Hornby 2014 - A fatal sting for retailers?

[The Stationmaster]

How much did Bachmann loose when Modelzone went pop......   £0.00.

 

Actually I don't recall any mention anywhere of how much they lost.  Assuming that Modelzone had paid for all their Bachmann stock then Bachmann lost nothing, but if there were any unpaid invoices then, just like other suppliers, Bachmann would have become a creditor and I doubt they got 100p in the £, if anything at all, on what they were owed.

 

As far as we know and subsequent appearances tell a story) Hornby recovered all their model railway stock from Modelzone because it actually belonged to them and MZ simply sold it on their behalf but Hornby Group overall had substantial exposure, and losses, because other lines which were sold through MZ and where invoices obviously hadn't been paid.

 

But as you have demonstrated in your other post Model zone has no real relevance to what is going on here - the collapse of the retail side was down to poor financial management and over-rapid expansion in a generally weak market and not down to the fact that they were a Hornby concessionary outlet.

[Revolution Mike]

Question, Do Bachmann look after their retailers better than Hornby, Is that why Shops have more Bachmann stock?

Answer, 18 months ago, Bachmann enforced a 'capped' discount (xx% off RRP) for the first 8 weeks after a model was released, there was no increase in trade price, and standard settlement terms to shops remained the same, 

The reason they did this was to control the pricing in the market, and allow the "shop" to play on the same playing field as the 'box shifters' 

It meant that for 8 weeks after a model was released, the price was fixed throughout the country, allowing retailers of all sizes to start making a respectable 'margin' on their sales. Something that allowed the retailers to take confidence in purchasing from Bachmann, and use the profits to reinvest in the shops we love.

 

It worked, and is still working well, with most retailers still sticking to the prices, even after the 8 week window is over. (it tends to only be the 'cash chasers' that are discounting even more after the 8 weeks).

 

 

All I can say is I hope Bachmann took good legal advice before doing so. Lots of manufacturers/producers have got themselves into all sorts of hot water with similar pricing arrangements over the years. So while I might agree with you on the moral point, I worry that it is an agreement built on sand.

 

From Hornby's point of view the reverse is also true ie that retailers are also becoming their direct competitors by becoming manufacturers (or at least project managers). So when the point between manufacturer and retailer narrows then I can perfectly understand a manufacturer wanting to retail direct.

[87012]

All I can say is I hope Bachmann took good legal advice before doing so. Lots of manufacturers/producers have got themselves into all sorts of hot water with similar pricing arrangements over the years. So while I might agree with you on the moral point, I worry that it is an agreement built on sand.

 

From Hornby's point of view the reverse is also true ie that retailers are also becoming their direct competitors by becoming manufacturers (or at least project managers). So when the point between manufacturer and retailer narrows then I can perfectly understand a manufacturer wanting to retail direct.

Apparently (and this is real 'grapevine' information) they used the same legal team as volkswagen, and they have fixed there prices for years!

[87012]

I have finally managed to read all the posts on this link now, and it seems all our minds are fixed on manufacturing costs increasing, transport costs to get the goods over from China, cost of living in China, .. etc etc, blah, blah, blah.....

 

The REAL reason we are paying more for our Hornby models this year is that we are still paying for their 'Olympic' disaster.........Only the Hornby management team to blame, i'm afraid. 

 

Looks like we all forgot about that ;-)

[Gerald Henriksen]

Interesting comment that "there are fewer than half a million model railroaders in North America" That sounds to me like a pretty healthy sized market and I wonder how it compares with the UK or even the EC as a whole.

 

In the absence of any known figures we can to this:

 

About 350 million people in North America, so  0.14% are model railroaders.

 

About 63 million in the UK, so about 88 thousand.

 

But that likely isn't the full story.  Conversation on an email list a couple of years ago it was agreed the percentage of modelers in the UK was higher than NA - based on more shops, more shows, a substantial preserved scene, etc - and it was guessed that there were 2 or 3 modelers in the UK for every 1 in the NA.

 

So take a guess at about 180 thousand.

 

In terms of model viability, also take into account the lack of diversity compared to NA.

[MrB]

You're right; some of us may not like being talked down to. There are many of us who understand exactly how the world is changing and I feel there is a place for the local model shop who can stock a reasonable selection at a fair price and is accessible. The concerns are that some of those shops may not get supplied with a reasonable selection, not be able to promote a price to the customer any different than the customer can get from the manufacturer directly and can have a sustainable business to feed their families and employ their staff.

 

Some may disappear and some may deserve to but we don't just want Amazon for Trains.

I know my local model shop is selling less and making less, but not only due to lack of free money around to spend on luxuries also due to lack of supply from the manufacturers and credit only lasting a month before the stock has to be paid for.

[gordon s]

"Amazon for trains?"  With my Devils Advocate hat on and a regular user of Amazon, is that such a bad thing?  I can order any time of the day and night, products are always in stock (or the ones I'm after are), free delivery within a few days, no parking or petrol costs and competitive pricing.  Any product problems are dealt with quickly and efficiently.  Returns and refunds are quite painless.

 

Obscure parts can always be sourced via the web from specialist traders who may not have the cost penalties of a retail premises and these days postage costs are cheaper than the true cost of motoring, not just the fuel consumed.  I've never had trouble finding a supplier of raw materials or detail parts etc and see no reason for that to change.  You only have to look at your own High Streets to see the chain stores or Franchise businesses, coffee shops and Estate Agents.  It's hard to see a role for retail premises in specialised market sectors.

 

As someone who started his working life doing a 'Saturday job' in the Southgate Hobbyshop, I can understand the attraction of a local model shop, but the alternatives are also have considerable merits and can save hours travelling to source that elusive part. 

 

The romantic side of me says it will be a shame that we lose modelshops, but then the reality kicks in.  The high cost of working capital, demanding cash flow and ever changing trading conditions, mean only the strongest will survive.  

 

I can't blame manufacturers for trying to stay afloat as they in turn have to keep staff employed and satisfy their own shareholders.  There isn't a manager alive who hasn't made an error of judgement somewhere along the line.  The key is to recognise it quickly and do something about it.  This situation possibly points to a whole series of poor decisions that have been allowed to run without correction.  Eventually it catches up with you and someone has to sort the mess out, often with dramatic changes.  Sadly there will be casualties in one form or another.

[Unknown Warrior]

Hi 

 I have heard that we are looking at a 20 to 25% price rise next year!

 

I would not be surprised. The problem is firms like Apple who are paying higher wages in China and thus encouraging wage inflation. I don't doubt for a moment that "The labourer is worthy of his hirer," and that the era of cheap labour in China is coming to an end, helped by the insatiable demand for the latest electronics. Ironically it could be the perceived need for the latest i pads and i phones which is forcing up the cost of model railway equipment!

[Xerces Fobe2]

Hornby is at liberty to set what polices it likes as long as they do not break any of the UK trading standards etc.There are retailers that have been assisted by Hornby this year gone bust and then reappeared under a different name which means somebody in the supply chain has taken a hit.

 

So who can blame Hornby for tightenING up their retail policies when you see retailers that are in trouble having effectively fire sales at. model railway exhibitions prior to their demise and subsequent rebirth!

 

XF

[ThaneofFife]

Yes many were delighted with Hornby giving on the one hand (with their nice new releases) but its unfair to slate anybody now poo-pooing Hornby given that they appear to be "taking away with the other".  Not even a honeymoon period of a few weeks or a month or two for more savvy buyers to get in early and pre-order at a lesser price.

 

I'm still struggling with the thought process that went into the pricing for new HST packs.  The models are virtually identical with minor component swaps on the roof detail but other than that its an existing model with just a repaint.

 

I dont recall the previous RRP (was it £179.99?) but this is now £209.00 up roughly 15% - Hattons show them at £194 (add in the cost of 2 decoders for DCC btw) - I'm beginning to think that maybe they have simply moved the prices UP to a level that after retailer margin they get back the full RRP that they originally wanted before 16th December 2013 !  Speculative but I dont buy into this level of increase coming purely from rising costs of Chinese production and shipping.  I agree with the statement that it could be paying for some of the mistake that was the Olympic product lines.

 

If the increases are necessary you would have thought Hornby could stagger the rises over say 2 years rather than smack backsides with one big lump of disappointment now - right after the great announcements made on the 16th it does seem that this is indeed the sting in the tail and the timing of the two together does them no favours.

 

It might have upsides - continued development and investment in new models that we all want but my buying habits will certainly change.  Impulse buys will cease and like many others my purchases will now get a lot more thought before parting with my cash.  I may have to exercise more patience too with some purchases and wait until they are reduced in bargain bins or become available as used models.  Youll have a lucky few at the top end who are retired and can just walzt out and snap up whatever they want whenever they want but for the vast majority in the hobby I think times are a changing.

[PhilH]

I wonder if Hornby have done their market research. If When gas and electricity prices go up, apart from shopping around the cartel I've no choice but to pay - the same goes for food, petrol and communications.

 

When the price of luxury goods goes up I do have a choice. I would say that Hornby have missed that very important point here - in my opinion they are in grave danger of losing the mass market, unless the internet marketing plan (at reasonable prices) is the start of their brave new world.

 

Or is that part of their strategy, to move to low volume high value items, in other words aim fairly and squarely at the well heeled amongst us?

 

edit..missed a bit. 

[Pandora]

we have not mentioned the concept known to economists as elasticity of demand,  demand is inelastic if sales numbers do not fall as price rises, example I paid £80 each for 4 of the Bachmann 85,  I would still have bought 4 even if the price was £120,each,  (that tells you how much I like the Bachmann 85) that is an example of inelastic demand.

 

The new sales policy may be Hornby pushing RRP to test the demand curve for their products  

[APOLLO]

Unfortunately I have an inelastic wallet !!!

 

Brit15

[Oldddudders]

Where were the model shops in NE London?? I lived in Finchley/Barnet in the sixties and early seventies and the only model railway shops I recall were Beatties at Southgate and a small one in Hornsey, plus a mixed hobbies shop in Mill Hill. Otherwise you had to go into Central London (Marylebone High Street or Holborn) or out to Leyton or South of the Thames. There may have been others in West London but I never went there then, and there were many more independent toy shops in those days, but they rarely had anything of interest beyond Airfix kits and the odd train set for Christmas. Did I miss one or two in NE London?

I'm sure that in 1967 I bought my Codar panel controller and separate inertia simulator - ooh! - from Howell Dimmock, who were somewhere up the Loop, perhaps Bruce Grove?

 

As far as prices of Chinese models are concerned, when this HO model was announced in early 2012 http://www.rail87.fr/ I pre-ordered and indeed paid 189 euros, say £150. About a year later it finally arrived (minus horns, but they warned purchasers of that) and I've bought a couple more - first at 219 euros, now 229, so say £190. This is a DCC-ready model, not DCC-fitted, and measures less than 19cm over buffers. I think that makes some Hornby pricing on new models look rather good value for money, frankly.

[Western Dave]

I have finally managed to read all the posts on this link now, and it seems all our minds are fixed on manufacturing costs increasing, transport costs to get the goods over from China, cost of living in China, .. etc etc, blah, blah, blah.....

 

The REAL reason we are paying more for our Hornby models this year is that we are still paying for their 'Olympic' disaster.........Only the Hornby management team to blame, i'm afraid. 

 

Looks like we all forgot about that ;-)

There is no doubt Hornby have taken a hugh hit on the 2012 Olympics and quite possibly this in part is causing price distress, but as an importer from China every year labour costs go up (just like ours do here in the Uk now) last year we had an average 6% increase this coming year (afetr the Chinese new year) we have been told to expect nothing less than 9% increase, add to this a genreal .25% increase in UK import duty tariffs this year and a 4% increase in container rates this all adds up to a general increase on our products (none models) of 9.25% this is before adding UK costs etc...

[Western Dave]

I know my local model shop is selling less and making less, but not only due to lack of free money around to spend on luxuries also due to lack of supply from the manufacturers and credit only lasting a month before the stock has to be paid for.

Same all over I expect but as I have said before this is almost the perfect storm coming our way.

1. Many have a lot less disposable income to spend on models

2. Many shops have not adapted to the new trading world

3. The model shops left are being crippeld with high rent, rates, insurance and utility bills

4. Many model shop owners are not so young anymore and want to retire, sell up or just close.

5. There is a lack on younger people coming inot this hobby pushing sales down

6.Manufacturers will find it harder to find mass market selling models to produce becuase most have already been done and a return is unlikely on many wish list items

 

with regards to shops getting only a months credit thats quite the norm and if your importing from China the norm is to pay on loading. To be fair to manufacturers they pay and dont get the product for 45 days and then ship it to the shop and give another 60 days (in real terms its 30 days from statement month end) so they cant really become a bank and offer endlass credit.

[The Stationmaster]

Yes many were delighted with Hornby giving on the one hand (with their nice new releases) but its unfair to slate anybody now poo-pooing Hornby given that they appear to be "taking away with the other".  Not even a honeymoon period of a few weeks or a month or two for more savvy buyers to get in early and pre-order at a lesser price.

 

I'm still struggling with the thought process that went into the pricing for new HST packs.  The models are virtually identical with minor component swaps on the roof detail but other than that its an existing model with just a repaint.

 

I dont recall the previous RRP (was it £179.99?) but this is now £209.00 up roughly 15% - Hattons show them at £194 (add in the cost of 2 decoders for DCC btw) - I'm beginning to think that maybe they have simply moved the prices UP to a level that after retailer margin they get back the full RRP that they originally wanted before 16th December 2013 !  Speculative but I dont buy into this level of increase coming purely from rising costs of Chinese production and shipping.  I agree with the statement that it could be paying for some of the mistake that was the Olympic product lines.

 

If the increases are necessary you would have thought Hornby could stagger the rises over say 2 years rather than smack backsides with one big lump of disappointment now - right after the great announcements made on the 16th it does seem that this is indeed the sting in the tail and the timing of the two together does them no favours.

 

It might have upsides - continued development and investment in new models that we all want but my buying habits will certainly change.  Impulse buys will cease and like many others my purchases will now get a lot more thought before parting with my cash.  I may have to exercise more patience too with some purchases and wait until they are reduced in bargain bins or become available as used models.  Youll have a lucky few at the top end who are retired and can just walzt out and snap up whatever they want whenever they want but for the vast majority in the hobby I think times are a changing.

 

 

This post contains some very pertinent points.  But first let's not forget that this is the second year in succession that Hornby have applied a squeeze to their retail traders although it was, I believe, in a different form last year.

 

But it is also of course simply yet another year of increases in RPP and it is perhaps pertinent to consider the impact of that on Hornby's margins and here the Interim Report tells us that the gross margin has risen from 42.8% to 47.1% and that evan after the 'Olympics effect' is taken out the margin still shows an increase (45% to 47.1%).  Now this is a total and doesn't just apply to the model railway business but when you think of the cost of individual items a movement of 2 percentage points on something priced at £150 is going to be more in cash terms than a 2 percentage point increase on the cost of an Airfix kit or a tin of Humbrol paint.  So clearly in taht respect we are not talking about the impact of an increase in Chinese labour costs - we're talking about a price movement to increase gross profit.

 

Now the 'labour cost thing'  - well various sources, including Chinese ones, on the ;net talk about Chinese labour costs rising at about 13% per annum over the coming 5 years and of even bigger percentage growth in the past few years.  However the picture is complicated by different levels of minimum wage across the different provinces which currently mean that shifting production to a lower wage province from one of the highest could save 30% in labour costs (and also result in less competition for labour as the lower cost provinces have much less industrialisation).  Now think of a company which is moving its production - not that we know where of course.

 

But what, any case, is the cost/price level driven by labour costs?  Well our good friend Jason at Rapido really has his finger on that pulse and quoted an interesting example on his website in 2012 where he quoted 7.5 hours of labour input into assembling a passenger car at a cost of 11RMB per hour giving a total labour cost of c.82RMB which equated at time to $12.90 (Canadian) and he compared it with the then Canadian cost of labour which he reckoned at $17 per hour, which would give an assembly cost of $127.50, i.e. almost ten times as much.  Now I don't know his then retail price for that particular car but there are of course all sorts of other costs which go into plus profit.  

 

What this means in reality is that labour is still a relatively small cost element, and even if it increases by, say, 20% it would certainly not result in a 20% price increase at the RRP end of the maths.  And of course Rapido has a high level of hours input per item while the equivalent on many Hornby items is much less so the cost of labour increase has an even smaller impact on the retail price.

 

Then there is another element which should not be overlooked - basically in money terms Hornby's model railway sales in the UK have shown decline over recent years.  We can, no doubt, all give our opinions as to why that should have happened and, equally cleverly, we no doubt all know how to put it right in a mere wave of the keyboard.  But let's not overlook one thing - if you are selling less and still want to make as much money as you once did you have only two options.  One of these is to charge more and the other is to respond more astutely to what you think the market wants - and if you get the second one right it is easier to apply the first.

 

Finally there is the question of the commissioners.  Hornby dismissed this as a flash in the pan and they would all be broke in a few months (several years ago) but the simple fact is that commissioned models have, generally and in limited quantities, put into the marketplace things that people want and will buy.  And the smaller manufacturers in the shape of Dapol and Heljan have not only benefitted from this but have followed a similar philosophy while Bachmann has equally taken note of how this market area works, albeit to some extent at more amenable price levels than the others.

 

Until now Hornby's involvement in this market area has - for various reasons - been limited but I thin we are now seeing them move towards it, and obviously they want to exploit to the maximum the returns from what could well be much smaller production runs in a very different sort of market from their traditional approach.  That I think might also be influencing their trading policy.

[Unknown Warrior]

There is no doubt Hornby have taken a hugh hit on the 2012 Olympics and quite possibly this in part is causing price distress, but as an importer from China every year labour costs go up (just like ours do here in the Uk now) last year we had an average 6% increase this coming year (afetr the Chinese new year) we have been told to expect nothing less than 9% increase, add to this a genreal .25% increase in UK import duty tariffs this year and a 4% increase in container rates this all adds up to a general increase on our products (none models) of 9.25% this is before adding UK costs etc...

 

I'm sure that the Bachmann bean counters will be studying the Hornby Price list carefully and factoring in all the above costs. Certainly a price rise of 15% on some products would keep their prices below Hornby's, eg. 4F/C Class/ J11 currently RRP £89.95 would become RRP £103. 45, still below Hornby's £109.95 for a J15/700. Bachmann will probably try to keep prices below Hornby's if they can. It is worth remembering that Hornby were asking us RRP £105 for the loco drive 4F 2 years ago, for a model basically designed some 30 years ago! 

[Waverley47708]

My, my how time flies, I did not realise 8 weeks had passed already since the new Bachmann Polybulks came out.  Discounted from day one as far as I can see at some sites.

 

My nearest well stocked "local model shop"  is a 2 hour, 90 plus miles round trip away in the middle of a large city, and full RRP.

 

 I find the good banter and wee discount I get at exhibitions an excellent way to buy whatever I am looking for, big or small.  That said even at medium sized shows I have not always been able to buy newish items.

 

To defend the "box shifters", they offer an excellent service with a wide selection of items at a decent discount and I am happy to buy from them. 

 

When I was looking for a Heljan 26, my sort of local shop 90 miles away had them at £100 plus, a box shifter I use had them at under £50.

[Dunsignalling]

Back in the 50s if you wanted Hornby Dublo, you had to go to the officially-appointed Meccano concession in town. Naturally, Tri-ang was stocked by competitors. We may be returning to the situation whereby rather than one shop having all the agencies, you find them in different shops on the high street.

And we all know how that ended.

 

Substitute Hornby for Hornby Dublo and Bachmann or Dapol (or even one of the big mail order operators) for Tri-ang and it's easy to see how this could eventually pan out.

 

John

[ThaneofFife]

i thought labour costs in the UK had remained static (in fact, falling in real terms) for the last 4 years so I think the statement that labour costs all over and in china and back in the UK are rising is not quite correct.

 

anyway how else do we expect all those new middle classes in china to pay for our land rovers, freelanders, jags and range rovers   

[Pacific231G]

but as an importer from China every year labour costs go up (just like ours do here in the Uk now)

Really? ThaneofFife is correct that labour rates in Britain are currently falling in real terms. What's more, the longer term increase in average incomes includes the top 5% whose relative incomes have been rising steadily for decades, so conceals a much longer term stagnation or even fall in median incomes. Also, people are far more chained to their jobs and working longer hours than they used to be so probably have less time for hobbies, especially hobbies that require a fair degree of commitment in order to get anywhere like ours. I don't know the demographic of model railway sales, apart from it being largely male but the membership of RMWeb suggests that it's fairly broad so likely to be affected by wider trends. 

[APOLLO]

It's not really in my book on to compare Hornby / Bachman prices with those for continental models, which, (as Olddudders example posted above) I feel are grossly expensive (if the example shown is a mainstream typical mass produced plastic model). Bit different if it is a special commission / very low production numbers model.

 

It's not the fact that prices have gone up (like everything else recently), it's the amount of increase, 20%+ in some cases. Just not on in my opinion.

 

Some would say daylight robbery, I say it's just another example of "Rip off Britain".

 

Interesting to see what Bachman do - If their Pom Pom goes up a similar amount, then my old BEC example (on a nicely running tri-ang chassis) gets a cosmetic makeover quickly. !!!!!!!!!!

 

Brit15

[Revolution Mike]

It's not really in my book on to compare Hornby / Bachman prices with those for continental models, which, (as Olddudders example posted above) I feel are grossly expensive (if the example shown is a mainstream typical mass produced plastic model). Bit different if it is a special commission / very low production numbers model.

 

It's not the fact that prices have gone up (like everything else recently), it's the amount of increase, 20%+ in some cases. Just not on in my opinion.

 

Some would say daylight robbery, I say it's just another example of "Rip off Britain".

 

Interesting to see what Bachman do - If their Pom Pom goes up a similar amount, then my old BEC example (on a nicely running tri-ang chassis) gets a cosmetic makeover quickly. !!!!!!!!!!

 

Brit15

 

How can it be rip off Britain if the prices we pay are significantly lower than the continental models? To me, it seems very correct to compare the examples!

 

We've been very fortunate to have low prices in the UK for the last decade and it was hardly rocket science that as cost of production and shipping rose that retail prices were going to go up. The size of the increases are a reflection of the market - would you prefer Hornby to make a loss and stop producing trains? Unless Hornby are secretly making huge % profits on trains then I don't really see what the options are!

[APOLLO]

I seem to have touched a nerve here. Perhaps daylight robbery & rip off Britain are a bit too strong terms to use, but certainly, prices rising overnight at such a huge rate, (including old re released models) seems a bit too much to me. I don't know the % mark up Hornby apply, I suppose its confidential company info, but just to say "Their (continental) models are expensive, so ours must be too" is just not on.

 

I want Hornby to thrive, and like most others here welcome the new model announcements, but this thread has clearly shown all is not quite what it seems in our hobby, or indeed at Hornby. Yes, I expect (but do not welcome) price rises - but in line with inflation, bit like pay rises (!!!).

 

I agree with most posters on this thread, especially the model shop owners. May I wish the best of luck to them all, big and small, and yes, I use both. The die has been cast, and time will tell.

 

Just a question. If labour / materials / transport etc  etc of Chinese made model railway goods has gone up 20%+, how come most other Chinese made goods is still vastly discounted - electrical goods etc.? Surely they are subject to the same manufacturing / transport / market forces ? Or am I overlooking something ?.

 

Brit15