me. So I am really not so sure that the traditional path of older people returning to the hobby will go on that much longer.

[Coryton]

So I am really not so sure that the traditional path of older people returning to the hobby will go on that much longer.

 

Perhaps so, but if you look at why people build a model railway rather than - say building Airfix kits or buying model busses and displaying them, the difference is not just that different modes of transport are involved.

 

A model railway is different because you get to build something and then play with it in way that you can't with static models.

 

Maybe that in itself is something to bring people into the hobby?

[locoholic]

. Interesting... but I reckon it is mostly the Railroad stuff that has been heavily discounted, and we are led to believe that this strategy is what has compounded their recent woes.

Items like the recent Duchess and Peckett seem to have got it absolutely right market wise, but like Clearwater says if they’re not making a profit even at these prices then as a money making investment their investors will be driving them to look elsewhere.

For sure though, there is big money to make from the ‘grey pound’: Hattons and Kernow have found a way to make money here. Makes me think that it is Hornby’s business model that is wrong, rather than the products per se.

If I was Hornby (yes, sat here in my armchair for what it’s worth) I would service the existing market where the money is right now - and get the cash flow sorted before sinking large amounts of money into as yet undeveloped markets.

If it is true that Hornby make little profit from models like the Peckett and Sir William Stanier pacific, then they really don't deserve to survive. Making a model that demand for easily exceeds supply and yet generates little profit is a completely illogical and unsustainable business model. The parallel case that springs to mind is the British Motor Corporation and the original Mini. It's nice to see that British management "expertise" is alive and well. Makes you wonder about certain current political developments, though...

[jjb1970]

Perhaps so, but if you look at why people build a model railway rather than - say building Airfix kits or buying model busses and displaying them, the difference is not just that different modes of transport are involved.

 

A model railway is different because you get to build something and then play with it in way that you can't with static models.

 

Maybe that in itself is something to bring people into the hobby?

I'd agree, but I this is what I was trying to articulate with my comment on older generations having been conditioned to think in terms of things having a tangible, physical presence. To younger generations the concept of a virtual reality appears to be more attractive, as it has almost limitless potential and frees you from any constraints imposed by a physical hobby. To my kids, virtual constructs are just as real as a physical construct is to me.

[jjb1970]

Lest I be seen as the voice of pessimism, I do think there is a certain universal appeal in models which have impact. Look at how many adults will pick up toy cars and take great delight in them. I work in an office where we are lucky enough to use builders models of ships as office decoration and it is notable that visitors of all ages are drawn to them and admire them. However, I'm not sure that a generalised fascination with something is enough for model companies to thrive longer term as people may like models but that isn't the same as feeling an urge to take an interest in modelling as a hobby.

[Coryton]

I'd agree, but I this is what I was trying to articulate with my comment on older generations having been conditioned to think in terms of things having a tangible, physical presence. To younger generations the concept of a virtual reality appears to be more attractive, as it has almost limitless potential and frees you from any constraints imposed by a physical hobby. To my kids, virtual constructs are just as real as a physical construct is to me.

 

Maybe you're right. On the other hand, football is still very popular with children (and I mean playing it, not following it) despite the lure of the virtual world (and, of course, the existence of lots of football-related games).

 

Lest I be seen as the voice of pessimism, I do think there is a certain universal appeal in models which have impact. Look at how many adults will pick up toy cars and take great delight in them. I work in an office where we are lucky enough to use builders models of ships as office decoration and it is notable that visitors of all ages are drawn to them and admire them. However, I'm not sure that a generalised fascination with something is enough for model companies to thrive longer term as people may like models but that isn't the same as feeling an urge to take an interest in modelling as a hobby.

 

I've said before - there will a hobby as long as there is anybody left who wishes to pursue it. But it might not look like it does now (with racks full of magazines in Smiths, etc.)

 

Incidentally, one of the themes in the latest Paddington film was how children don't see an interest in steam trains as cool.

 

I wonder if Hornby tried to get the rights to market a Paddington set? Tornado pulling a couple of Pullman coaches wouldn't exactly be hard for them.

[Pandora]

We "grey pounders"  are we not developing a thirst for 7mm?,  Helan diesels, Dapol 08 /  Jinty and wagons etc , I'm finding not a great deal of extra outlay over 4mm, and I derive  more pleasure from my 7mm acquisitions over 4mm. will Hornby ever risk a dip of the  toe into the 7mm field? It does not have to be a locomotive,  one of their more popular wagons, the 21T hopper scaled up  would open my wallet again

[Mike Storey]

I'd urge a note of caution in any ideas that the European market is the path to riches and recovery. The European model market has been a financial mess in terms of manufacturers going in and out of bankruptcy for something like 20 years (it predated the 2008 unpleasantness by many years so is not just linked to the economic cycle), competition is already very intensive and companies like Piko have already disrupted the market by pitching products at a level which most "serious" modellers are very happy with but which undercut the traditional market leaders on price. Easy to foget that the reason Hornby picked up their Euro ranges is because Lima/Rivarossi went down the pan. Look at most of the bigger European manufacturers (Fleischmann, Roco, Marklin, LGB etc) and it has been a very rocky couple of decades, not to mention the proliferation of new entrants such as ACME, LS etc. Which is not to say Hornby cannot find success in Europe, but if they think it will be a softer option than making their UK option work then they're delusional.

 

You are ignoring two things:

 

1. Hornby International brands are already there, with good recognition and a wide distribution, marketing and retailer network (better than many of the names you list). Thus, not to exploit that a little more, would be irrational.

 

2. The falling pound. It is conceivable that earnings from stable Euros against the Dollar, will be worth more than those from a low, and potentially lower, pound against the same Dollar. Probably they already are. Again, a position to exploit, as best they can.

[jjb1970]

You are ignoring two things:

 

1. Hornby International brands are already there, with good recognition and a wide distribution, marketing and retailer network (better than many of the names you list). Thus, not to exploit that a little more, would be irrational.

 

2. The falling pound. It is conceivable that earnings from stable Euros against the Dollar, will be worth more than those from a low, and potentially lower, pound against the same Dollar. Probably they already are. Again, a position to exploit, as best they can.

Indeed, but their international brands do not appear to have been performing especially well despite offering some first class products. And new product development for the Euro ranges will be no cheaper than for OO, so it'll need substantial investment to bring out new products. If the European HO market was a soft target that'd make sense but my feeling is that if anything the HO market is more competitive than ours and companies that appear to have been less badly managed than Hornby have been struggling for a long time.

[adb968008]

Trouble with O gauge, is a coach costs twice that of a Loco.

When coaches come down to £50-75 then O gauge stands a chance.

Until then its appeal will be limited to high end collectors, cabinet dwellers or branchline dabblers.

 

A few nice proportionally cheap Dapol and Heljan locos to look at on a shelf is one thing, bailing out from OO to O is quite another.

Edited November 19, 2017 by adb968008

[Ravenser]

 

 

Airfix and Corgi brands almost certainly need to re-find their low cost ('pocket money price') roots alongside what might remain of their hi-fi (and in the case of Corgi very pricey) sectors.  LCD could no doubt - given a free hand - sort Corgi almost in his sleep, it's a business he is not only familiar with but where he clearly understand how the modern market works as his success in it testifies.  Airfix would probably be a bit more difficult because it would rely, at the lower price point, on people actually wanting to build models.  Humbrol is probably a lost cause as it stands - the name is acquiring a patchy reputation and needs a major product overhaul if it is to fully re-establish itself in the UK market.  As for Scalextric - I really don't know but it too might well be suffering the lack of lo-fi, lower priced, product with too slim a top end market to fully support it?

 

 

Corgi and diecast would appear to be the real dogs in Hornby's portfolio of brands. I wonder if the next move will be for Corgi to be transferred to Oxford in return for the railway tooling , and maybe some of the money LCD has just received for 49% of Oxford 

 

That would offload a troublesome problem in return for some useful new tooling for Hornby, and allow Oxford a freehand to sort out Corgi and make money from it, with access to a factory (Hornby would still have a 49% stake in the result).

 

The R&D budget would then be spread across fewer brands - there might be some extra funds for new Airfix tooling, perhaps at the entry level.

 

Have Jouef or Lima released any new tooling in the last 18 months?

[jjb1970]

Hornby seemed to get into a bizarre scenario in Italy where Lima Expert (developed by Hornby Italy) was in direct competition (developed by Hornby International in Spain) with the seemingly low end starter brand Lima developing models that were more high end than their Rivarossi high end brand.

[Mike Storey]

Corgi and diecast would appear to be the real dogs in Hornby's portfolio of brands. I wonder if the next move will be for Corgi to be transferred to Oxford in return for the railway tooling , and maybe some of the money LCD has just received for 49% of Oxford 

 

That would offload a troublesome problem in return for some useful new tooling for Hornby, and allow Oxford a freehand to sort out Corgi and make money from it, with access to a factory (Hornby would still have a 49% stake in the result).

 

The R&D budget would then be spread across fewer brands - there might be some extra funds for new Airfix tooling, perhaps at the entry level.

 

Have Jouef or Lima released any new tooling in the last 18 months?

 

Yes, all this year (or maybe late last year for a few):

 

Jouef released a French 2-8-2 in at least three liveries, plus I think a new diesel railcar (autorail) XR6000, although I am not sure if the latter is a re-release - I have never seen it before. Plus several wagon releases, although only one of these is a new tooling I believe. There was also a TGV in La Poste colours, for which part-re-tooling must have been needed. They are about to release a new SNCF diesel too, BB67400 (not to be confused with their earlier BB67000 series), plus they have very recently released an SNCF crocodile electric, CC14100, both given a full page ad in Loco-Revue this month, but not on sale yet AFAIK.

 

Lima released a new Italian 0-6-0 in their "Expert" range, in two liveries I have seen, plus several re-liveries of other types.

 

Electrotren have released a Spanish 0-6-0 in two liveries, but this may be a re-release, although advertised as "new". I think their model of the AVE is new, but I have not read much about it.

 

I have seen little of Rivarossi, but I am sure I read a review of a new release earlier this year in one of the French mags.

 

 

So, hardly a static situation, and all these have been well received by the trade press. There would appear to be far less discounting (destockage) on Jouef and Lima stock by the big boys here, compared to Roco, Brawa and to an extent, Fleischmann, suggesting the HI stock is moving at full prices. Certainly, although I can only speak of France, the higher priced brands, REE, LSModel, Trix/Marklin and ACME, seem to shift pretty well. Piko French outline is still pretty minor but growing, but it is too soon to tell how it will fare (the prices seem to be all over the place without a clear quality differentiation in the modelling press adverts).

 

It's getting so confusing here, with yet another new (to France) entrant - the German firm Heris. Along with all the other newish names that have appeared over the past five years or so, it suggests a market that is far from declining.

[Legend]

Hornby seemed to get into a bizarre scenario in Italy where Lima Expert (developed by Hornby Italy) was in direct competition (developed by Hornby International in Spain) with the seemingly low end starter brand Lima developing models that were more high end than their Rivarossi high end brand.

In the past they’ve made a dogs breakfast of branding everywhere. Thinking of the none too clear distinction between Railroad, main range, 3 pole , 5 pole ,design clever (2BIL) design stupid (Saint with moulded cab rails- what an own goal that was) , inaccurate descriptions on catalogue. I blame the marketing man.

[robmcg]

I appreciate the very fine and generally well-written contributions to this thread, and my own take on it is that the future lies in 00 models of quality, with trainsets at best as a sideline, albeit profitable, in the future.

 

Hornby are very good at this RTR manufacturing of outstanding models, the market may have shrunk but I don't see it disappearing. The fascination of such as fine model ships in an office reminds me of the pleasure of simply looking at a very fine model 'Duchess', with or without a layout, these models are simply beautiful in their own right, and are of an age many of us know about, whether it be Edwardian, WW2 or 1960s-on.

 

I grew up with gauge 1 NZR models hand-made by Frank Roberts in the 1930s for the 1940 NZ Centennial Exhibition' which were truly superb, a whole wall in my father's office was glass-covered cabinets full of these, so I am familiar with modelling of the highest calibre and Hornby both UK and International are 'up there' in 00 models of similar quality, all power to them.

 

A lot of my thinking may be wishful, but even at the lower investment rates of today from Hornby and Bachmann I wish them well and think that intelligent management of costs, wise marketing by people who understand good models and their buyers, is the way to profit and sustainability.

 

In short, quality RTR 00 is the best, the trainset thing is a good and sustainable companion.

 

That's my twopennyworth. I enjoy this thread, armchair or not!