Retailer reveals his profit on the sale of a loco

[Michael Hodgson]

7 minutes ago, Andy Hayter said:

 

 

While the analogy may be an accurate one I think there is a big difference.

 

My corner shop sold fresh fruit and veg, tinned goods, buckets, cakes and brooms.  I can get all of these at my supermarket.

 

When I left the UK, my local model shop sold model trains from the rtr producers, plasticard, plastrut, glues and solvents, paints, white metal castings, kits in plastic, brass and white metal, replacement wheels for locomotives, wagons and coaches, scenicing materials, plaster bandage and a whole lot more.

 

I don't think I can now go to a single website to get even half that range.

 

Yes, you can.  It's called ebay. 

You might be less than enamoured of some of their business practices though, and whilst you might think they take a much higher percentage out of everything than is justified by their overheads or their "customer service", you might still be paying less for some items than you would locally, or direct from a manufacturer.

You pays your money and you takes your choice.

.

[Phil Parker]

29 minutes ago, Michael Hodgson said:

 

Yes, you can.  It's called ebay. 

You might be less than enamoured of some of their business practices though, and whilst you might think they take a much higher percentage out of everything than is justified by their overheads or their "customer service", you might still be paying less for some items than you would locally, or direct from a manufacturer.

You pays your money and you takes your choice.

.

 

Except that you aren't buying from ebay, you are buying from multiple sellers and paying multiple p&p charges. 

[spamcan61]

1 hour ago, AndrueC said:

True, but apparently it's a very common point of view.

One I share, by and large shopping in physical shops is a tedious faff I can glady live without.

[Tim V]

How do you make a small fortune selling model railway stuff?

 

Start with a large fortune.

[spamcan61]

1 hour ago, woodenhead said:

It's common but we've been conditioned to believe online is better than in store, that bigger is better than smaller - but all it is really doing to putting the money into ever smaller numbers of online traders and the result is that the high street is now a series of bars, cafes, takeaways, charity shops, tanning places and betting shops.

 

And if we imagine there are lots of jobs in online, well robots are replacing many of those roles too because people have only one purpose to big online concerns - their money.

In general I agree, but specifically considering toy trains I buy online from the likes of Derails, Hereford, Clark's, Collett's etc. one doesn't have to hand over one's wallet to Amazon when buying online.

[Andy Hayter]

21 minutes ago, Phil Parker said:

 

Except that you aren't buying from ebay, you are buying from multiple sellers and paying multiple p&p charges. 

 

Plus many of those items are not available to anyone living outside of the UK.

 

I would love to buy Precision paints.  Not available under any circumstance whatsoever.

I would like to buy many kits on offer.  This seller sells to the UK only.  This seller does not sell to France.

Even many established companies are finding it difficult to export outside of the tiny isle.

[Ian Hargrave]

Having dealt several times over the last year or so with the voice on the video clip….Chris Timony of A &H Models…I can vouchsafe for his bona fides as a highly reasonable and knowledgeable professional enthusiast.I respect the views he expressed as being one small retailer’s guide to the financial pitfalls of owning a model railway business.His philosophy ( if you can call it that ) is one of personal contact with customers which means by email or phone if remote.  Yes you can order online but you pay by phone. He deals mainly but not exclusively in HO stock .

 

As an aside,his comments on the E32 Piko model shown in the clip are interesting. This was,before the reunification of Germany some decades ago now,a company in the former East Germany marketing cheaper end ( and somewhat lacking in finesse ) plasticky models with a dubious reputation for quality. Compare now with present day models which at least in terms of electric and diesel models can be favourably compared with Roco. Prices also compare advantageously with the best of OO models and the product is frankly mainly superior to them.

 

 

 

 

 

Edited January 1, 2022 by Ian Hargrave
adding text

[Wheatley]

I think the fundamental difference between model shops and general retail is that model shopping is done for fun whereas general retail isn't. My groceries come in a van from whichever supermarket has a suitable slot, because it means I don't have to fight my way round Sainsburys with the rest of humanity, and I have no particular loyalty to one supermarket or the other. But model shopping is a leisure activity which I enjoy.

 

That said, I'm fortunate to have a very good LMS just down the road from home, and another ten minutes walk from my office (when I'm allowed in it). Both get most of my custom because generally the cost of p&p offsets the smaller discount to a degree. (I'm not going to quibble over a tenner extra on a £200 purchase). It also means I can pick things up when I can see they're in stock rather than having things on backorder for goodness knows how long, and I can pick up things I didn't even know were out. I do use Hattons and the others where its convenient as even the best LMS doesn't stock everything. 

 

Same goes for garden centres. You can buy everything you need for a garden online but where's the fun in that ? The problem other hobby retailing has is simply one of scale - gardening (in its very loosest term as meaning any activity accommodated by a modern garden centre) will always outweigh every other hobby because almost every household with a garden does it. 

Edited January 1, 2022 by Wheatley

[Wheatley]

2 hours ago, Andy Hayter said:

 

Plus many of those items are not available to anyone living outside of the UK.

That's about to become a reciprocal problem, as of today the rules have changed for all imports to the UK. The new export rules in place for the last year have already killed 70% of small retailer food* exports, now imports are about to go the same way. 

 

A lot of small traders will no longer ship to the UK, and not just from the EU. Belcher Bits (Canadian retailer of resin bits for model aeroplanes) ceased supplying UK customers last year because our VAT rules are "too stupid to deal with".

 

*(I could only find figures for food).

Edited January 1, 2022 by Wheatley

[Andy Hayter]

1 hour ago, col.stephens said:

 

Why would any seller want the hassle of posting items abroad?  As soon as an item leaves the UK shores it becomes untraceable, but the intended recipient would expect the seller to make good the loss when it disappears.  Internal post can be tracked from the moment it leaves the seller's hands to the moment it is handed to the recipient.

 

I am not suggesting that hey should.  It is their choice but it cuts across @Michael Hodgson's comments about ebay being the total replacement of the model shop.

[Ryan Mccarthy]

I've often wondered why some people do so well in this business whilst others struggle. Rails of Sheffield was my local as a child back in the eighties, you could barely have swung the proverbial cat in it. There was a spotty young John Barber telling his father, (who had started the shop as a small retirement project), of all his big plans for the business. His dad looked on bemused. Fast forward twenty years and I've got a student job there, I've lost count of the number of sports cars John has turned up in and he's just shown me his black Amex card, which is usually only given to premier league football players. I seem to pick my moment when visiting model railway shops as back in the nineties I found an elderly Mr. Hatton in his dingy store in Smithdown Road, Liverpool, (the atmosphere was not improved by every surface being painted black) similarly being accosted by his son with "great plans for the future", and as they say: "the rest is history". Both businesses seem to have succeeded by saturating the model railway magazines with advertising and having friends and relations who were willing to work hard in the early years for little recompense. The main problem of having stock to sell was usually resolved with "just in time delivery" for mail order customers. It all sounds easy enough, any takers?

[newbryford]

A brave video to post IMO.

[The Johnster]

The big ticket items like locos and,to a lesser extent, rolling stock, controllers, and so on, have the smallest markups and margins, and money is made on the smaller stuff; paints, tools, accessories.  A parallel was a schoolchum's mum who ran a small newsagent/tobacconist, think 'Open All Hours' with my mate as 'fetch yer cloth ger-ger-ger-ger-Granville'.  She told me that she made no money at all on cigarrettes, as the markup was low and easily swallowed by the insurance premium and security she had to install because of them, but said that if every customer who bought a pack of fags or a newspaper bought a bag of sweets or a bottle of pop as well, she'd be able to retire at 55 to a nice little bungalow, which was the intended result.  The nice little bungalow was in Tongwynlais just to the north of Cardiff, and she bought it outright for cash when she was 50.

[Ian Hargrave]

45 minutes ago, newbryford said:

A brave video to post IMO.

But a timely one .And one to give us a dose of reality.

[PaulRhB]

48 minutes ago, newbryford said:

A brave video to post IMO.

Yes but I expect most modelshop owners would agree if their customers mention it. 
 

2 minutes ago, Ian Hargrave said:

But a timely one .And one to give us a dose of reality.

 

Give some a dose of reality, whether those people will accept that reality is another matter   I’ve had that chat with several owners over the years and I know it’s stayed current from my local. I pop by at least once a week as it’s just a friendly place to be and although there’s comment on the pricing situation it’s not moaning it’s just reality. The late supply, or late notice of reduced supply is far more of a concern as it annoys those customers who have shown loyalty to him. 

 

1 hour ago, Ryan Mccarthy said:

and having friends and relations who were willing to work hard in the early years for little recompense.

Not unusual with start up businesses but it’s those who make it up to them later that are unfortunately rarer. I know one chap who regularly helped out on Rails stands as they got going and was quite content with the appreciation for that in later years too. 
 

 

[BroadLeaves]

I think I'd have to take some of his figures with a pinch of salt.

Towards the end, he gets down to what looks like £21. He then removes what appears to be £4 for corporation tax, £3 for bank changes and £4 for "subsidising post and packing".

I've bought locos and rolling stock online, and paid ~£4 postage. They arrived well packaged, but it's never looked like like £8 of postage and packaging to me.

The £3 for bank charges is fair enough - a 2-3% merchant service charge for a small retailer is probably about right.

He then goes on to claim that after all the overheads, he's left with £3 profit. UK corporation tax is currently 19%. Anyone who says "I pay £4 corporation tax on this transaction and I only make £3 profit" either really doesn't understand accounting or has his figures messed up.

[jpendle]

4 hours ago, col.stephens said:

 

Why would any seller want the hassle of posting items abroad?  As soon as an item leaves the UK shores it becomes untraceable, but the intended recipient would expect the seller to make good the loss when it disappears.  Internal post can be tracked from the moment it leaves the seller's hands to the moment it is handed to the recipient.

That's not correct.

Everything I buy from Hattons is shipped to the US with a tracking number (DHL), Revolution Trains always use Royal Mail,USPS tracking. I've had decoders from DCC Train Automation sent with Fedex tracking. There's always the option of NOT spending the extra for tracking, but I'm quite happy to pay more for the peace of mind,.

 

Regards,

 

John P

[andyman7]

7 hours ago, Michael Hodgson said:

Why should model railway retail be any different from grocery retail?

Customers buy on price and convenience, so if higher turnover competitors or online are cheaper or more likely to be able to the products they want, that's where they will go.

 

Local model shops have simply gone the same way as the open-all-hours corner shop.  Exhortations to buy from the helpful bloke round the corner so that he will stay in business are all very well, but if most people prefer what they can get more of what they want cheaper elsewhere, it just ain't gonna happen.

 

I agree that simple exhortations don't work; but the wild differences in price that can exists with many goods are no longer really the case now that both Hornby and Bachmann have clamped down on bulk internet retailers getting all the stock and then undercutting the local model shop. Indeed those howls of anguish because H-----s or R----s can't supply a new model mean that a local retailer is now able to make the sale without having their feet cut from under them, either over the counter or online.

 

7 hours ago, AndrueC said:

Any business that relies on footfall is doomed. That's just the way things have been heading for many years now. The hassle of getting into the nearest shopping centre. The cost of parking in the nearest shopping centre. The irritation of wading your way through crowds of shoppers.

 

I gave up on that the moment online shopping became viable. I'm quite happy to wait <random number> days for my stuff to arrive. It adds to the fun. A parcel arrives and it's like Christmas day as a kid. 'What's in the box?'. The only thing I want at a particular time are groceries and Tesco seem very capable of ensuring that.

 

I agree that relying solely on online retail is not viable. But whilst I hate shopping and will avoid it if at all possible I make many trips each year that include a model shop as a destination, and get pretty much 95% of my new model needs over the counter rather than playing roulette with delivery drivers. There is plenty of room for both online and personal selling in the hobby, not everyone is the same.... 

6 hours ago, woodenhead said:

What perhaps is annoying especially as a trader, is the expected discount - knocking 15% off the price because they have to immediately removes most of their potential profit.  Then Hornby of course sell at RRP on their website and have recently restricted supply to their shops through the tier system which makes a double whammy, less sales for the traders impacting profit whilst Hornby takes that profit the trader could have made plus also the additional profit from not applying the rrp discount.

...and because not everyone is the same, Hornby's business model means that they need a direct sales channel as well as local model shops. The retailers that have suffered most from Hornby's restricted supply are the pile-it-high-and-sell-it-cheap behemoths - local model shops have generally in my experience benefited because they are the ones that can supply a W1 or similar when the big barns are sold out. And they have the incentive that they can undercut Hornby's website.

 

2 hours ago, Ryan Mccarthy said:

I've often wondered why some people do so well in this business whilst others struggle. Rails of Sheffield was my local as a child back in the eighties, you could barely have swung the proverbial cat in it. There was a spotty young John Barber telling his father, (who had started the shop as a small retirement project), of all his big plans for the business. His dad looked on bemused. Fast forward twenty years and I've got a student job there, I've lost count of the number of sports cars John has turned up in and he's just shown me his black Amex card, which is usually only given to premier league football players. I seem to pick my moment when visiting model railway shops as back in the nineties I found an elderly Mr. Hatton in his dingy store in Smithdown Road, Liverpool, (the atmosphere was not improved by every surface being painted black) similarly being accosted by his son with "great plans for the future", and as they say: "the rest is history". Both businesses seem to have succeeded by saturating the model railway magazines with advertising and having friends and relations who were willing to work hard in the early years for little recompense. The main problem of having stock to sell was usually resolved with "just in time delivery" for mail order customers. It all sounds easy enough, any takers?

The answer is volume. If the retailer is only making £5 on an £100 loco they can either scrape by or as some realised, get the volume in so you sell 10000 locos  a week and not 10. They saturated the magazines as part of a technique to drive volume and growth - and very successfully to the extent that quite a few folk got to thinking that if Hattons or Rails didn't have it, it must be sold out rather than looking elsewhere. In Capitalism, that is part of the innate tendency towards monopoly of supply that happens as big beasts drive out all others, but the major manufacturers have pushed back hard at their distribution being locked up by big third parties and so Rails and Hattons have both diversified - including ramping up supply of pre-owned models as well as various forays into manufacturing. I have great admiration for the business ethos that drove both Hattons and Rails, but business on the scale that they do it is pretty ruthless and they in turn have found themselves on the end of some pretty ruthless changes in the market - they have the scale and capital to fight on the big field in a way that the vast majority of model shops cannot.

[spamcan61]

16 hours ago, Miss Prism said:

Without wishing to detract from the overall message of the video, i.e. the retailer doesn't make much, I would have preferred a simple list of figures.

Agreed: having watched the video, this is what it seems to boil down to (roughly) :-

 

 

 

 

 

Edited January 1, 2022 by spamcan61

[MyRule1]

If the retailer is actually working in the shop there their wages should be within  "other costs".  If that is the case then  £3 return on an item that cost £78 is actually a fair margin.   Also many of the other costs are fixed and not marginal so  are hard to actually allocate to one transaction.

[PaulRhB]

24 minutes ago, MyRule1 said:

If the retailer is actually working in the shop there their wages should be within  "other costs".  If that is the case then  £3 return on an item that cost £78 is actually a fair margin.   Also many of the other costs are fixed and not marginal so  are hard to actually allocate to one transaction.

He did say he rounded things and he says that profit covers expanding the business and cover for emergencies etc so yes he’s factored wages in elsewhere

He’s not trying to say that profit margin should be bigger just that due to the ‘standard discount’ everyone applies that’s all they get so it’s not about ‘we want more’ it’s just showing people who demand lower prices that the retailer isn’t making a huge margin. 
It’s just a dose of reality. There are high profit items but they are usually short lived due to fashion or technology so there’s an increased risk with selling that stock. Overall I think he made a nice calm point and didn’t shove the problem in the manufacturers direction either. Having limited experience of the manufacturers side a few years ago I can vouch for the fact that those figures rapidly add up too. They are usually dealing with developing multiple models at once so there’s a lot invested in tooling that can have an uncertain return especially with the recent duplication trend so that has no doubt pushed in extra costs to cover that. That return has been further delayed by the recent production and distribution uncertainties too. LGB went bust because they ran into a economic crash with a lot of tooling investment debts and got the rug pulled by the banks. Now many are owned by banks they are expected by those shareholders to have that covered, hence the push to bigger margins on smaller runs to minimise risks. 

[spamcan61]

55 minutes ago, MyRule1 said:

If the retailer is actually working in the shop there their wages should be within  "other costs".  If that is the case then  £3 return on an item that cost £78 is actually a fair margin.   Also many of the other costs are fixed and not marginal so  are hard to actually allocate to one transaction.

Agreed, for starters if the net profit is 3 quid then that's 60p ish in corporation tax, not 3 quid. I get the point of the exercise but it was presented in a very muddled way IMHO.

[bmthtrains - David]

With a 44% supply margin before discount (a retailer’s choice), and a 3% net profit those are actually much healthier figures than I’d have expected. This isn’t a very clear overview of model shop retail finances however. During my old career as a bookseller, if I’d run the same numbers on the Guinness Book of Records, for example, the net profit would have been around 0.5%, but overall the business ran at around 4% as we sold thousands of other items not so heavily discounted.
 

If a shop gets above 5% net profit it is doing extremely well. The challenge for model shops is getting the balance right. Stock enough discounted big ticket items to draw people in but offer enough detailing bits and accessories to make a better profit. This is true of all retail and model shops are no exception.

 

edit: I should also add that the accepted way of comparing profitability is to look at PBIT - profit before interest and tax, which would raise the 3% in this example a little higher.

 

David

Edited January 2, 2022 by bmthtrains - David

[PaulRhB]

These more detailed figures aren’t going to be understood though chaps, he’s just split it into basic descriptions the average punter, not into retail terminology, might grasp  

[AY Mod]

3 minutes ago, PaulRhB said:

These more detailed figures aren’t going to be understood though chaps, he’s just split it into basic descriptions the average punter, not into retail terminology, might grasp  

 

I agree, the intended recipients of the message beyond not understanding the complexities are unlikely to care. They just want something at as low a price as possible. I may apply that principle when I want to buy a specific model of dishwasher but that's because I don't have a longer-term interest in whether I can buy that dishwasher in this town when I may next need one in 10-15 years. I take a different view on whether I would like somewhere I can drop into to buy consumable modelling items to still be around when I need it. Many of those who just want the latest RTR loco at the lowest price don't use the same quantity of consumables.

 

The vast majority of consumers won't understand the business side of things and won't see why they should care and the long-term consequence of their choices are of someone else's doing.

 

Box-shifting is hard work, the numerous small creative businesses in the hobby that have bloomed in the last five years are the ones who've got their heads screwed on. Of course they're working hard too but I can see many of them thriving now, side hustles have turned into bread winning.