Hornby makes Interim Management Statement 30/1/13

[brushman47544]

I'm still confused about the mention of "concessions" - or have I missed something?

 

Stewart

 

In the absence of any clear explanation, there is I think still quite a lot of confusion about who or what these "concessions" are. The dictionary definition includes "right to conduct a business from within a larger concern", which suggests the likes of larger shops that sell Hornby models on behalf of Hornby, by that I mean that Hornby still owns the stock rather than the retailer. Prices are normally RRP and when they sell an items, the retailers receive a commission from the sale. So the risk is with Hornby not the retailer. However, no list of these concessions has as far as I know been published and there is currently considerable speculation that Modelzone is one such concession. So some clarity could be helpful. Interestingly a google search for individual concessions models for 2013 finds only websites such as this and none for retailers offering them for pre-order...

[The Stationmaster]

I'm still confused about the mention of "concessions" - or have I missed something?

 

Stewart

Here is an extract from Hornby's Interim Report published on 25 September 2012 - my bold

 

 

Current Trading

In the UK, as indicated above, sales in the second half are expected to be below the previous year. However, we are encouraged that sales to the consumer via our chain of in-store concessions continue at a higher level than last year. The retail landscape continues to undergo a period of significant change in the UK. The swing towards e-commerce sales of our products, via the sites of specialist on-line retailers as well as the e-commerce sites of our ‘bricks and mortar’ retailers, continues. Our own e-commerce sites are trading well and we will continue to develop this channel of distribution. 

 

For a number of reasons various of us who have contributed to this thread are of the view that Modelzone is a concessionary sales outlet for Hornby - their prices closely follow those on the Hornby website and one member has reported being told by Modelzone staff that their stock of Hornby  actually belongs to Hornby and not to Modelzone.  Until Hornby confirm or deny what several of us have concluded is the situation we will not really know one way or the other and there is obviously no reason why Hornby should tell us - unless it appears that Hornby retail sales through Modelzone are being given an unfair competitive advantage as a result of the allocation of stock.  However even if that is perceived to be the case how on earth do you confirm it one way or the other? - various well known retailers have been advertising Hornby 2013 items on the internet for over a month without knowing what quantity of those items they will receive. 

[brushman47544]

One point that I don't think has been mentioned yet. Whilst the term concession in the context of Hornby may be relatively new, that some model shops sell stock still owned by Hornby is not. Quite a few years ago now a model shop I used to buy from occasionally told me Hornby owned his stock and that was why he could only sell at RRP - I had asked if he could price match adverts in RM as Beatties (now Modelzone) used to. I would have been none the wiser if I hadn't asked the question.

[Ron Ron Ron]

......Whilst the term concession in the context of Hornby may be relatively new....

 

There's nothing new in Hornby in-store concessions Andrew.

They've been putting a good deal of emphasis on these sales channels for a great number of years.

 

Some quotes from various Annual Reports over the last 10 years....

 

2002 (FY 2001-02)

 

"All sectors of the Company's channels of distribution, both in the UK and internationally, showed strong year on year growth, with the exception of our in-store concessions.

The lower sales in the concessions channel is attributable solely to the failure just prior to the start of the financial year of the Beatties model shop chain, all of whose stores were operated as concessions".

 

"During the past year we have rebuilt the concessions base and as at 31 March the concessions throughout the UK numbered 28.

These concessions operate as "shop in shops" within department stores and increasingly within toy retailers who do not always have the staff or expertise to manage complex hobby product ranges such as Hornby and Scalextric.

By installing concessions in such outlets we are able to achieve substantially increased sales and profits for both the Company and the retailer.

Plans are already in hand to increase the number of concessions to at least 50 during the current financial year".

 

 

2005 (FY 2005-06)

 

"Sales through major retail accounts were particularly affected by slow consumer off-take during November and December.

However we have continued to place emphasis on building our portfolio of in-store concessions, where sales increased in the year.

 

Our concessions numbered 116 as at 31 March 2006, compared to 121 a year earlier.

This is despite the Receivership in December 2005 of Greens Superstores Limited, which accounted for 17 of our concessions as at 31 March 2005.

As stock held in Greens concessions was held on an agency basis, our financial exposure to the Receivership was limited.

Since the end of the financial year we have established a concession in Hamleys of London".

 

2006 (FY 2006-07)

 

"Sales via our in-store concessions (108 at 31 March 2007 compared to 116 the previous year) performed well.

Total concessions sales totalled £5.8 million, an increase of 8% over the £5.4 million in the previous year. This is despite a reduction in the number of concessions as a result of a number of the existing concessions ceasing to trade during the year".

 

 

2008 (FY 2007-08)

 

"We retained a good balance of sales through the independent and concessions channels whilst showing strong growth in the major retail accounts".

 

 

2009 (FY 2008-09)

 

"The independent retail channel and sales through our network of concessions performed well. In contrast, sales via the major retailers were held back as a result of cautious stocking policies implemented by those retailers prior to Christmas.

Since Christmas we have been encouraged by the strong year-on-year sales performance in the independent, concessions and internet sales channels. These channels now represent 80% of our UK domestic business".

 

".....we have noted a marked increase in sales via our network of in-store concessions....."

 

 

2010 (FY 2009-10)

 

"Sales via our independent retail channel were in line with the previous year whilst sales via our network of concessions showed encouraging growth".

 

 

2012 (FY 2011-12)

 

"Sales via all our channels of distribution were below the previous year, with the exception of our concessions chain and our direct marketing channel. The reduction in sales reflects weak consumer confidence generally and caution on the part of retailers in respect of inventory purchases"

 

 

2013 (The latest report is the interim report for the current FY- 2012-13).....

 

"A combination of continued reluctance amongst retailers to take in stocks ahead of demand, coupled with supply chain constraints in model railways, has resulted in reduced order intake from all channels of distribution".

"Our online and direct marketing sales continue to show encouraging growth..."

 

...and as already quoted by Mike, a couple of posts above here.....

 

"In the UK, as indicated above, sales in the second half are expected to be below the previous year. However, we are encouraged that sales to the consumer via our chain of in-store concessions continue at a higher level than last year".

 

"The retail landscape continues to undergo a period of significant change in the UK. The swing towards e-commerce sales of our products, via the sites of specialist on-line retailers as well as the e-commerce sites of our ‘bricks and mortar’ retailers, continues.

Our own e-commerce sites are trading well and we will continue to develop this channel of distribution".

 

 

 

.

[byron]

Interesting, the situation with Fleischmann/Roco and their "E-commerce" concept seems to show that producers are trying to keep a little more control over sales and prices. These two have introduced on line sales of (at present) limited edition models, ordered and paid for on the respective web sites. The goods are then collected by the customer at the shop of his choice, albeit from a select list of model shops provided by the seller. A far more intersting item from the German toy fair than that being discussed elsewhere!

And have you seen the prices for the latest offerings fom Fleischmann/Roco at Guagemaster? £1250!

 

Mikw

[zigzag]

There has been some interesting information and debate in this thread, much of which I find worrying for the future of the hobby (and my involvement in it).

 

Firstly it seems clear from the various Hornby statements over the years (and so expertly dug up by xx) that concession and direct sales are channels that Hornby wish to exploit to their maximum. The benefits to Hornby are obvious in that they can generate a larger profit by selling at RRP either via concession - where they appear to own the stock or directly. Additionally, Hornby can control product supply in these channels, either temporarily as with the 2BIL, or permanently as with some of the 2013 releases being only through concessions. Hornby thus ensure that they themselves have a certain number of sales where they receive not only the wholesale price for their product but are also, by way of controlling exclusivity or first sales of a product, are able to receive the retail price as well, and that is at RRP to boot.

 

The increasing use of such sales channels must be detrimental to all others sales outlets, local model shops in particular but also the larger ones to a lesser extent as this is hardly condusive to good customer relations if they cannot get the product. As such the only winner in this will be Hornby, but by doing so they may be sowing the seeds of their own downfall (probably not a downfall in reality but certainly reduced demand in the longer run).

 

The second worrying trend is the production runs and pre-ordering area. Again I see current developments harming the hobby in the long run.

 

Hornby undoubtedly have seen commissioned models sell well in small numbers, they haven't entered that market, yet probably have seen such as an opportunity to generate 'demand panic' and consequently higher prices for their own product. They appear to have moved to small batch production, increasingly tell us that the product is sold out (at Hornby not at retailer though) and to me are hoping that this is a way to also increase profits.

 

Now if we are moving towards batch production or production on demand I wholeheartedly agree with the 'guidelines' that Coachman has proposed. If this is to be the way forward then we need set of agreed principles right now so that if we modellers, the retailers, and the manufacturers know where we stand.

 

This whole scenario is falling down right now because although it appears that Hornby have already moved to small batch production we do know , there is a lack of clarity around new releases that will have a detrimental effect on the hobby (do we order the design clever P2/Dog without knowing teh full spec for example, if we do and subsequentky feel let down by the product then we will think twice before doing so again with whatever is announced for 2014, if we dont and miss out on the product then we will again feel let down - neither are good for Hornby).

 

If the hobby, and in this case I mean manufacturers, wish to attract new or returning modellers (and I am in in the returning category, though as I shall explain I may well be in the disappeared category if the current situation continues)  then there needs to be a continuity of supply. By this I mean that if a youngster sees a model in the Hornby catalogue then he needs to know he can save up money and it will be still be available throughout the year, if its sold out to pre-orders then he may well purchase something else that is available but he might not also. 

 

As an example, I intend to model the BR blue period, I need to buy a stable of locos, but which ones will be available only this year, and which will be available into next year - who knows ( and Im happy to do a spot of renumbering, it smore the class/livery combination that I would like to know)

   

In my situation, I'm a returning modeller, I've been buying a bit of stock over the last couple of years and am slowly beginning to get a layout up and running. But I would also like certainty of supply or I might not continue with the hobby. For example, there are locomotive that would fit my modelling interests that I would like to buy, but I cant afford to buy all of them at once and so would like to spread my purchases over a period of time. I am not, at least for many popular models, able to do this asd I know that the production run is limited (and in this case I am talking a loco/livery combination, not a specific number as I am quite happy to renumber my stock). So I am faced with the choice of pre-ordering everything that I need in order to ensure I get it, which isn't practicable as I cant afford it all at once, or I'm faced with doing without and having an incomplete layout (Locos without the appropriate stock to haul for example), or as am increasingly inclined to do to is to give up the hobby (as its not my main hobby and could more easily give it up) and spend the money on hobbies where I know that the product will be available for me when I want it.

 

To draw a parallel with one of my other hobbies, photography, the situation is similar to say Nikon only producing lenses in limited numbers, not saying when next they would be available, and yet expecting you to buy their DSLR camera body without knowing when you might get the lens that  you need to go with it - they might produce bundles of wide angles but only a few telephotos and zooms, you might want all three lens types to have a complete system yet can only afford one per year. As a result of not knowing when or if you could have a complete camera system (as you cant afford it all in one pre-order) you either go to the competitor who can guarantee certainty of supply over a period, or if the industry-wide model cannot do that then you go and spend your money on something else. Thankfully, Nikon understand this argument and their product is available year round so that customers can add to their systems when they need or can afford it not when batch production timescales dictate it.

 

Back onto a model context, the result of these scenarios is that I will be probably be lost to the hobby, and at my age I wont return, and that the younger modeller may lose interest and again will not return. For older more established modellers who perhaps buy less stuff then these extremes might not happen but their spend pattern might well be affected too.

 

The issues above of controlling sales channels and limited production runs and non certainty of supply to the customer indicate a change of direction for the company, it wants to increase its profit margin, it wants to limit (or more effectively control) its stock holdings, and with design clever it wants to limit its cost position. These factors could also indicate a greater focus on cash flow too, which if the reports of an in house factory (maybe in India) with its fixed drains on cash which are in advance of product sales would make sense.

 

These are worrying times for me in the direction the manufacturuers are going, if we had some rules, guidelines and clarity it would help, but to me to continue down this road is putting the longer term viability of the hobby in doubt.

[Guest Max Stafford]

Let them go and play their big corporate games. We still have the smaller players providing us with the stuff we really need on fair terms.

To paraphrase Douglas Adams; " So long and thanks for all the Pacifics and B1s..."

 

Dave.

[Matabiau]

It seems to me, as the information trickles in, that Hornby's biggest problem (as ever) in this affair is communication. They have in the past offfered limited editions through their collectors' club via the internet or mail order. I suspect this year they have extended this to their concessions such as Modelzone in order to get a wider audience. I see nothing wrong with this so long as it is made clear to the customer; I for one had no idea before reading this thread that Modelzone was such as concession. It now makes sense why Modelzone have so many Hornby exclusives, something other outlets do not seem to (or want to) offer.

 

As for the 2-BIL,one can question the moral (or even legal) implications of releasing this model first through Modelzone before making it available through other retailers. As a customer not knowing that Modelzone is a concession I ask my self why I am being bombarded with adverts from Modelzone showing immeadiate availability but am unable yet to obtain the 2-BIL from my favourite retailer? Hornby have not made any announcement to the effect that there is a restricted initial release so I am left very confused and disappointed.

 

Bachmann offer limited edition models through their collectors' club but we don't complain about that as they make it very clear in their publicity. The collectors' club limited editions are also kept separate from the main catalogue to avoid any confusion.

 

Please, Hornby, talk to us. We don't bite (well most of us don't!)

[Ravenser]

At this stage we haven't seen a situation where a new release British RTR model has never been available to the casual purchaser because the whole lot sold out to pre-orders . The 2BIL seems to be proving remarkably popular in that it has moved to "sold-out at Hornby" in just 6 weeks after it was announced : this suggests that demand has been significantly stronger than Hornby anticipated when they decided on the initial production run. This is the flip side of the model being available shortly after it was announced - the manufacturer isn't able to gauge demand from pre-orders and this increases the risk of getting the size of the production run wrong (I suppose it is possible that what has happening with the 2BIL is that they've erred on the side of caution and the first production run was comparitively small - only to find that they've got a very popular model on their hands)

 

We are not in the US situation of buyers having to pre-order "a pig in a poke" far in advance or miss out completely - we've already seen more of the 2BIL in plastic than say the big GW tanks, and people have been able to order after they saw the magazine reviews . In this respect , the "concessions" issue may in fact work in modellers favour - if Hornby are holding back a portion of the run for Modelzone, Hamleys, and their own website, those models should be available to people who haven't pre-ordered: I would imagine a high proportion of Modelzone's sales are to people who just walk in the door, and with 47 stores their footprint covers quite a bit of the country. Hornby have to set aside a proportion of the production run for their concessions (a retailer like Modelzone could hardly  work with Hornby on the basis "you'll get the stock that's left over after all the other retailers have had as much as they want")  - the key issue is whether they have significantly increased the proportion going to concessions, which would amount to squeezing non-concessions , or whether the problem is simply that demand all round is higher than expected, and because Hornby have decided to stop over-producing to create a buffer for possible further orders from retailers , there is no supply left to cover further orders

 

In any case , this is not likely to be a limited edition one-off run: we can expect further batches of the 2BIL to be produced, so intending purchasers should be able to get one  (Something like the Brighton Belle, where the market may be much more limited might pose more of an issue - we can't expect it to be in Hornby's catalogue year after year)

 

I agree the local modelshop could potentially be disadvantaged here, but the current arrangements , whereby Hornby overproduce against anticipated orders in the hope that additional orders will clear the excess , and if they don't and the stock sits in the warehouse after a while the surplus is dumped on the market at a large discount, generally via a couple of the big mail-order discount retailers, aren't that great for the local retailer either

 

I can see why a company which has been struggling to get sufficent production slots at its suppliers to produce everything it wants would see merit in cutting runs to close to expected demand - it implies you get more of your manufacturing requirement covered , while simualtaneously cutting the amount of unsold and unwanted stock sitting in a warehouse. However this may well mean a reduction in cheap clearance bargains for the end purchaser

[Ozexpatriate]

 

I can see why a company which has been struggling to get sufficent production slots at its suppliers to produce everything it wants would see merit in cutting runs to close to expected demand

Why do you assume they "cut" the volume? While it is possible that they underestimated demand, I think it's more likely they have very limited production capability and produced as many as they could. Perhaps they couldn't crank the handle and make more - without disrupting other 2013 product plans.

 

They are in the middle of changing their primary supplier. Inevitably this is chaos for a manufacturer.

[Mel_H]

At this stage we haven't seen a situation where a new release British RTR model has never been available to the casual purchaser because the whole lot sold out to pre-orders . The 2BIL seems to be proving remarkably popular in that it has moved to "sold-out at Hornby" in just 6 weeks after it was announced : this suggests that demand has been significantly stronger than Hornby anticipated when they decided on the initial production run. This is the flip side of the model being available shortly after it was announced - the manufacturer isn't able to gauge demand from pre-orders and this increases the risk of getting the size of the production run wrong (I suppose it is possible that what has happening with the 2BIL is that they've erred on the side of caution and the first production run was comparitively small - only to find that they've got a very popular model on their hands)

 

We are not in the US situation of buyers having to pre-order "a pig in a poke" far in advance or miss out completely - we've already seen more of the 2BIL in plastic than say the big GW tanks, and people have been able to order after they saw the magazine reviews . In this respect , the "concessions" issue may in fact work in modellers favour - if Hornby are holding back a portion of the run for Modelzone, Hamleys, and their own website, those models should be available to people who haven't pre-ordered: I would imagine a high proportion of Modelzone's sales are to people who just walk in the door, and with 47 stores their footprint covers quite a bit of the country. Hornby have to set aside a proportion of the production run for their concessions (a retailer like Modelzone could hardly  work with Hornby on the basis "you'll get the stock that's left over after all the other retailers have had as much as they want")  - the key issue is whether they have significantly increased the proportion going to concessions, which would amount to squeezing non-concessions , or whether the problem is simply that demand all round is higher than expected, and because Hornby have decided to stop over-producing to create a buffer for possible further orders from retailers , there is no supply left to cover further orders

 

In any case , this is not likely to be a limited edition one-off run: we can expect further batches of the 2BIL to be produced, so intending purchasers should be able to get one  (Something like the Brighton Belle, where the market may be much more limited might pose more of an issue - we can't expect it to be in Hornby's catalogue year after year)

 

I agree the local modelshop could potentially be disadvantaged here, but the current arrangements , whereby Hornby overproduce against anticipated orders in the hope that additional orders will clear the excess , and if they don't and the stock sits in the warehouse after a while the surplus is dumped on the market at a large discount, generally via a couple of the big mail-order discount retailers, aren't that great for the local retailer either

 

I can see why a company which has been struggling to get sufficent production slots at its suppliers to produce everything it wants would see merit in cutting runs to close to expected demand - it implies you get more of your manufacturing requirement covered , while simualtaneously cutting the amount of unsold and unwanted stock sitting in a warehouse. However this may well mean a reduction in cheap clearance bargains for the end purchaser

Revenser has hit the nail on the head. It is all about supply and demand. There is no doubt that if orders and demand for the 2-BIL is as great as this forum suggests, then a re-run will be close behind.

 

After all, Hornby's products (and those of Bachmann) tend to stay in the catalogue for years, as long as there is demand.

 

The situation is not like some small-volume (mainly hand built brass) producers who offer a 'buy it now or never' policy.

 

In some markets, where either the risks are greater, or the manufacturer does not wish to open themselves to the risk as much, smaller volumes tend to be produced. Heljan and Dapol sometimes fall into this category. I don't know, but I guess that the 2-BIL quantity was arrived at by educated estimates by Hornby, coupled with the need for its factory to produce a variety of models in a certain timescale.

 

Don't forget that when the push-pull sets sold out, a re-run was pretty quick.

 

Given that sometimes models sell quickly, and others slowly, in the current climate it's not unreasonable for Hornby to take a careful stab at quantities. A look at shops' websites and their discounts/unsold stock will also give an indication of what's not as popular as the model shop thought it was going to be when they ordered it.

 

If the science was that precise, I'm sure that there would be many more 'happy' store owners! Don't forget that us modellers are a fickle lot - there doesn't seem to be much between a collective 'whoopee' and a general shrug, when it comes to new models. On this topic, any one want a OO Dapol Pendolino? And no, I never managed to get the intermediate coaches due to their shot run and all being 'immediately' sold out. But that's another thread for another time, I guess....

Mel H

[The Stationmaster]

 Why do you assume they "cut" the volume? While it is possible that they underestimated demand, I think it's more likely they have very limited production capability and produced as many as they could. Perhaps they couldn't crank the handle and make more - without disrupting other 2013 product plans.

 

They are in the middle of changing their primary supplier. Inevitably this is chaos for a manufacturer.

Equally of course they might simply have produced a quantity which they thought they could sell in an amount sufficient to cover their investment cots.  Which is exactly what the commissioners do of course - without anyone moaning about it.

 

I think the potential difference with Hornby is that not only are they in a production transition they are also, potentially, in a sales transition as well i.e. models are going to their own e-sales plus concessions (at RRP) before they go to general retail plus they have revised their trade terms which will - as I understand it from what I was told last year - impact on the level of discount retailers will be able to offer.  Take that a step further and we might see retailers also selling at near to, or at, RRP and the picture becomes very different when someone is first on the shelf with new product   Could that happen - I don't know but if I were a company looking to maximise my return I could possible see something like that as a potential route (which would only work in the very short term in my view) even if it did mean upsetting my existing retail outlets.

[The Stationmaster]

Revenser has hit the nail on the head. It is all about supply and demand. There is no doubt that if orders and demand for the 2-BIL is as great as this forum suggests, then a re-run will be close behind.

 

After all, Hornby's products (and those of Bachmann) tend to stay in the catalogue for years, as long as there is demand.

 

The situation is not like some small-volume (mainly hand built brass) producers who offer a 'buy it now or never' policy.

 

In some markets, where either the risks are greater, or the manufacturer does not wish to open themselves to the risk as much, smaller volumes tend to be produced. Heljan and Dapol sometimes fall into this category. I don't know, but I guess that the 2-BIL quantity was arrived at by educated estimates by Hornby, coupled with the need for its factory to produce a variety of models in a certain timescale.

 

Don't forget that when the push-pull sets sold out, a re-run was pretty quick.

 

Given that sometimes models sell quickly, and others slowly, in the current climate it's not unreasonable for Hornby to take a careful stab at quantities. A look at shops' websites and their discounts/unsold stock will also give an indication of what's not as popular as the model shop thought it was going to be when they ordered it.

 

If the science was that precise, I'm sure that there would be many more 'happy' store owners! Don't forget that us modellers are a fickle lot - there doesn't seem to be much between a collective 'whoopee' and a general shrug, when it comes to new models. On this topic, any one want a OO Dapol Pendolino? And no, I never managed to get the intermediate coaches due to their shot run and all being 'immediately' sold out. But that's another thread for another time, I guess....

Mel H

But that all assumes that Hornby is producing a bigger volume than, say, is the case for a commissioned loco.  What if they aren't producing in such high volume but have taken a look at the commissioned model idea and taken a liking for the marketing model it involves?  That means limited production, a quick return at a relatively high price and so on.

 

And what of the second run - how do they decide that?  Did the first run exhaust demand or did it balance it - the only way they can hazard a guess is to ask retailers or look at their own rates of direct sale and concession sales - look on the Hornby website and see what is offered at sale prices and you can tell where they over-produced.  In reality I'm not at all sure that their marketing is clever enough to tell them what the demand will be for the 2 BIL in a particular livery or indeed anything else - and this is potentially where disappointment can arise if production proceeds firm pre-orders (as it has with the 2BIL).

[Ozexpatriate]

I think the potential difference with Hornby is that not only are they in a production transition they are also, potentially, in a sales transition as well

Agreed.

Take that a step further and we might see retailers also selling at near to, or at, RRP and the picture becomes very different when someone is first on the shelf with new product.

The unintended consequences of this 'margin management' program by Hornby to increase profitability by selling as close to RRP as possible will be interesting to see. There are a lot of moving parts in their channel strategy right now.

[Guest dilbert]

These are worrying times for me in the direction the manufacturuers are going, if we had some rules, guidelines and clarity it would help, but to me to continue down this road is putting the longer term viability of the hobby in doubt.

 

Why should these be worrying times? The market will evolve in-line with the hobby... it did in the mid-1980s when Mainline eventually made for the exit (and that wasn't due to profitablitiy).

 

Let them go and play their big corporate games. We still have the smaller players providing us with the stuff we really need on fair terms.

To paraphrase Douglas Adams; " So long and thanks for all the Pacifics and B1s..."

 

Including RTR and kits... Hornby make some excellent stuff... they know they need to re-invent themselves... whatever 'design clever' is supposed to be, and whether their overall strategem from design to banking monies from commercial activity is another issue...there's more to the hobby than 4mm OO RTR gauge... dilbert

[Ceptic]

My thoughts captured, entirely, zigzag (Post # 56). I only wish I had your eloquence.

 

It appears that this most recent cause of concern, is centred around the supply to cater for the demand for Hornby's 2-BIL. 

 

Taking a step back, and considering Bachmann's view / approach to producing the 4-CEP.

Even when the demand proved to be existent, they held back, until they had enough data to go ahead. After a long lead-in, the product and sales, of such, have guaranteed a winner, both in 'OO' & 'N'.

 

But,...here's the 'Rub',...Looking at recent discounted prices,..£75 - £80 for an 'OO' four car unit, that once cost £120+, makes me think that the initial demand is over ?. Bachmann, maybe ?, have perceived this, and continue to supply the 'tick-over' market.

 

Hornby, however,...are open to question...on all counts.

[stewartingram]

My thoughts captured, entirely, zigzag (Post # 56). I only wish I had your eloquence.

 

It appears that this most recent cause of concern, is centred around the supply to cater for the demand for Hornby's 2-BIL. 

 

Taking a step back, and considering Bachmann's view / approach to producing the 4-CEP.

Even when the demand proved to be existent, they held back, until they had enough data to go ahead. After a long lead-in, the product and sales, of such, have guaranteed a winner, both in 'OO' & 'N'.

 

But,...here's the 'Rub',...Looking at recent discounted prices,..£75 - £80 for an 'OO' four car unit, that once cost £120+, makes me think that the initial demand is over ?. Bachmann, maybe ?, have perceived this, and continue to supply the 'tick-over' market.

 

Hornby, however,...are open to question...on all counts.

But don't forget, Bachmann -  being in it for profit - will have done their figure such that they recoup their R&D costs, and also turn a profit, on the initial (high) price release. Later batches don't have any R&D content, so a lower selling price still turns a profit (& keep in mind the trade/retail split here as well).

 

Stewart

[Ravenser]

 Why do you assume they "cut" the volume? While it is possible that they underestimated demand, I think it's more likely they have very limited production capability and produced as many as they could. Perhaps they couldn't crank the handle and make more - without disrupting other 2013 product plans.

 

They are in the middle of changing their primary supplier. Inevitably this is chaos for a manufacturer.

 

If you have a production constraint , do you produce 10 models at 2,500 units each , and put 500 units of each in the warehouse to cover further orders  - or do you produce  10 models at 2000 units each, and two "bankers" at 2,500 units each. ? What I meant by cut the volume is "cut the size of run, in order to produce a larger range of items within the same production capacity"

 

Simon Kohler I think used the term "overproduction" for producing more than the expected initial demand and holding a buffer stock in the warehouse , to meet potential further demand. If the model does not do as well as hoped, a part of this buffer then has to be cleared from the warehouse at a sharp discount , through a special offer to retailers. SK last year said that this was an approach they were no longer going to take, and they would be cutting production runs to levels close to anticipated demand

 

For the 2BIL they clearly had to decide on the production run before the model was announced and therefore had no pre-orders to guide them - as a result they may have "played safe" and aimed low. The flip side of this is people have models in their hands within 6 weeks of Hornby announcing the 2BIL - as opposed to the 4 years or something like that we waited for the 4CEP

[APOLLO]

Alot of interesting points here. I've just a couple of observations. I'm taking the lad to Liverpool airport tomorrow - yes, will be calling in at the Liverpool box shifter nearby. They have a few very good offers on at the moment, Bachmann Mk2 coaches at £12, chipped blue deltic for £69, blue 20's for £49, (£52 weathered), and a weathered blue peak a steal at £55. I can't afford em all, but will def by a couple of locos and a coach or two.

 

Now, the same shop has also some pretty horrific prices, (especially Hornby). Hornby prices in particular here have risen dramatically recently AND there is no longer that much choice availiable either. Many items (both Bachmann & Hornby) that have been staple sales items for years have disappeared (i.e. all stock sold - no longer produced). Many items are either on pre-order or awaiting delivery, and some have been for quite a while (Covhops, etc). I'm convinced we will never see half of them. Re introduced items seem nearly double the price also.

 

Another point (marketing ploy) is to only make the most popular item a DCC Chipped or sound chipped model. A bit annoying. £160 for a blue grey HST power car & dummy ? - not chipped either (other gaudy liverys are around £106 - still steep).

 

Hattons have not had any Hornby late crest O1's seemingly at all, if they had them they where all pre-sold. Not even shown on there site today. I however found one in Railway Junction, Warrington a few weeks ago at just under Hattons price - moral - shop around.

 

For me personally I will be buying quite a lot less in future, as I have a limited and rapidly shrinking budget.

 

My advice, rightly or wrongly, is to grab the bargains while / if you can. It seems that in a couple of years everything new will be on pre-order only at RRP, then, indeed this will be an expensive hobby.

 

Brit15

[Ozexpatriate]

What I meant by cut the volume is "cut the size of run, in order to produce a larger range of items within the same production capacity"

That feels like a fair assessment to me. The choice of limiting production to 500 units for each of the 'Great Gathering' A4s is evidence of the same behaviour.

For the 2BIL they clearly had to decide on the production run before the model was announced and therefore had no pre-orders to guide them - as a result they may have "played safe" and aimed low.

Or (to your earlier point) perhaps they chose a production target consistent with also manufacturing multiple A4s, the Star, the P2, the DoG, the Hall, etc in a capacity constrained manufacturing environment.

 

Let's look back to late last year. In the light of Hornby's supply chain issues, lots of people tipped that there would be few new announcements. What we saw in mid-December was an exciting set of new announcements, somewhat broader than most expected, and we are now learning that the volumes produced for each of these (at least so far) appear to be smaller than historical norms.

 

The traditional model to improve profitability is to amortize development costs with large volumes per tooling - with the risk of slow selling product sitting in inventory.

 

This year we see strategies to improve profitability through driving high demand by limiting quantities, guaranteeing a sellout at prices closer to RRP - with the risk of lost upside due to insufficient volumes.

[Ozexpatriate]

'Design Clever' reduces cost. Limiting quantities increases ASP (average selling price per unit).

 

The combination of the two each reinforces profitability on a per unit basis. In my opinion this is all linked to constrained manufacturing and is geared to getting the most out of a sub-optimal situation.

 

When manufacturing is unconstrained you just make more. Unsold inventory hurts, but not as much as not having product to sell. Unless you really get the numbers wrong, even with discounting, excess inventory can usually be sold above cost.

[brushman47544]

But that all assumes that Hornby is producing a bigger volume than, say, is the case for a commissioned loco.  What if they aren't producing in such high volume but have taken a look at the commissioned model idea and taken a liking for the marketing model it involves?  That means limited production, a quick return at a relatively high price and so on.

 

And what of the second run - how do they decide that?  Did the first run exhaust demand or did it balance it - the only way they can hazard a guess is to ask retailers or look at their own rates of direct sale and concession sales - look on the Hornby website and see what is offered at sale prices and you can tell where they over-produced.  In reality I'm not at all sure that their marketing is clever enough to tell them what the demand will be for the 2 BIL in a particular livery or indeed anything else - and this is potentially where disappointment can arise if production proceeds firm pre-orders (as it has with the 2BIL).

 

That is why I like the approach I mentioned earlier of LS Models, where they list all the planned variants to be produced and can then to a certain extend tailor production of each version to the number of pre-orders from retailers made by a set date, setting the overall numbers and price to give an overall profit taking into account design and production costs. In a 2-BIL scenario, Hornby could have listed SR, BR green with and without SYP, BR Blue with SYP and FYE and the "green" with FYE as it operated on the main line in preservation, invited retailers to pre-order quantities of each and then produced them (hopefully plus a few to cover additional demand) over a couple or so years. But this would be a wholly new approach to UK outline manufacturers and I can't see it happening any time soon.

 

As it is, Hornby have a 2-BIL ready to go in probably not the two most popular liveries with no opportunity for Hornby to assess likely demand from retailer pre-orders. And no certainty for us that the liveries we really want will ever be produced. So we are effectively being cajoled into buying one now in the hope or expectation that we may also buy the one we would have preferred if or when it is produced.

[Adams442T]

'Design Clever' reduces cost. Limiting quantities increases ASP (average selling price per unit).

 

The combination of the two each reinforces profitability on a per unit basis. In my opinion this is all linked to constrained manufacturing and is geared to getting the most out of a sub-optimal situation.

 

When manufacturing is unconstrained you just make more. Unsold inventory hurts, but not as much as not having product to sell. Unless you really get the numbers wrong, even with discounting, excess inventory can usually be sold above cost.

Spot on IMHO.  When I worked with Chinese factories [model figure production for Britains in the mid to late 90s] they all had production 'slots' for some reason geared to 510 or 520 'units' each.  If we wanted more we had to book 2 or more 'slots'.  If not, and we wanted another batch, we had to wait for the next slot to come up or rob one of our future production slots.  This of course meant that later model being put back.  It seems that all the current production factories still operate much the same way.

 

Britains also went down the direct sales and limited edition routes, and with disastrous consequences.  Within a short time they lost most of their retailers.  The limited edition sales collapsed [largely because they didn't listen to their remaining large retailers advice over subject] and they then later 'dumped' the 'Limited Editions' virtually at cost.  It didn't take customers long to work out that if they waited 'til next year these editions appeared at 1/3rd of the price.

 

I can understand Hornby investigating lower production costs and different ways of selling but IMHO I think they need to be very careful that the baby doesn't go down the plughole while they are trying to limit the bathwater...................

[APOLLO]

So we are effectively being cajoled into buying one now in the hope or expectation that we may also buy the one we would have preferred if or when it is produced

 

That seems to have been the ploy of both manufacturers the last few years. The one we "want" will invariably also be DCC / sound fitted.

 

Ah well ! - we can allways buy the cheapest wrong un and repaint / renumber / redetail it !!

 

Brit15

[The Stationmaster]

That feels like a fair assessment to me. The choice of limiting production to 500 units for each of the 'Great Gathering' A4s is evidence of the same behaviour.

I think the 'Great Gathering' A4s are a slightly different matter and are - for once(?) - a very carefully thought through piece of marketing.  Firstly the number has been set low on purpose, and clearly advertised as such, to encourage customers to order; secondly the locos are only being wholesaled as 'sets' (buy one, buy them all) which seems a sensible marketing idea because that is what the models represent; third the price at RRP is pretty high - there clearly won't be a large number of folk able or prepared to outlay £1,000 plus on a very discretionary purchase even if it is one that might stand a chance of holding its value or even appreciating; and fourth there is a better than evens chance that at a minimal level of discount or even at RRP the models will sell out, quickly (which it appears they probably have at trade level judging by the size of allocation to one retailer I know of).

 

So probably a large run wouldn't sell in the way this is being marketed - as 'something rather special'; so keep the number down and the exclusivity up (and make a bomb out of existing tooling).

 

The downside is that commercial success with this might encourage Hornby to do the same with something else - just as 'Tornado' has shown them a way forward (they hope) with a particular loco.