Hornby's financial updates to the Stock Market

[melmerby]

Is one of the problems that Hornby cannot properly price their product?

 

The new Collett's have been universally praised and at a keen price.(RRP £39.99)

 

Maybe they are underpriced for what they are and Hornby are not realising enough return on their production costs?

IMHO they should have been maybe £5 more comparing to previous releases. Even the non-teak versions of Gresley coaches are higher.

 

Keith

[Ron Ron Ron]

So a child gets a train set for Christmas. They'd like to add to it as a birthday present, but - no - their birthday doesn't coincide with the 4 weeks that whatever they want is allowed to be on sale.

 

The child's train set example is the wrong one IMHO and irrelevant to to the argument you're trying to put forward (which is a good one by the way).

There's a very big difference between the markets for little kid's and big kid's toys.

 

 

.

[7013]

I like many others echo the sad news of Hornbys dilemma, but they have not gone under yet so we should refrain from post mortem too soon. I do not come from a business background so I cannot comment on the technicalities. However from a modellers perspective it appeared Hornby had turned the corner with some superb products announced and released. We were reading the last rites over Hornby when they embarked on the ill fated Design Clever range, however they appeared to have sorted out their manufacturing problems in China, listened to its customers and to all intent and purpose were well on the road to recovery prices certainly compare favourably with other manufacturers and with profits last year. So clearly the recovery despite looking good is precarious and it has not taken much to tip Hornby into the red.

Much depends now on the reaction by the banks and the Chinese manufacturers, if either demand payments that Hornby cannot make it will surely be snapped up by a Chinese or Japanese company, or maybe an American company wanting to get into the British market.

Whatever happens the future looks bleak at the moment. 

I am sure I am not the only person who is baffled by the apparent attitude Hornby has towards the model shops and its customers, not all of us want to buy direct from Hornby, we like to see the product, try it out, look at it and then decide whether to purchase. This served Hornby well in the past, if they do survive then perhaps they ought to start by building a relationship with the retailers and customers. When all is said and done whilst it is desirable to have Hornby in the hobby, and it would be a sadder hobby without them, the hobby will survive and carry on. 

[roythebus]

Maybe cash turnover is also a problem? As we all know there's far fewer retailers than there were 20 years ago. Retailers would order stock regularly from the rep, get the stock in a reasonable time frame and have a month to pay for it. It was then the retailer's risk how long it sat on the shelf for. Profit margins in my days working in toy and model shops was typically 33.3% mark-up on the trade price, making that a 25% gross profit for the retailer.  

 

With less retailers around Hornby have rather limited outlets for their products though the box-shifters may have taken up the slack where traditional shops have left off. As others have said direct selling may be a step too far. When I produced cast kits many years ago I preferred to sell direct, I made more money that way, but to get back tooling costs the cashflow was provided by wholesalers buying a couple of hundred kits at a time. 

 

With the cost of producing goods going down almost daily with the fall in oil prices, maybe Hornby's costs should reduce by an amount? I've stopped buying models more for personal financial reasons, but there's a few new bits I'd like to buy, not only from Hornby but others too. I tend to wait till after the rush when prices fall. Maybe some investment in the bargain basement of the stock market is a possibility.  

 

Edited to add maybe the Chinese manufacturers are demanding more payment up-front due to the shake financial situation there?

Edited February 11, 2016 by roythebus

[Stevelewis]

There  may be  a  problem on the  horizon with China,  some  may  have  seen  the  recent  TV News reports  of  massive  crowds  at  the  Railway  stations ... workers  returning home  for  the  holiday,   the  comment  was  that  many  of  them  will not  be  returning  to their  places  of  employment  as   they  were  closing  down  as   increasing  wages  were  making  them  uneconmical,  pics  were  also  shown  of buildings    housing the   factories  being  demolished.

 

One  of  my  sons  who travels  frequently to China commented   that  he  had been  aware of  this some  time  back.

 

I note  also  that Hornby share  price  continues to decline  this  morning,  now  less than  30p

Edited February 11, 2016 by Stevelewis

[Trains4U]

On what basis are you making that assertion?  It seems to be the general understanding that it's impractical for anyone outside the business itself to be sure about this, since the published financial information doesn't specify it down to this level of brand segmentation; and although Hornby themselves will (should!!) certainly know, the information remains within Management Accounts that are produced 'for internal use only'.

 

I'm basing that on what I'm selling!

 

the name of my business kind of gives away my main focus of trade, proportionally, sales have changed since 2012:

 

2012 - Proportion of Hornby sales divided by brand:

 

Railways           77%

Scalextric          13%

humbrol/Airfix   10%

 

2015 - Proportion of Hornby sales divided by brand:

 

Railways           69%

Scalextric          11%

Humbrol/Airfix   20%

 

 

Proportionally, Humbrol/airfix has doubled, whilst railways have shrunk considerably - and given that Trains4U is, first and foremost, a model railway shop, it is quite a concerning drop.

 

What is also interesting though is what is happening with Bachmann - Excluding Woodland scenics

Overall sales share is about the same as it was in 2012 (Approx 20% of my turnover)

 

but:

 

2012:

 

Bachmann Branchline    80%

Graham farish                20%

 

2015:

 

Bachmann Branchline  66%

Graham farish              34%

 

Which shows a significant growth in N gauge.

Edited February 11, 2016 by Trains4U

[Ron Ron Ron]

I've wondered for quite a few years now, whether the changing nature of the hobby and its demographic, has resulted in a mismatch between Hornby and the market it is trying to serve.

 

I don't know the answer and the idea might be rubbish, but is a company that is financially geared up to produce individual product items in several thousands of units, not the best equipped to deal in product runs of only 1 or 2 thousand max.?

In other words, are Hornby just too big to be playing in the the modern day market for limited runs of British outline RTR?

 

Not withstanding the desperate manufacturing and supply issues of recent years, they appear to be able to deal in an environment of much smaller production runs, but the suggestion that there's an over supply of models and the evidence in dumping stock through an endless stream of sales suggests otherwise.

 

Rather than it solely being case of people not buying due to pricing, there appears to be an element of over production and under-pricing at play too.

 

 

 

.

[highpeakman]

 

There's a very big difference between the markets for little kid's and big kid's toys.

 

 

.

 

I think that's a pretty big nail you just hit on the head!

 

It seems to me that there is confusion at Hornby about their markets. This applies to all of their brands equally but, because this is RM web, let's just address railway models for now. 

 

The range of product covers the top quality models and that market is mostly older and serious modellers and collectors with the cash to buy. Then there is the "Smokey Joe" kid's market - a low cost TOY market - opposite end of the scale to the previous range. Thirdly there is Railroad which sort of bridges the two. It is bought by modellers who can adapt (if they want to) into a better model but also allows cheaper entry into the modelling market but it can also be included in the upper end of the Toy market. Train sets should be included in the Toy market I think.

 

Over the last couple of years Hornby seem to have taken a "one solutions fits all" to addressing these very different markets - principally aimed at the Toy market I think. I should clarify to say that the products seem OK for their markets but the problem is in the way they "sell" them. i.e. ignoring the established trader distribution for the model markets.

 

I don't think they need to address the range of product (although I am not convinced by the range of trainsets available though - similar confusion about who these are aimed at seems to occur) but they do need to address their approach to each market and treat them differently. Look at what is successful and concentrate on that not lash out with new products that have no clear market.

 

My own industrial experience of dealing with large companies has shown that many of them arrogantly think they can take one approach fits all and a "because we have always been successful then we always will be" attitude. My own industry was electronics and so many of the biggest names from 20 years ago are no longer around or so reduced as to be relatively insignificant. They had the same attitude as the supermarkets have had until recently to both their customers and suppliers - it turned around and bit them. That was arrogance and/by bad management.

 

edit: minor mods to script.

Edited February 11, 2016 by highpeakman

[coachmann]

I recall running battles on here with redboxfan's during episodes ranging from 'design-clever' to treatment of retailers, arrogance, duplication and predator tactics. So where are the Hornby fans now? 

 

Oddly enough, my attitude towards the red box company changed a year or so back when it could be seen that their locomotives were not only back on super-detail track but had damn fine mechanisms and were friendly towards installment of DCC sound. Their carriages too were fine products except for needlessly flimsy detail. Since then my preference has been for Hornby locos which have been surprisingly inexpensive for what one is getting. To people that can paint, the Railroad locos are a snip! This latter point could be used to fill Hornby's coffers because it is no more expensive to paint these Railroad locos in proper historical liveries than it is to release them in liveries that often end up in the bargain basement sell-off's.

 

Where they p*ss people off is blurring the distinction between Railroad and up-market, as happens with the 'Hall'. £60-odd quid for a non-historical livery + moulded handrails and dart is one thing while £100+ for the same model in a correct livery displayed on the box with wire handrails is hard to swallow! They did eventually discount direct and I bought one before setting to with wire and knobs.

 

I hope they pull through with their Hornby model railway range when some of the finest locos we have today emanated from that company ..........D16, K1, 01, 38XX, Grange, Hall, Castle, King, 700, S15, Collett bow-ended coaches, Hawksworths, Maunsells, Gresley and Thompson suburbans and so-on.

 

LG

[DJM Dave]

So.

How long before we see "Hornby by DJM" ?

Bernard

Lol, now that's a brand name I'd love, but it won't happen......unfortunately. Lol

[NoggintheNog]

I mainly model US outline, so I can't say I have purchased, or really followed, much of Hornby's output for years. In fact, it was the poor standard of Hornby RTR 25 years ago that switched me to US outline, Athearn and Atlas output back then was light years ahead.

 

However I do wonder if this is partly to do with the hobby itself, in the last couple of years, US manufacturers have really tightened up on production volumes, they always had a pre-ordering thing, but they produced more and you could easily pick up a model after release. But that is getting more and more difficult as they produce the pre-orders and very little extra now, essentially the US market has become limited run built to order models. 

 

I suspect that ultimately, Hornby will have to follow this kind of model to survive, and if they are bought by someone like Walthers or Horizon, most certainly will.

Edited February 11, 2016 by NoggintheNog

[coachmann]

Unfortunately Hornby crapped in the nest as far as pre-ordering goes. When one never knew where clever-design and poor detail might rear its head, folk suddenly wanted to see what they were going to get before placing pre-orders. As dear Maggie once said :-  U can't buck the market. Of course all that is in the past now - we hope, and customers have a lot more confidence in Hornby today.

Edited February 11, 2016 by coachmann

[woodenhead]

Unfortunately Hornby crapped in the nest as far as pre-ordering goes. When one never knew where clever-design and poor detail might rear its head, folk suddenly wanted to see what they were going to get before placing pre-orders. As dear Maggie once said :-  U can't buck the market. Of course all that is in the past now - we hope, and customers have a lot more confidence in Hornby today.

That and people who pre-ordered then found that their model shop didn't receive their full quota leaving some people without models.

[grahame]

 

With the cost of producing goods going down almost daily with the fall in oil prices,

 

 

Ermm, have you not heard about the escalating labour costs, particularly in China, that accounts for a major share of total production cost?

 

G.

[Fireline]

Personally, I just hope that none of the Hornby rank and file staff read this thread. Y'know, the ones with mortgages, kids, and bills. The ones who could be really affected by this, rather than those whose hobby might be slightly stunted....

[JSpencer]

It is possible Hornby went from one extreme in that no products were coming to the other and saturated the market.

Last year we had 2014 and 2015 combined. Not all modelors could afford to buy everything they desired so they probably brought some things the needed first and postponed other purchases until next year.

 

The S15, excellent though it is and has been out a few months now, has not sold out anywhere. Feul has been thrown on the fire by adding new ones. 

 

They probably invested too much suddenly!

[Dunsignalling]

Well, as has been pointed out above, there is another way. There could be a collection of companies who buy the stock from Hornby as it's realeased, giving Hornby the cash-flow it needs. 

 

They could then store the stock themselves, perhaps in some convenient location where people could come and have a look at it before deciding whether to buy or not, and sell them over time either in person or over the internet. They could also provide the sort of customer service that Hornby appear to be unwilling or unable to.

 

However, Hornby appears to have decided that they don't really want to sell through model shops any more, which is a shame as I don't think a "buy it while you can" system is very healthy for the hobby. Seeing MK 1 coaches in the "last chance to buy" section on the Hornby web site seemed all wrong. Surely they are something you'd want people to be able to buy at any time?

 

So a child gets a train set for Christmas. They'd like to add to it as a birthday present, but - no - their birthday doesn't coincide with the 4 weeks that whatever they want is allowed to be on sale.

Spot on, but the everything-available-always concept only worked back when the range was largely static and that's not a scenario which many of us hanker after.

 

The pendulum has, almost certainly, swung too far the other way, having been given a hefty shove by Hornby themselves - but will they "get it" before it's too late.............

 

Unfortunately Hornby's own need for cash flow isn't the only driver of the need for quick sell-outs. Their reduced dealer margins mean model shops can't afford to have major items hanging around for more than a couple of months either.

 

The other thing is that the standards of "Train Set" level toys and "Collector" level models are now so widely separated that it might be more healthy for Hornby to treat them as two entirely separate markets. Planting the Railroad concept between them further muddied the water because the items therein don't follow a consistent "middle way".

 

John

Edited February 11, 2016 by Dunsignalling

[darrel]

Some of Hornby' s products don't make sense. For example in the latest catalogue there is the excellent class 67 in Caledonian sleeper livery. But no coaches to go with it. Will that put people off buying it?

The class 91 in the new virgin livery again no matching coaches. Also vastly overpriced for what is now a dated moulding which would be better in the railroad range. Likewise we have seen HST power cars without matching coaches.

Then we have the downton Abbey train set which is clearly for kids, how many kids watched the telly program? It's pointless.

Hornby are producing some fantastic models the best they have ever done. But the retail side of it is letting it down. They are not selling to model shops as has been mentioned. And selling things direct on their website cheaper than the retailers can buy them.

I hope Hornby can survive this, however if they did go out of business I can see Bachmann buying them not just for the moulds but for the name.

I have often had people ask me if I have a Hornby train set. Not a train set a Hornby train set. The general public have never heard of Bachmann. In the same way everyone has a Hoover even if it's made by another company.

Duplication of models cannot be helping the situation. It dilutes the market. And yet there are many potential models that could have been made instead.

[Ian J.]

It's probably worth pointing out that while some of us in the hobby are still sufficiently well off to buy models, some of us (myself included) have been hobbled by the economic situation - just because there's record numbers in employment, doesn't mean that everyone has work, and of those that do have a job, that doesn't mean their employment is well paid enough to have discretionary income. As someone stuck on benefits and having to pay for storage for my belongings because I can't even find a place to live properly, the idea of spending any money on any hobby is a fantasy. So purchases I would have made over the last year or so that would have helped Hornby's bottom line haven't been made. How many other people in the country (not just on RMweb) are also still feeling that pinch?

[Dunsignalling]

It is possible Hornby went from one extreme in that no products were coming to the other and saturated the market.

Last year we had 2014 and 2015 combined. Not all modelors could afford to buy everything they desired so they probably brought some things the needed first and postponed other purchases until next year.

 

The S15, excellent though it is and has been out a few months now, has not sold out anywhere. Feul has been thrown on the fire by adding new ones. 

 

They probably invested too much suddenly!

Possibly a case of Hornby doing what they needed to do rather sooner and more successfully than their customers were expecting............

 

John

Edited February 11, 2016 by Dunsignalling

[Clearwater]

On here, we're all guilty of guessing. We don't know how underperformance in one area, eg scaletrix, may drive them to try and get sales in, eg trains, artificially higher through discounting. It's not a bad assumption that H is overstocked and hence discounting but it's possible the train discounting we see is a function of problems elsewhere

 

David

[petethemole]

The 'follow-up to train set' sector of the market isn't as badly served as has been painted (IMHO). Most of the sets include rolling stock that sits in the Railroad range as individual items and these seem to be almost continuously available (not necessarily all at once) on the shelves of model shops, Hornby concessions, and some toyshop chains. My local Hawkins Bazaar is closing but has carried Railroad Gresley and Pullman coaches and goods stock matching train set items, also the basic range of set track and lineside accessories. The problem for potential purchasers in many areas of course is the absence of such outlets from the high streets and malls frequented by the 'average' family due to the demise of model shops and toyshops dropping the Hornby range. However the overall potential for sales even if more widely available is affected by the lack of interest in the product compared with years ago.

[60027Merlin]

Hornby de-listed from the Main Market to the Alternative Investment Market (AIM) last August.

 

Whilst the AIM is well regulated it still offers more flexibility than the Main Market affording companies more scope for selling parts/assets of their business in addition to more speculative investment opportunities. As a senior stock market analyst observed some time ago, it is a market in which to go fishing with line and pole rather than a big net.

 

Time will tell of course, however, it may be that the make up of the Hornby Group of the future will be different in comparison to the present one. 

Edited February 12, 2016 by 60027Merlin

[highpeakman]

Quote from the Linkedin CV of the Hornby "On Line Marketing Manager":

 

"Being mind-full of the customer journey and implementing strategies to drive loyalty, trust, and growth, in-line with customer needs".

 

Discuss!

 

(But keep it civil please).

[The Stationmaster]

While it is inevitable we will look at this from the model railway angle I think some of Hornby's malaise spreads across all their ranges and might well have something to do with what has happened.  To my mind their ever increasing squeezing down of retail trade margins, with a resultant impact on retail deep discounting, has both harmed customer perception of their pricing and antagonised retailers.  That has not helped them one bit because instead of 'smoothing' sales through the retail trade they have built up direct sales and had to resort to serious under-selling in order to do the smoothing of stock levels while at the same time effectively encouraging the 'bargain shoppers' to wait for the inevitable price reductions that come with trying to clear over-stocking.  In other words their sales model and trade discount pattern has probably back-fired on them.

 

As far as model railways are concerned they still don't seem to have got their marketing right and they are definitely adrift on pricing with premium products being offered at, probably, sometimes a bit below what the market will bear while lower quality older product is overpriced.  Airfix they seem to be getting right but I know little about that area nowadays.  Humbrol appears to be an innovative area for them but they have had major quality issues with their paint and they are in a  very competitive market area against some high quality competition - in that area their marketing needs to be very well informed and their quality has to be top notch or they will suffer.  Scalextric again is an area about which I know little but it seems to suffer - from what I hear - some of the same syndrome as the railway market.

 

But their biggest problem in my view is a top heavy management structure which must be placing huge costs out of proportion to the sort of business they are in.  Model railway items - even when very effectively marketed and correctly priced are not going to offer huge returns nowadays.  Ron's point about the changing nature of the market is - I think - spot on and Hornby do not seem to have reacted to it in what is entirely the right way as they have fallen between stools with inefficient direct sales and by damaging their reputation with the retail trade, add to that the shambles their retailer ordering system descended to last year plus massive levels of under-selling to their key account market and it would be more of a surprise if corporately they weren't in trouble.  If a similar situation repeats over Scalextric and Airfix then it simply adds to the mess.

 

The hopeful thing must be that they get out of this situation - I don't think that would necessarily be impossible but they will have to start by tailoring their managerial cost base to what their business could support, they need to get their marketing right (a well worn record), they need to get their retailer relationship and trade discounts sorted, they need to understand what makes them money and protects their brands, but above all they need to understand how their markets actually work.  Rather oddly - and very much to our benefit their model railway development people seem to have a  better grasp of the latter than the company's marketeers - does the same apply to their other ranges?