Hornby's financial updates to the Stock Market

[jjb1970]

Hornby and my suggestion are a totally different proposition, and I would suggest more akin to a Lego/Games Workshop hybrid. Model Zone failed yet Hattons, Rails and others are going great guns. And as I've pointed out before, the model market is following exactly the same path as the indie computer games sector did about 20 years ago, which sadly involved a lot of indies closing However the opportunities are there.

Hattons and Rails don't occupy prime retail real estate though. Retailers of products which sell in far higher volumes than model trains and which are much more mainstream are struggling to justify retaining a prime high street/mall presence. And the nature of model trains does favour centralised mail order suppliers because of the diversity of things we buy.

[ruggedpeak]

Hattons and Rails don't occupy prime retail real estate though. Retailers of products which sell in far higher volumes than model trains and which are much more mainstream are struggling to justify retaining a prime high street/mall presence. And the nature of model trains does favour centralised mail order suppliers because of the diversity of things we buy.

Exactly my point, which is what happened to indie computer shops.

 

The retail landscape has changed dramatically, and running a large chain of stores based on current volumes and margins (plus increasing direct/crowdfund sales channels) makes this probably impossible to sustain. The Hattons/Rails model or the number of model shops in cheaper industrial units evidence this.

 

But Hornby is a manufacturer  and brand owner who should and needs to be showcasing its brands and ranges to the wider public, not just us existing enthusiasts. Hornby's brand and ranges need to be 'out there' to boost their sales as overall sales to enthusiasts are probably maxxed out at present and competition to Hornby from new manufacturers/commissioners selling to enthusiasts (as against the general public etc) such as Rapido, DJM, Locomotion, Revolution etc is increasing by the day. They are all exploiting the here and now for the existing crowd, but we need model businesses to work to expand the hobby as well.

 

Of these newbies to the market, who is investing in trying to grow the hobby and attract new entrants, apart from Hornby?

Edited September 16, 2017 by ruggedpeak

[Revolution Ben]

Hello all,

 

I have found this thread very interesting, so thanks to all contributors.

 

I think the way forward is to stop fixating on model trains being "toys" and needing to appeal to children.

 

I think model railways should be reframed as a creative hobby to be enjoyed at any age; much like scrap-booking, flower arranging or needlepoint.  Judging by a recent trip to Hobbycraft all these hobbies are thriving and appear to see no need to appeal in any specific way to children; though it's quite likely that parents and children may enjoy any of them as a shared activity.

 

Yes, model trains are at the heart of the hobby but there is so much more to it - woodwork, IT, painting, scenic modelling, collecting - that I think the breadth of the craft opportunities should be emphasised.

 

cheers

 

Ben A.

Edited September 16, 2017 by Ben A

[Caledonian]

I agree with a lot of what's been said in the last few posts and would suggest the current business of the Hornby Pecketts and Hatton's Barclays offers an insight into where the hobby is going.

 

First the Peckett. Absolutely superb model and popular beyond all expectation, but absolutely invisible to the world at large. It has no high street presence. Hornby initially released it in three liveries; a well tried model [no pun intended] which ought to have been sufficient to offer a degree of variety and broaden its appeal. This was successful insofar as they sold out completely in a ridiculously short time. Now we're promised a single livery release in March?, another very shortly afterwards and a third towards Christmas.

 

Hatton's on the other hand are offering multiple liveries of the Barclay [and the Austerity, and the Southern jobbie and...] and once they sell out the next run, if it happens, will no doubt be equally diverse. They can do this because they have no network of retailers. Everything sits in a single inventory and all goes direct to the customer by post. 

 

In terms of short term results the Hatton's business model looks superior but in the longer term it runs into the same problem Hornby faced. Dealing directly with the customer and cutting out the middleman - whether that's a few shelves in a department store or a real model shop - makes serious inroads into the retailer's viability and the exposure of model trains to the public at large. Ultimately this could lead to an internet/magazine-based economy, reliant on those of us who are already in the hobby, on this and other websites and reading the magazines.

 

Whether or not this model is desirable or sustainable in the long run I don't know. I like visiting model shops and seeing what's on offer, and rather than preach the apocalypse I've no doubt that things will adapt in their own way but the point of this ramble that the Christmas train set is no longer a viable entry point or rather an investment for the future. I have no clever strategies to offer, but would suggest that the real target group for new entrants is not infants but 30 and 40 somethings who want to settle down with something interesting in the evenings

Edited September 16, 2017 by Caledonian

[APOLLO]

Model railways is / has always been mainly an old fart's hobby.

 

I remember going to the Manchester Model Railway exhibition every year just before Christmas in the Corn Exchange, near Victoria station back in the mid / late 60's. Full of old farts, many smoking cigs & pipes !!!. Most of those will have passed on since then. I never remember seeing too many my age around back then.

 

I was young kid back then, an old fart now (official one to at 65 !!).

 

The hobby will continue, change and progress - as will Hornby. Such is life. 

 

Hornby though need to take their finger out - Pecketts especially - they'd sell a million in various liveries, but none to be had - even future variants seem to be sold out. No way to run a "Railroad" !!!!!

 

Brit15

Edited September 16, 2017 by APOLLO

[adb968008]

Well I'm in my 40's, and there's no way I'm saying how much I spend a year, other than no figure suggested on this thread comes close.

 

I bought my first loco (D824 Highflyer for £9.99 from Railmail c1981/2 paid by Postal order, so I've been a remote buyer since Christmas money from grandparents days). 45691 followed a year later at £16.95 and in 1984 I used my holiday money to buy a Lima 9400 for £10 spending much of the summer broke, but looking at it.

Since then model railways has been in my life at every stage.

 

So I don't fit the demographic, age profile nor spending profile being commented on above.

 

Secondly, I rarely ever set foot in a model shop, I only have 3 shops that I know of, in a range of 30 miles from me. If a shop was in a mall I'd probably try to avoid it, as the prices are invariably unattractive at such locations.

 

As for feeling special, well I have the million air miles and lifetime status, and the airlines do sit and take notice of you, but in model railways, I very much doubt any manufacturer (well there is one but I'm not engaged with them), knows I exist, nor probably care, which is the same for me, nor any Uncle Tom cobble and all. The retailers however are the ones who know, but even then I don't see Hattons, Rails, Derails, Kernow or Hobby shop etc seeing me standing above the crowd.

 

Retailers with the muscle to commission their own tools have major benefits over manufacturers, they can tell what sells and at what price, not just by one manufacturer but all of them. Secondly, knowing they could have the mailing list to support the sale, they have the distribution, and lower commissioning cost overheads (no annual catalog, sales & marketing teams, extra HR etc), and finally when they sell, they are selling at a comparative RRP to other models, and so take not just a retail sales margin, but a manufacturers margin too.

 

If we theoretically deconstruct a £100 RRP locosale:

 

that could be £20 VAT, £20* retail margin, £60 trade.

Then work back the £60 trade as £10 margin, £10 overhead, £20 tooling, £20 for the model.

So a retailer going direct: £20 tooling+ £20 model+ £20 vat your looking at £40 margin*.

 

if your lucky enough to hit the jackpot and do a repeat run, with the tooling fully amortised, your looking at a £60* margin (assuming the £ and China's'/UK's inflations hold out and you didn't borrow to finance it).

 

Consider many models are sold with a 10-15% discount from RRP the retailers selling that loco not with £20, but maybe just £5 margin, it's not hard to see why going the commission route is attractive.

 

Now on a £5 margin, how do you finance a £5000 p.mth retail space in Westfield when your customers know that ebay, mailing lists, Facebook etc all exist sending offers shipped from a warehouse if your price is £1 higher than theirs ? Lego and Apple can afford to do this, as by enlarge that competitive threat doesn't exist.

 

In 2017, I'd wager the bulk of business is anonymous and online, as this represents the fastest, easiest and cheapest way for most people to pursue the hobby. It also is the most cost effective, as business can be a warehouse rather than a mall, If it wasn't there wouldn't be 100k items in the oo gauge category on ebay every day. I'd expect more manufacturers with the clout to be able to do this.

 

How can Hornby combat this, well look at Rail's Q1.. 250 locos off an extra run of production, what "extra" did it cost Rails, an ad on RMWeb, a post on Facebook and an email to customers.. and 50% were sold with 48 hours at full RRP before the items were in stock. And Hornby, well a guaranteed low risk sale of 250 right off the bat shipped in one shipment to a single reliable retailer without any extra "tooling cost". This has to be an attractive way of countering the threat, and expanding this approach beyond NRM locos could well pay off.

How can smalił retailers get a slice of this action, Perhaps a smaller shop could take the lead on a run and sell bundles to two or three others as a means to reduce the cost/risk but still get benefit ? - bit like Bachmanns rep's editions.

 

* - I know there's other costs and I'm being simplistic, but this is just theory, roll with it.

Edited September 16, 2017 by adb968008

[Clearwater]

For those of you worrying about the supply of future enthusiasts, my younger son is currently captivated by a simple oval. He's worked out that dials make the trains stop and start and is excitedly shouting "ch ch ch" - his current word for train.

 

David

[Gerald Henriksen]

I agree with a lot of what's been said in the last few posts and would suggest the current business of the Hornby Pecketts and Hatton's Barclays offers an insight into where the hobby is going.

 

First the Peckett. Absolutely superb model and popular beyond all expectation, but absolutely invisible to the world at large. It has no high street presence. Hornby initially released it in three liveries; a well tried model [no pun intended] which ought to have been sufficient to offer a degree of variety and broaden its appeal. This was successful insofar as they sold out completely in a ridiculously short time. Now we're promised a single livery release in March?, another very shortly afterwards and a third towards Christmas.

 

Hatton's on the other hand are offering multiple liveries of the Barclay [and the Austerity, and the Southern jobbie and...] and once they sell out the next run, if it happens, will no doubt be equally diverse. They can do this because they have no network of retailers. Everything sits in a single inventory and all goes direct to the customer by post. 

 

 

Your mixing choices made by respective businesses with their business model.

 

There is nothing inherent in their respective business models that forces them to offer models they way they are, if anything it can be argued that Hattons has seen the light and moved into the "modern" way and Hornby (and others) are still doing things they way they always have.

 

Hornby could (and likely should) change and offer multiple livery option with each release of their models as many other model train companies around the world manage do to.  It would be healthier for the hobby as it means modelers would be able to get what they need in a timely manner instead of wondering how long (or even if) a given model will ever appear in a form they want or need.

[Dunsignalling]

I'm not entirely convinced that the small batch sizes model locos are produced in these days necessarily correlate to a drastic reduction in the overall size of the hobby.

In terms of decline, I think it depends whether you're talking about the size of the hobby or the vibrancy of the rump hobby. In terms of the rump hobby I think most agree we're living in great times with all sorts of suppliers providing wonderful products (including Hornby, in all the praise heaped on some of the newer vendors it is easy to forget just how good the current Hornby product is), I also think it undeniable that the hobby is much smaller. I think the current apparent health of that is a strange, counter-intuitive confirmation of that. We are now seeing RTR models that would have been considered niche for kit producers not that long ago, manufactured to remarkable levels of detail and finish. However, they're being produced in small numbers and clearly looking to fully amortise development costs over the initial runs, as opposed to older times when tooling would be re-used year on year and "limited editions" were made in numbers that'd over saturate todays market.
That in a sense is positive as it indicates that model trains are no different from other hobbies in finding a niche and adjusting its supply chain to fit that niche. However it does have implications for business models and carries a price premium.

 

 

 

 

The number of new models produced each year has increased dramatically. In my early teens it was normal for there to be nothing new to buy and one would catch up on earlier stuff that one didn't have. Nowadays, the concern is more that too many of the new releases will come along together and stretch the finances!  

 

Intuitively, the move towards less "mainstream" releases is a symptom of manufacturers deciding that selling new product to existing customers is easier than attracting new ones. There's nothing new in this, in fact, it is a universal truth in consumer capitalism. What it also indicates though, is that the industry has become reliant on a smaller client base buying more items per capita, which may not be healthy in the long term.

 

Back in the day, excluding Hornby Dublo which was out of my grasp financially, if I was going to save up for or be given a new loco I had maybe 20 Tri-ang locos to choose from. 5 or 10% of what was on offer. Next year I'd have a similar choice but 18 of them would be the same as in year one. Thus, in any given year, there'd be 19 I didn't buy.

 

Nowadays, I'm much more flush, but more new models are made that fit my particular interests in most years than in the whole of the 1960s and 70s combined. I therefore have to (and want to) concentrate my spending on those items. As a result, things that I would have leapt at as a lad, get left on the shelf. For example, Bachmann's C, ignored because using it would have meant invoking Rule 1 when the Hornby Black Motor is something I have always wanted and doesn't require me to make excuses.

 

Between the various OO brands, and including everything with a motor in, plus multiple livery/number choices, I must have at least 100 potential new purchases to decide upon per annum. On average, lets say I buy 10, leaving 90 that I don't. Either way, that's still around the same percentage take-up BUT, most of the ninety I ignore will be gone by next year and I'll have a new hundred to choose from and a new ninety to not buy!     

 

Tricky.

 

On a more positive note, I've just returned from the excellent Culm Valley MRC exhibition at Willand; a smallish but very well-run show with good layouts, excellent refreshments and a limited trade presence. It was encouraging to see plenty of youngsters in evidence, accompanied by parents and grandparents. Many of them may have a modest train set already or will campaign to receive one next Christmas. It will be their fond memories of it that will provide the trigger for some of them to become lucrative customers for the model railway trade in three or four decades time.

 

However, this also means that an awful lot of us will just not be around to see how current inspiration translates into future participation. Maybe it's best to enjoy our hobby for what it is now and not worry ourselves too much about long-term change that, for good or ill, simply isn't going to affect us?

 

John

Edited September 16, 2017 by Dunsignalling

[The Johnster]

Well I'm in my 40's, and there's no way I'm saying how much I spend a year, other than no figure suggested on this thread comes close.

 

I bought my first loco (D824 Highflyer for £9.99 from Railmail c1981/2 paid by Postal order, so I've been a remote buyer since Christmas money from grandparents days). 45691 followed a year later at £16.95 and in 1984 I used my holiday money to buy a Lima 9400 for £10 spending much of the summer broke, but looking at it.

Since then model railways has been in my life at every stage.

 

So I don't fit the demographic, age profile nor spending profile being commented on above.

 

Secondly, I rarely ever set foot in a model shop, I only have 3 shops that I know of, in a range of 30 miles from me. If a shop was in a mall I'd probably try to avoid it, as the prices are invariably unattractive at such locations.

 

As for feeling special, well I have the million air miles and lifetime status, and the airlines do sit and take notice of you, but in model railways, I very much doubt any manufacturer (well there is one but I'm not engaged with them), knows I exist, nor probably care, which is the same for me, nor any Uncle Tom cobble and all. The retailers however are the ones who know, but even then I don't see Hattons, Rails, Derails, Kernow or Hobby shop etc seeing me standing above the crowd.

 

Retailers with the muscle to commission their own tools have major benefits over manufacturers, they can tell what sells and at what price, not just by one manufacturer but all of them. Secondly, knowing they could have the mailing list to support the sale, they have the distribution, and lower commissioning cost overheads (no annual catalog, sales & marketing teams, extra HR etc), and finally when they sell, they are selling at a comparative RRP to other models, and so take not just a retail sales margin, but a manufacturers margin too.

 

If we theoretically deconstruct a £100 RRP locosale:

 

that could be £20 VAT, £20* retail margin, £60 trade.

Then work back the £60 trade as £10 margin, £10 overhead, £20 tooling, £20 for the model.

So a retailer going direct: £20 tooling+ £20 model+ £20 vat your looking at £40 margin*.

 

if your lucky enough to hit the jackpot and do a repeat run, with the tooling fully amortised, your looking at a £60* margin (assuming the £ and China's'/UK's inflations hold out and you didn't borrow to finance it).

 

Consider many models are sold with a 10-15% discount from RRP the retailers selling that loco not with £20, but maybe just £5 margin, it's not hard to see why going the commission route is attractive.

 

Now on a £5 margin, how do you finance a £5000 p.mth retail space in Westfield when your customers know that ebay, mailing lists, Facebook etc all exist sending offers shipped from a warehouse if your price is £1 higher than theirs ? Lego and Apple can afford to do this, as by enlarge that competitive threat doesn't exist.

 

In 2017, I'd wager the bulk of business is anonymous and online, as this represents the fastest, easiest and cheapest way for most people to pursue the hobby. It also is the most cost effective, as business can be a warehouse rather than a mall, If it wasn't there wouldn't be 100k items in the oo gauge category on ebay every day. I'd expect more manufacturers with the clout to be able to do this.

 

How can Hornby combat this, well look at Rail's Q1.. 250 locos off an extra run of production, what "extra" did it cost Rails, an ad on RMWeb, a post on Facebook and an email to customers.. and 50% were sold with 48 hours at full RRP before the items were in stock. And Hornby, well a guaranteed low risk sale of 250 right off the bat shipped in one shipment to a single reliable retailer without any extra "tooling cost". This has to be an attractive way of countering the threat, and expanding this approach beyond NRM locos could well pay off.

How can smalił retailers get a slice of this action, Perhaps a smaller shop could take the lead on a run and sell bundles to two or three others as a means to reduce the cost/risk but still get benefit ? - bit like Bachmanns rep's editions.

 

* - I know there's other costs and I'm being simplistic, but this is just theory, roll with it.

 

 

The point you make about mail ordering is a very valid one, adb, and I suspect that my persistent use of a (very good) local model shop is, in not already a minority way of buying models, well on the way to becoming so.  It is a hobby that has always lent itself readily to this kind of selling, and I have been aware of it from the earliest days of my taking magazines, about 1965.  Smaller items were often only available in this way, and a teenage Johnster sent of many a postal order for things he couldn't get locally.

 

The internet has made a massive difference to this side of the trade, and the big manufacturers offer all their products in this way, which means that the only way a retail outlet can compete is by discounting or persuading punters in to buy stuff they can't get elsewhere and hoping the 'wow' factor sells a few loco or vehicles.  This suggests a low overhead operation, and not a mall presence.  I think the mall presence is a busted flush for the moment to be honest; the big chain operators like Beatties and Model Zone have failed, and the Antics in my town is very much at the edge of the central shopping area, certainly not in mall territory.  These were or are general modelling stores with a selection of railway items limited compared to a proper model railways shop, so how a glitzy full on mall Mac Store like outlet would manage to sell enough to keep going is beyond me.  Maybe one, in London, which could be a part of days out in the big city, somewhere in the West End.

 

By the way, looks like Lego can't afford to do it...

 

I think Hornby in general know what they're doing; they are supporting the 'modellers' side of the trade pretty well, but need a high street/mall/mail order/Argos type of presence for train sets, which still provide enough income to be worth marketing.  In fact, they are very cheap to produce, as long as the items in them are either available from the general range (Flying Scotsman and teaks) or amortised stuff not good enough for the general range (Caledonian Flyer).  But train sets are, IMHO and for various reasons outside Hornby's control, a very poor way of introducing people to the hobby, however many of my generation started that way and look back fondly at them.  I never wanted a train set for xmas (delighted though I was when I got one), I wanted a model railway, even when I was 6 and didn't really know what one was.  My Triang ex Rovex black princess, 7 inch coaches without a guard's van, and sharp curves were, I knew even then, toys, and I was much happier the next year when there was more track, some points, and (pivotal moment) a Jinty and some wagons that looked not unlike some of the real trains I'd seen (though even then I craved a pannier tank).  One possible definition of a railway modeller is someone who is never quite satisfied with RTR, and never was!  Hornby's current mistake, if you can call it that, is Railroad; the range is not sufficiently separated from the 'proper' range and overlaps a bit; it needs IMHO to be marketed very separately and perhaps through separate outlets to provide it's true benefit to the company, and perhaps it's purchasers.

 

 

Bachmann are a in a bit of a different position.  They are a subsidiary of a much bigger company with the clout and turnover to make a decent living out of model railways, and are major players in a worldwide market.  This means they are not as reliant as Hornby on train sets, but still do them presumably because they are profitable rather than as an introductory drug to get 'em hooked.  But they are still not in a position to open up a Mac Store type of operation, not if they want to stay in business!

[The Stationmaster]

I think the test will come in a few years. I'm 46 (going on 47) and am probably one of the last age groups that remembers when a train set was high on the list of most boys Christmas wish lists at some point in their lives, can remember when almost all boys had at least some exposure to hobbies like plastic kits and toy soldiers and when most towns of any size had a decent model shop and many department stores had decent model departments. I grew up in Carlisle, I can remember G&M Models (the business that became C&M after a change of ownership and is still going strong), Classic Models (not into trains but superb for kits and RC), O'Loughlins (excellent for kits, trains, soldiers etc), Clydesdale toys which had a great train section and Easton toys on Lowther Street which had an excellent model section. And some of the department stores had decent selections of models (mainly kits admittedly). And Carlisle wasn't especially untypical. So I'm from a generation in their 40's that remembers modelling from their youth. Whether the 20 and 30 somethings will and have the same urge to return to modelling in older age will be interesting.

 

Ah, so if my maths are correct you were born c.1970.  At which time, and indeed a year or two earlier - the pundits in the magazines were declaring that model railways were dead, that with the end of steam no one would ever again be interested in real railways so wouldn't model them, that youngsters were not interested in railways and/or model railways in any case as all sorts of other exciting toys and pastimes were attracting them away from the hobby.  While one swallow obviously doesn't make a  summer it would seem that you have been quite adept at proving that lot of pundits wrong - the hobby has very definitely changed since and in most respects it has been a change for the better.  

 

So maybe we should also remember that what has been around will forever come around and that includes talking down the future of the model railway hobby.  So now I'll pivck on another post from you (sorry JJB - but they're excellent illustrations so well worth quoting) -

 

In terms of decline, I think it depends whether you're talking about the size of the hobby or the vibrancy of the rump hobby. In terms of the rump hobby I think most agree we're living in great times with all sorts of suppliers providing wonderful products (including Hornby, in all the praise heaped on some of the newer vendors it is easy to forget just how good the current Hornby product is), I also think it undeniable that the hobby is much smaller. I think the current apparent health of that is a strange, counter-intuitive confirmation of that. We are now seeing RTR models that would have been considered niche for kit producers not that long ago, manufactured to remarkable levels of detail and finish. However, they're being produced in small numbers and clearly looking to fully amortise development costs over the initial runs, as opposed to older times when tooling would be re-used year on year and "limited editions" were made in numbers that'd over saturate todays market.

That in a sense is positive as it indicates that model trains are no different from other hobbies in finding a niche and adjusting its supply chain to fit that niche. However it does have implications for business models and carries a price premium.

 

Undoubtedly they are being priced to amortise development costs over the initial run (commercial suicide to not do so in this day and age I think) but perhaps a need to define 'small numbers'?  

 

Clearly smaller than say, an old Triang-Hornby/Hornby model which 10,000 or 20,000 but - as you say - that was over an extended period of years and I think a lack of variety in detail and livery over whatever period simply won't work in today's market.  The end purchasers (us) now want our product in a different way from the way we were prepared to put up with even 25 years ago let along back in the 1970s.  Thus many of the niche models appearing now withe variations in livery and detail might well - for all we know - be based around a 'core' tooling which can easily account for the detail variations at no extra cost and allow the tool to be used over its natural working life to produce all those detail variants.  So in what total quantity might some of these niche models be produced over a period of years?  Nobody will tell us, understandably, but I would place good money on more than a few of them - especially some of the 'nice little engines' (various) running well into the thousands.   Hornby's Peckett appeared in three liveries so let's assume there were only a thousand of each livery - immediately it's up to 3,000; with 3 more variants coming next year that might mean another 3,000 so 6,000 in total.  Even if there were only 750 of each version next years release at a similar level would push the total to 4,500 - still a long way short of 20,000 of course but with plenty of other variants available for future years the total could readily grow.

[Gerald Henriksen]

Intuitively, the move towards less "mainstream" releases is a symptom of manufacturers deciding that selling new product to existing customers is easier than attracting new ones. There's nothing new in this, in fact, it is a universal truth in consumer capitalism. What it also indicates though, is that the industry has become reliant on a smaller client base buying more items per capita, which may not be healthy in the long term.

 

 

Alternately, it is an indication that the hobby is maturing and that more emphasis is placed on accuracy and recreating the prototype (whether that be actually following the prototype or being more prototypical in a freelance approach) than just running a bunch of trains around in circles for the sake of it while taking advantage of capabilities in manufacture that didn't exist decades ago.

 

If you look at layouts 40 years ago there tended (at least in North America) to be an attempt to fit as much track onto the layout as possible to the point where many layouts were all track with almost no room for anything else.

 

These days we tend to want to be more realistic, to the point where some layouts have almost no track and are mostly scenic elements.

 

This has been driven by a number of factors, including:

 

- more access to prototype info, not just an abundance of books but the Internet has brought about a sharing of information (whether it be photos or data) that was impossible in the past(*)

 

- an interest by manufacturers to make models as accurate as they can, rather than just "it looks good enough", leading to detail differences and even accurate colours - just look at the recent Engine Shed regarding either the white box on the Class 87 or the colours on the steam engine.

 

- cheap 3D CAD, combined with the Internet, allowing for multiple iterations of a model design to occur in a (relatively) rapid pace at little to no additional cost - at least compared to the past of drawing by hand on paper - combined with 3D laser scanning making a level of accuracy possible that was previously impossible.

 

- the ability, thanks to relatively cheap labour in China, to make smaller production runs thus enabling what would in the past be impossible models of niche prototypes, multiple liveries and/or unit numbers, or even various differences of an existing prototype (class).(**)

 

- the rise of accurate models allowing modelers to shift their time elsewhere, leading to more time spent on scenery and other elements of a layout

 

- laser cutting and other developments, which combined with the time element, mean it is now possible to create / have created an abundance of different structures to be built for a layout, often now to the point where you can easily model a specific structure without having to spend a lot of time scratchbuilding

 

- 3D printing, which while it still has many limitations, offers an abundance of opportunities to create custom items.

 

All of these things mean the hobby has changed over the years (a good thing, because if it didn't change then it would be in trouble), but none of it means the hobby is in trouble.

 

The move to niche models is in my opinion not a case of trying to sell to existing customers in a shrinking market, but rather just reflecting that the market has changed, and for the better.  In fact you can view it as helping to expand the market as people who have a niche interest now have more change and opportunity to get the models that interest them.

 

It is now possible, thanks to models in the last 5 years, for someone to have a go at modeling the Southern 3rd rail operations, which makes possible layouts that would have been very difficult in the past.  Is this a reflection of the existing customers abandoning their GWR branchline layout, or opening up opportunities to new customers?

 

Lionel Strang, on his podcast, has interviewed a number of North American manufacturers, and he always asks them what they think about the health of the hobby, and they all respond that they believe the hobby is growing (and it is based on either increasing sales, or sales remaining strong for niche items that if the hobby was shrinking would have no sales anymore).  Now, its possible the UK market is different, but when I look at what is available, and the new entrants, I find that difficult to believe.(***)

 

* today you can go somewhere like RMweb and ask about a particular prototype, in a specific part of the country, in a specific year, and likely find at least 1 person willing to either directly share information or point you in the right direction.  Try that in 1980.

 

** the other side effect of smaller production runs is that more models can be available at any given time.  So instead of selling 20,000 locos of 2 prototypes in a year, you can now sell 10 or more prototypes who still amount to 20,000 units.

 

*** a couple of days ago I listed the newly tooled models that Hornby had announced in the last 12 months, it came out to 5 unique models, 2 common models (2 variations of the Mk1), and a "small" amount of tooling to update a Railroad model.  So call it 6.5 models.  At the same time in 4mm we had (from big companies, small companies, magazines, and retailers) 20+ other new tooled models plus 1 bus announced (not included are new tooled models announced more than 12 months ago but yet delivered).  Add in Hornby and that's more than 27 new models announced, with a rough estimate of £2 million of investment in 4mm alone.  Doesn't sound like a hobby in decline to me, and of course that doesn't include the rise of 7mm RTR or stuff announced in 2mm.

[adb968008]

 

If you look at layouts 40 years ago there tended (at least in North America) to be an attempt to fit as much track onto the layout as possible to the point where many layouts were all track with almost no room for anything else.

 

These days we tend to want to be more realistic, to the point where some layouts have almost no track and are mostly scenic elements.

 

 

 

I'm still behind the times, way behind.

 

I have a mass of track on 4 levels, with each set of sidings, loops given a station name (sometimes pseudonyms to allow multiple regions to be covered), have a timetable (1500 trains in a "day" that takes me about 2 years to complete a day), shed rosters and distinct paths / routes (I have a regional route map) that services follow, even loading restrictions as some trains go as much as 24 inches difference in height during a journey on varying gradients 1 of which is silly, planned loco changes...

 

Its a lot of Admin to ensure there are paths and platform capacity, but I love that part just as much as the shunting, as well as sorting out the inevitable mess when something causes delays, when something goes bump, time and timetable carry on.

 

Scenery, thats for retirement when I've more time, today I want to play trains as I have to balance life between family and work too, having all the Admin above means I can restart the clock where I left off, as soon as I plug in the controller.

 

 

** the other side effect of smaller production runs is that more models can be available at any given time.  So instead of selling 20,000 locos of 2 prototypes in a year, you can now sell 10 or more prototypes who still amount to 20,000 units.

 

 

I don't think there's that many new tools produced since 2010 that can hit the 20k barrier for production, I'm not so sure there were many before it either since 2000. 

I'd imagine popular ones like Thomas, Pug, 08, 47, Scotsman, A4, Merchant Navy, Black 5, West Country all pre-2010 but models like 71000, P2, Crosti, they've been heavily done but doubt they reached 20k. In these pages somewhere is a mention of 6000 USA tanks, which is seen as a massive success, and there's lots of them out there still.

 

I suspect 3000-6000 is more the range now.

 

However the points of your post stack up, no way would someone in the 1990's suggest doing Kestrel, Lion, DP1, DP2 and the Bulleid Diesels as a rtr model as the decisions would probably be made on a 20k+ production run. I suspect the statistics of the APT-E only stack up because it's a train of 2 halves joined together, not 4 distinct tools, thus doubling the production numbers.

 

However that the costs of tooling for 3000-6000 is matched by sufficient market price to support this quantity is allowing us models to be made that was never before possible and that in itself is stimulating the hobby. 

The concern is that this is unicorns blood and each new tool reduces the hobby life by half, there is a growing pile of "limited" and "exclusive" stuff out there, which after release the left overs looks to be lingering on the shelves for years afterwards, obviously tieing up cash, reducing the return and delaying further investment.

 

Some ready to run European stuff has been made in quantities of 50 per livery, with a production run of less than 1000, but at a cost of nearly £500 per loco and it's not brass !

Edited September 16, 2017 by adb968008

[farren]

I can't understand why Hornby was ever floated in the first place. A small company producing low volume high prodution cost with small profits margins.

[Gerald Henriksen]

I'm still behind the times, way behind.

 

I have a mass of track on 4 levels, with each set of sidings, loops given a station name (sometimes pseudonyms to allow multiple regions to be covered), have a timetable (1500 trains in a "day" that takes me about 2 years to complete a day), shed rosters and distinct paths / routes (I have a regional route map) that services follow, even loading restrictions as some trains go as much as 24 inches difference in height during a journey on varying gradients 1 of which is silly, planned loco changes...

 

The danger of generalities.

 

One of the big advantages of trains as a hobby is that there is room for all sorts of interest and focus.

 

Even with the move to realism, there is still the ability (and certainly a segment of the hobby) that just wants to runs trains, and sometimes lots of trains, without worrying about scenery or anything else.

 

There are even some people who the building of models, whether it be locos, wagons, or structures, is all that matters and have no interest in actually running trains.

 

There is nothing wrong with that.

 

 

However the points of your post stack up, no way would someone in the 1990's suggest doing Kestrel, Lion, DP1, DP2 and the Bulleid Diesels as a rtr model as the decisions would probably be made on a 20k+ production run. I suspect the statistics of the APT-E only stack up because it's a train of 2 halves joined together, not 4 distinct tools, thus doubling the production numbers.

Yes, most of the models couldn't have been done (well, at least on a financially successful basis) in the past.

 

But there is also a great deal of knowledge, guesswork, and "gut instinct" involved in deciding what to make.  As anyone can see online there isn't always a logic to the purchases made.  A lot of purchases are impulse (sort of stretching that on a many month pre-order admittedly), because one likes the look, or fondly remembers it even though it doesn't match their layout, or based on uniqueness.  Thus models that make you scratch your head can be successful, yet at other times a model won't succeed.  Then there are the buyers who never actually run the models, but do it for collection reasons.

 

This is why to be successful in the hobby as a company it helps to have an interest in the hobby while still having the business side in the back of your mind.

 

 

However that the costs of tooling for 3000-6000 is matched by sufficient market price to support this quantity is allowing us models to be made that was never before possible and that in itself is stimulating the hobby. 

The concern is that this is unicorns blood and each new tool reduces the hobby life by half, there is a growing pile of "limited" and "exclusive" stuff out there, which after release the left overs looks to be lingering on the shelves for years afterwards, obviously tieing up cash, reducing the return and delaying further investment.

Those companies (whether manufacturers or retailers) who adapt will survive, those who don't wont.  But the hobby will go on because someone else will replace any who fail - and there are lots of examples in the history of this hobby to prove that point.

[JSpencer]

For those of you worrying about the supply of future enthusiasts, my younger son is currently captivated by a simple oval. He's worked out that dials make the trains stop and start and is excitedly shouting "ch ch ch" - his current word for train.

DavidIMG_5585.JPG

My son finds the whole lot boring, but my daughter is captivated and makes quite some complex operations for a 6 year old. She often asks to go to the train room. Hope it lasts...

[JSpencer]

Hello all,

 

I have found this thread very interesting, so thanks to all contributors.

 

I think the way forward is to stop fixating on model trains being "toys" and needing to appeal to children.

 

I think model railways should be reframed as a creative hobby to be enjoyed at any age; much like scrap-booking, flower arranging or needlepoint.  Judging by a recent trip to Hobbycraft all these hobbies are thriving and appear to see no need to appeal in any specific way to children; though it's quite likely that parents and children may enjoy any of them as a shared activity.

 

Yes, model trains are at the heart of the hobby but there is so much more to it - woodwork, IT, painting, scenic modelling, collecting - that I think the breadth of the craft opportunities should be emphasised.

 

cheers

 

Ben A.

Ours seems to be a craft hobby without evening classes!

[adb968008]

Ours seems to be a craft hobby without evening classes!

That's what the club is for :-)

[asmay2002]

Johnster.

 

I'm afraid that you are not right.  As I alluded to in post 3051, you have to consider the time value of money.  Applying a 15% discount rate means that in 10 years, the point at which our fictional 10 year old who has stayed a railway modeller and is now spending the same as the now 70 year old, the value of the spend in year 10 is only about 25% of the value of the money in year 0.  By year 20, when the 60 year old has stopped spending and hence the 10 year old can start catching up with the spend, that discount factor (1/(1+discount rate)^20) is only c.5%  That discount continues to decline making it harder for the spend of the young modeller to catch up with the high spending pensioner.Therefore, the younger modeller has, in real terms, to be spending about 12x as much as the 60 year old had been spending.

 

Now think of it from a corporate perspective, are you going to a) target those people who are spending now and make money whilst you can or b) target a more competitive youth market with the hope a few stay and then outspend the previous generation?  It's a no brainer.  Discount rate has to be c6% on these assumptions for the young modeller to be more attractive financially.  That is an absurdly low rate for a company with Hornby's risk profile.

 

See attached outputs

Graph.JPGCapture 2.JPG

 

Now you can manipulate the figures to change the answer but what's clear is that a higher spending customer today is almost certainly worth more to the company than a future prospective customer who *may* spend more than those existing customers in the longer term.  If anything, judging by most RTR threads, I'd say there's a fair number of 60 year olds spending considerably more than £200/year with Hornby... That would skew the analysis even further in the direction I've indicated.

 

David

I don't disgree with your overall conclusion but I would question your maths. Treasury discount rate is 3.5% and has been since 2003 (before which it was 6%).  15% is an absurdly high assumption.  The problem with the hypothetical 10 year old is that there is going to be a large gap in the middle where he spends nothing and a high drop out rate of people who lose interest. When (s)he comes back to the hobby the spend will be at the "old people" rate.  In other words you will get a bit now and a very discounted further sum way into the future if you get lucky and (s)he comes back.

[The Stationmaster]

I can't understand why Hornby was ever floated in the first place. A small company producing low volume high prodution cost with small profits margins.

 

I'm not with you on that - what exactly do you mean by 'Hornby ... being floated in the first place'?  The history of the company currently bearing the name has had a pretty complex history and you can't really consider its present situation without considering that history and the various twists and turns it has followed, let alone the fact that it was floated in 1986 in a very different situation from today.  Presumably the reason for floating the company, 5 years after the 1981 management buyout, was for exactly the same reason that any other company goes to the stock market, a need to raise capital by other than borrowing.  But of course once a company has issued shares it could be said to have acquired a millstone of its own making around its neck but I doubt any company which has dome so thought it would be doing that.

 

In 1986, when it went to the market, Hornby Hobbies was already a bit more diverse than a just being a maker of toy trains and it obviously decided that it needed capital for whatever reason and in order to develop whichever of its various product lines and/or in order to further diversify.  No doubt the original prospectus (if anyone can trace it) will tell us exactly why the company sought capital through a public share issue.  But if that prospectus is not forthcoming we are really doing little more than making vaguely educated guesses.

 

To put things even further in context don't overlook the fact that in 2007/8 the company made a profit of nearly £9million and paid a dividend of 8.5p per share.  The troubles really began with the Sanda Kan collapse in 2012 and the consequent loss of model railway production and resultant lack of product to put into the market place.  The ever mounting losses, coupled with some atrocious management decisions such as the Olympics debacle, led to all sorts on internal reviews and changes but in some cases the changes did little to restore the company's fortunes because it made the mistake of bringing in people who didn't know the company's core markets but who simply proffered expensive ideas of even more diversification such as buying licences to sell outdated fads in teh toy market.

 

The problem as I see it now, and have said before, is that Hornby seems to be carrying a very expensive top end organisation for the level of business it manages to generate and for the business areas which it is in.  To justify those sort of overheads it really has to achieve far better returns but it is always questionable if its product ranges will actually allow that.  If it was run by a small top end managerial team which drew to an even greater extent on the innovation and market awareness which exists in certain parts of the company it would probably do much better - and the last thing it should be employing is 'marketing experts' from the toy industry or other consumer areas.  What it needs are product innovators and knowledgeable marketeers with the right background - I think it is still not hitting the right buttons in that respects in the wider company context.  But, fortunately for us, at least the main range model railway side is doing it right and going from strength to strength - the trouble is that it alone can't carry a company of this size be it one that is privately owned or is placed on the stock market.

[Clearwater]

I don't disgree with your overall conclusion but I would question your maths. Treasury discount rate is 3.5% and has been since 2003 (before which it was 6%). 15% is an absurdly high assumption. The problem with the hypothetical 10 year old is that there is going to be a large gap in the middle where he spends nothing and a high drop out rate of people who lose interest. When (s)he comes back to the hobby the spend will be at the "old people" rate. In other words you will get a bit now and a very discounted further sum way into the future if you get lucky and (s)he comes back.

I was picking up someone else's suggestion on figures. On discount rates, I disagree. Yes the figures you quote are theHMT rates but Hornby is a small retail company in a declining market. It has no debt financing to reduce its cost of capital. If i was financing equity in a water utility, I'd be looking for a high single digit return (8-9%) or say 6% over the risk free rate. If you look up, say Severn Trent, you can get a dividend yield of c4% plus some capital growth. Other comparators with highly predictable project cash flows, e.g. INPP, give c5% yields. Hmt's rate is low to help favour ultra long term decision making. If it were any higher, you'd never get a case for projects like HS2.

 

If a Private equity firm was looking to buy Hornby, they'd be looking for a 20% IRR. As such, I don't think 15% is a wholly unreasonable assumption for the risks and variations in the calculation we're discussing. If I was actually appraising this as an investment, I'd do a number of scenarios including the one you suggest but agree the conclusion wouldn't change

[Ozexpatriate]

If a Private equity firm was looking to buy Hornby, ...

It feels like this has already happened in so far as Phoenix is Hornby PLC's majority share owner.

[ianp]

It feels like this has already happened in so far as Phoenix is Hornby PLC's majority share owner.

 

This is what Phoenix (PAMP) said when it bought majority control of Hornby in June. It sounds very supportive but in reality, as is the way of business, as clear as mud.

 

"PAMP continues to support progress made by Hornby towards a profitable and cash generative state. PAMP has no intention to change the locations of Hornby's places of business or to redeploy any material fixed assets of Hornby as a consequence of the Acquisition.

Following the completion of the Offer, PAMP intends to increase its understanding of Hornby and its longer term strategy for delivering further earnings growth following the completion of its 7

turnaround strategy, by entering into further discussions with its management and the board of Hornby.

PAMP believes that Hornby has an attractive portfolio of brands and it is PAMP's intention to work collaboratively with the management and the board of Hornby to review all strategic options for the business including, but not limited to, acquisitions, disposals, licensing agreements, funding requirements together with management and board composition. The motivation for PAMP in any such discussion will be to optimise long term value for all Hornby Shareholders. Until the detailed review of Hornby's strategy is completed, the details of any changes to Hornby's strategy are not yet known and no decisions have yet been made by PAMP in relation to specific actions that it would seek to take.

PAMP recognises the importance of the Hornby management team and employees to the future success of Hornby. As the review of Hornby's business has not yet been completed, no decisions have been made by PAMP on its long-term intentions for Hornby. Until such review is completed, PAMP cannot be certain whether any changes will be necessary. Likewise, if changes are necessary PAMP cannot be certain of what the effect of any strategy changes will be on Hornby's employees and management."

[JohnR]

Of course, another reason for floating a company such as Hornby in 1986 is for the original investors (in the management buy-out) to realise their investment. 

[The Johnster]

This is what Phoenix (PAMP) said when it bought majority control of Hornby in June. It sounds very supportive but in reality, as is the way of business, as clear as mud.

 

"PAMP continues to support progress made by Hornby towards a profitable and cash generative state. PAMP has no intention to change the locations of Hornby's places of business or to redeploy any material fixed assets of Hornby as a consequence of the Acquisition.

Following the completion of the Offer, PAMP intends to increase its understanding of Hornby and its longer term strategy for delivering further earnings growth following the completion of its 7

turnaround strategy, by entering into further discussions with its management and the board of Hornby.

PAMP believes that Hornby has an attractive portfolio of brands and it is PAMP's intention to work collaboratively with the management and the board of Hornby to review all strategic options for the business including, but not limited to, acquisitions, disposals, licensing agreements, funding requirements together with management and board composition. The motivation for PAMP in any such discussion will be to optimise long term value for all Hornby Shareholders. Until the detailed review of Hornby's strategy is completed, the details of any changes to Hornby's strategy are not yet known and no decisions have yet been made by PAMP in relation to specific actions that it would seek to take.

PAMP recognises the importance of the Hornby management team and employees to the future success of Hornby. As the review of Hornby's business has not yet been completed, no decisions have been made by PAMP on its long-term intentions for Hornby. Until such review is completed, PAMP cannot be certain whether any changes will be necessary. Likewise, if changes are necessary PAMP cannot be certain of what the effect of any strategy changes will be on Hornby's employees and management."

 

 

In other words, we're in charge now and we'll do whatever we want, only we haven't worked out the details yet, or if we have we're keeping them under our hat.  The key sentence in that statement is 'The motivation for PAMP in any discussion will be to optimise long term value (whatever they consider that to mean) for all Hornby shareholders'.  Therefore, the interests of Hornby's board, employees, or customers are not part of PAMP's motivation, though we are free to speculate.

 

I would imagine that what will happen is that a somewhat slimmed down Hornby, cherry picked for the more profitable products (and these are not necessarily the big sellers, which may be loss leaders) will continue to be one of the big players, policy being in line with whatever PAMP's overall interests are.  One would need to look at what they have done with previous firms that have come under their umbrella to second guess that!

Edited September 19, 2017 by The Johnster