Bachmann Branchline announcements for 2015/6

[Combe Martin]

But Bachmann per se probably weren't sitting on a  'price problem'- as a business unit they do not appear to have been losing money.  The loss was being incurred by Kader who it appears were underselling - for whatever reason - internally or rather to a subsidiary company.

 

It all depends where a company wishes to make its profit or lodge its losses.  Overall Kader were not making money on model railway & toy manufacture, there are a variety of reasons for that including a poor investment in a takeover in the USA, but that is not relevant to the Bachmann Europe situation.  What appears to have happened, which in the end is really to our advantage as it will hopefully keep them in business, is that Kader is now charging realistic prices in profit/loss terms for sales to Bachmann Europe.  Hence Bachmann Europe have to pay more hence the retail price rises added to which increased costs in China are feeding through further increases.

As I've said above, when I say Bachmann I do mean Bachmann/Kader and are thinking of them as one.  When the announcement was made I just recall them saying 'theyd' discovered 'they' were making a loss on some items.  I got the impression that this was a cockup or at best an oversight and not deliberate.

[Jeff Smith]

As I've said above, when I say Bachmann I do mean Bachmann/Kader and are thinking of them as one.  When the announcement was made I just recall them saying 'theyd' discovered 'they' were making a loss on some items.  I got the impression that this was a cockup or at best an oversight and not deliberate.

This is probably just toeing the Company line - one division of a company would not want to (or be allowed) to blame another - this is the royal 'We'.

[Andy Hayter]

I understand the incredulity of some posters that Kader / Bachmann did not know about their losses on some models.  However having been in international business for many years before retiring, I have seen many similar situations arise (something that was profitable ceases to be so) or be discovered (one product in the range is not and probably never was profitable but no one noticed).

 

How on earth can such things happen?

 

Well many moons ago a man set up a company to make something.  He bought in some raw materials, did things with them and sold on a finished product.  All the costs of buying things were recorded in one column on a piece of paper, and all of the receipts from sales were recorded in another column.  If the receipts were bigger than the costs, the man had some money in his pocket (wages) and maybe something kept back to expand the business (profit).  The piece of paper is called a profit/loss leger.

 

And then things start to get complicated.  As the business expands the man needs to have someone to help make the items for sale.  He has to pay him money to do this.  He finds a simple way to do this.  For each item this man makes he gets two pence (aka piece working).  The more he makes, the more he gets as wages.  This is easy to account for in the leger, every item made has to carry 2p wages for the worker.   Likewise as the business expands he needs someone to go around selling the finished goods, so he employs another person to do this and pays him a commission of 3p per item sold.  For the leger however things still stay very simple.  For every item sold 5p needs to be set aside to pay these two employees.  All the while the company is in profit, no problem, but if you find you are making more than you can sell, you have costs mounting up in production, that are not being covered in sales.  Now the leger stays simple - it is still costs on one side and income on the other, but predicting how much the difference will be starts to become more difficult.  But you could always tell the guy who is making the goods not to come in next week.

 

And then things start to get complicated.  Government legislation and public pressure mean that piece working is becoming impossible.  You are required to pay when the guy is sick, is on holiday etc.. even though he is making nothing at those times.  If sales fall it becomes more difficult to just tell him not to come in next week - well not without some sort of penalty payment.  Ditto the salesman where again commission only payments become less and less the industry norm. 

 

Already I think you can see that something that should be simple (working out whether you are going to be in profit or loss) may not be quite so straightforward.

 

But enough of this simple example.  The company does well and expands and expands.  The demand for its widgets continues, but there is competition and to keep ahead you need to devise a super-widget.  So you employ people to invent, design and test a new super-widget.  These people need to be paid.  But where do you put their costs? 

 

This is here things get complicated.  One place you can charge the costs is against the current widget.  You are paying these costs now and you are only making widgets.  So now the widget suddenly becomes less profitable - but is it really less profitable today than it was yesterday?  Alternatively, if you were lucky and far sighted enough you may have built up a war chest of profits and use this to "fund" the new R&D department working on the super-widget.  But this can lead to a situation where your operating division making the widgets is showing a profit, but the company as a whole is making a loss.

 

And you have this same dilemma for every department or group not directly involved in the manufacture or sale of widgets - the Board, Medical, Human resources, security.  Suddenly it can become much less than clear whether a product is or is not making a profit.  I have seen companies that report all of these overhead costs separately, and I have seen companies that charge (for example) the works manager's costs to the operating unit at so many pounds per hour.  I have seen a mix, head office activities reported separately and works overheads allocated to the products.

 

And all of this  is still being done on paper legers.

 

And then two things happen to make things complicated.  Computers arrive; and mergers and acquisitions (M&A) start to take hold.

 

You may think that the advent of computers will bring some simplification and standardisation, but to start with all the system does is replicate the paper leger.  It just adds up the numbers more quickly.  In time it is realised that the system is quick enough to play what-if scenarios, so now at least the accountants can see what would happen if all of the overheads were loaded onto the current products and what would happen if they are all kept separate.  Also with time some specialised companies produce highly specialised (and expensive) computer programs to begin to look in detail at the profit and loss of individual operating site, and then later product groups and finally products.

 

With M&A our successful company decides to merge with one of its small competitors (which holds a patent of interest and has good sales in one market segment not currently  strong point).  It also decides to buy out a couple of suppliers to strengthen its position regarding the super-widget.  You might think that accountancy practices and the issues of handling overhead costs would be standardised, but the reality is that it is usually considered easiest to let things run as they have and to manually bring the numbers from the different operating divisions together.   You might find that different divisions are using the same software to do the accounts, but configured very differently, or different versions of the same companies software.  They may use very different software.  Either way the data is incompatible except at the highest level - divisional profit and loss.

 

And now things get complicated.  With having taken over suppliers, what should be the transfer price from the old supplier to the old customer.  You could leave it as it was - with (hopefully) a level of profit for the supplying division.  But what happens then when inflation erodes the notional profit?  You could devise a formula for the transfer price.  Either way, over time it is more and more a synthetic number, which can be played with to suit the accountants' or directors' views.   And since this price has a direct impact on the profit/loss of the widget, you can get a very false impression of the profitability of the widget.

 

And then finally things started to get less complicated.  Well actually no they didn't in the first step.  The software companies extended their essentially bookkeeping systems into an ERP (Enterprise Resource Program).  This finally standardises all of the issues raised above - and many others - all divisions of the company use the same software and version, with the same configuration and handing of costs.  Each individual product has its own set of resources, so a simplified box van might attract a couple of minutes construction time, where a complex, highly detailed Polybulk might attract a number of hours of construction  (previously 4 wheeled wagons attracted an average 10 minutes and bogie wagons an average 40 minutes).   Finally the company can again see exactly what costs are attracted for each and every product - something that was not possible with any certainty since the earliest days.

 

Sorry a long post, but I hope those that have stuck it out to the end can begin to see how the cost of making something can disappear behind the numbers and how eventually the most modern ERP systems finally bring clarity. 

 

And just to show how far we have come, prior to the ERP, virtually every number entered into the accounts was done by an accountant or an accounts clerk.  With the ERP, between 85% and 95% of the data entered is done by people who have nothing to do with accounts and probably do not realise that their data ends up as part of the bottom line profit and loss.  It is the guy on the shop floor (or his supervisor) that records that he has completed the 100 simplified box vans (and from the time of the entry, the system knows it has taken him 3 hours and 25 minutes - so the system knows how long 1 van takes and can allocate the cost properly).

[Jeff Smith]

Andy - this is an excellent piece and possibly will explain the likely scenario that Bachmann/Kader has found itself in.  We can speculate until the cows come home but it's unlikely we will ever know the full story.  At the end of the day if we want a new Loco x we will have to pay £y or go without.....

[Andy Hayter]

Thanks Jeff.

Although the scenario is applicable to many companies - several I have worked for - I noted that in one of the more recent Kader annual reports they said that they were to introduce an ERP system (Hornby have done similarly but their situation should be simpler - at least for the model railways) and then 18 months or so later Bachmann announce their increases and the fact that they (Kader) were losing money on some items.  It did not take many seconds to add the one and one up and come to a very feasible two.

[Focalplane]

Andy, an excellent guide to business practices in this complicated world.  I worked for over 40 years in the oil and gas exploration business.  While the rest of the world enjoyed times of low oil prices but wouldn't speak to me when prices were high, there had to be some continuity to keep oil and gas flowing and the business became cyclical.  Today I am thankful to be retired with $44 oil.  In fact, at the end of last year, when I retired officially, the CEO of my main client sent an email congratulating me on choosing such a good time to retire as there probably wouldn't be any work for me.  He wasn't joking.

 

In my opinion the prices of Bachmann locomotives have been extremely good value for the past few years - a bit like everyone today enjoying cheaper petrol - but now, with rising costs, increased legislation etc. the prices have to rise if the business is to stay afloat.  You can expect the same with prices at the pump.

 

It is ironic that a frequent advertisement at the foot of these pages is for the Locomotion MR 1000 Compound.  Made by Bachmann this is an excellent piece of workmanship, and extremely good value.  But times always do and will change.

[jjb1970]

In the case of Hornby the effect of their price rises was a double whammy as at the same time as increasing their prices they cut the retailer margin. Previously the Hornby SRP was an abstration, something that existed in theory but in reality was meaningless as everybody expected a discount of some sort and discounts of 20-30% were common. Suddenly not only did the SRP go up but discounts were slashed with the effect that the price increases were much more severe than the rise in SRP suggested. Bachmann do not seem to have applied the same cut to retailers margins and there are still a lot of discount prices for Bachmann so the price increases are not as severe as they might be but nevertheless it is still quite a hike. That said the prices are what the prices are, I suspect most modellers will probably try and maintain the same spend but just accept they will buy fewer models with that budget.

[mat]

I think in the end the market will decide if these prices can be sustained I think if a none sound loco hit the £200 mark people are soon going to begin to stop buying.

Also the hobby will not continue as younger people who have to contend with higher house prices and incomes not rising.

Also do the manufacturers need to look at moving the manufacturing to somewhere closer to home reduce transport cost.

[Legend]

It was stated when Bachmann announced their price rises last year, that they'd discovered that they were making a loss or only breaking even on some models.

After the reorganisation of Kader and the reallocation of overheads. As The stationmaster says that's the key part. And I know as an accountant I can vary the price of products by the method of overhead allocation.

 

And I'm sorry , be no doubt there is a slight increase due to labour costs, but to blame the whole 20% this year, last year and no doubt next year cannot be correct. As I've previously pointed out labour is only a small % of the overall total. This is more about increasing profitability in Kader. As an enthusiast you can go for it or not. I will be buying sparingly in the future as I don't like the feeling of being exploited compared to the position two years ago

[darren01]

Unfortunately Bachmann have not yet learned the Modeler is not a bottomless pit. But look at the folk cancelling preorders . I suspect they will find out soon

I have canceled loco's this year i  was going to pr order, and just getting the few i do need,  in other words i am no longer buying loco's i would like.

I can see a lot more people canceling there orders, or cutting back on what they buy now. 

[Legend]

Their audited balance sheets suggest otherwise.

For the whole company. But you cannot pick out the profitability of individual markets in there so no one or any of can tell just how profitable the UK is or Lilliput etc. the loss May be more to do with reorganisation or any of a number of internal factors

[Butler Henderson]

I have 55 items on pre-order with hattons, that's over £200 in postage alone

Reminds me why I never pre order.

[Butler Henderson]

Unfortunately Bachmann have not yet learned the Modeler is not a bottomless pit. But look at the folk cancelling preorders . I suspect they will find out soon

I have canceled loco's this year i  was going to pr order, and just getting the few i do need,  in other words i am no longer buying loco's i would like.

I can see a lot more people canceling there orders, or cutting back on what they buy now.

 

Cancelling a pre order will only affect Bachmann if a retailer reduces their order with them if thats possible

[railroadbill]

Cancelling a pre order will only affect Bachmann if a retailer reduces their order with them if thats possible

Good point, Bachmann's customers are actually the retail trade, they're not selling direct.

[dibber25]

But Bachmann per se probably weren't sitting on a  'price problem'- as a business unit they do not appear to have been losing money.  The loss was being incurred by Kader who it appears were underselling - for whatever reason - internally or rather to a subsidiary company.

 

It all depends where a company wishes to make its profit or lodge its losses.  Overall Kader were not making money on model railway & toy manufacture, there are a variety of reasons for that including a poor investment in a takeover in the USA, but that is not relevant to the Bachmann Europe situation.  What appears to have happened, which in the end is really to our advantage as it will hopefully keep them in business, is that Kader is now charging realistic prices in profit/loss terms for sales to Bachmann Europe.  Hence Bachmann Europe have to pay more hence the retail price rises added to which increased costs in China are feeding through further increases.

 

The effect as far as Hattons advertised prices is misleading as many of them for longer term production appear to have been conjured out of thin air with no thought of their relationship to even current Bachmann prices let alone likely increases.  The case of the Brighton atlantic is probably the starkest example of that with Hattons originally giving a price for a 4-4-2 with a complex livery which came out below Bachmann's then current price for a 4-4-0 with very simple livery and - obviously - fewer parts to assemble.  My own view is that Hattons presumably did it to attract as many pre-orders as possible because they know that part of the market in Britain is more interested in 'bargain (=low) prices' than anything else, many folk seem to want & expect 'quality' for peanuts and thus go for low prices without thinking through the implications.  And of course increasingly retailers who offer low pre-order prices are being caught out as the real prices emerge a year or two later.

Barwell have also been told that the Chinese manufacturers expect the same prices for UK products as they get for European and North American models made on the same machines by the same staff. There is also a reluctance on the part of the Chinese to provide price quotes for models which are two/three years away from manufacture because of the likelihood of further rises in the interim. 

CHRIS LEIGH

[Ozexpatriate]

For the whole company. But you cannot pick out the profitability of individual markets in there so no one or any of can tell just how profitable the UK is or Lilliput etc. the loss May be more to do with reorganisation or any of a number of internal factors

Yes, for the whole company and Bachmann Europe Plc is a wholly owned subsidiary of Kader Holdings Inc.

 

Similarly we don't know the individual profitability of brands within Hornby Hobbies Plc.

 

I agree that there is no public data to determine which units of the company were more profitable than others.

 

I think that filtering all the opinions presented and using the facts in the data, we can make some half-decent, educated guesses.

 

The truth will always be a combination of factors, even including testing what the market will bear, but I still don't see this as driven by greed.

[Jeff Smith]

I'm sure that Bachmann is following this thread but is unlikely to be significantly influenced regarding prices - it might be time to give up the negativity and concentrate on debating the merits, or otherwise, of the planned models. For some it will be difficult to get enthusiastic if models are out of your price range but that's life. Sometimes compromises and/or alternatives have to be considered or budgets altered to accommodate your aspirations. Maybe even some skills developed.

[Legend]

I hope they are following the thread and hope it hadn't escaped their notice that the majority of postings on the 2015/16 announcements are about price. Same on the Autocoach thread.

 

It may well be that Chinese manufacturers want the same price for manufacturing whether it's European, US or UK (and why wouldn't they), remembering of course Bachmann use their patent Kader for this. But Bachmann also have to realise there is a price beyond which the majority of modellers just won't go and so have to modify their expectations on profit accordingly.

[trisonic]

. But Bachmann also have to realise there is a price beyond which the majority of modellers just won't go and so have to modify their expectations on profit accordingly.

 

They’d more likely just get out of the UK market altogether...

 

Best, Pete.

[jjb1970]

Indeed, Bachmann/Kader are not a charity. If their factories have orders from brands offering a better return than Bachmann UK then the answer (from a commercial perspective) is to either tell BUK to match the returns offered by these other options or transfer production slots away from BUK. If that hits the UK market it is not really Kader's problem so long as they maintain their more lucrative businesses elsewhere. What will happen I suspect is they will lose some sales from a combination of some people walking away in disgust at the new prices and others becoming much more selective but I suspect the market will just adjust to the new prices. Many people predicted Hornby would haemorrhage customers when their prices shot up yet despite a lot of gnashing of teeth they still appear to sell their products and when they do have to dump stuff it seems to be more a reflection of particular model choices rather than a reaction to pricing.

[Fat Controller]

Well I was having a joke here.  Subsidiary does a really good marketing job and sells loads of a particular model, unfortunately its the one where the factory have got the price wrong so they make a massive loss rather than a small one.  

Didn't this happen with the Mini in  British Motor Corporation or British Leyland days?

[coachmann]

I hope they are following the thread and hope it hadn't escaped their notice that the majority of postings on the 2015/16 announcements are about price. Same on the Autocoach thread.

 

It may well be that Chinese manufacturers want the same price for manufacturing whether it's European, US or UK (and why wouldn't they), remembering of course Bachmann use their patent Kader for this. But Bachmann also have to realise there is a price beyond which the majority of modellers just won't go and so have to modify their expectations on profit accordingly.

Most modellers might actually be quite sane. 

[Taz]

I'm with Larry on this one.

Most of the comments here might be about price but that doesn't necessarily mean they reflect the majority of modellers. It's just that those who realise this is the way of the modern world don't comment.

Of course I would like the models to be cheaper., but the current prices will not put me off buying what I want. They might be more than they used to be but in the vast majority of cases the cost for me to buy and build a kit equivalent to similar standards is still more.

If this was pure greed it would have made much more PR sense to hike process to just below Hornby's and then you would still be making lots of extra cash but without nearly as much flack.

 

I may be wrong but I'd be surprised if model shop shelves are full of unsold blue boxes in a couple of years time.

[great northern]

I hope they are following the thread and hope it hadn't escaped their notice that the majority of postings on the 2015/16 announcements are about price. Same on the Autocoach thread.

 

It may well be that Chinese manufacturers want the same price for manufacturing whether it's European, US or UK (and why wouldn't they), remembering of course Bachmann use their patent Kader for this. But Bachmann also have to realise there is a price beyond which the majority of modellers just won't go and so have to modify their expectations on profit accordingly.

Could that be because you personally must have posted at least 50 times on the subject on this thread alone?

[Dunsignalling]

I hope they are following the thread and hope it hadn't escaped their notice that the majority of postings on the 2015/16 announcements are about price. Same on the Autocoach thread.

 

 

Yes, but if you count up the number of people who feel strongly enough to post about it, it's not that many.......

 

I've just cancelled a pre-order for the weathered green BR 3MT tank, partly because Hatton's have revised the pre-order price upwards by £30 but also because I already have one lined green and two black examples of this loco and don't really have the work for another one! 

 

I will, however, be getting an Auto coach. My greater selectivity thus seems to be evolving - maybe I am more price-sensitive to repeats/reliveries of models I already own than I am to all-new items. That said, I have "collected" at least four Bachmann locos in the past two years which do not fit my "modelling" requirements in any way. None of these would have been considered had they been subject to the new price levels.

 

I don't anticipate buying much from Bachmann this year and next, but that has almost nothing to do with price; they have announced very little to interest me whereas Hornby/Oxford/DJM (not to mention Dapol and Minerva in 7mm) are making so much that there will be nothing left for the sort of 'lollipops' that have constituted my recent Blue-box loco purchases!  

 

John