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Retailer reveals his profit on the sale of a loco


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On 01/01/2022 at 16:32, 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?

 

 

I remember a few years ago the Hattons website was a little 'eccentric' with many ramblings by the then proprietor

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A random reflection that will probably add nothing to the thread, but here it is anyway:

 

Two other hobbies that I have some awareness of cycling (both myself and one bro are into it to some degree) and angling (same bro is deeply, deeply into it), and both have specialist shops, brim-full of really expensive stuff, especially the accessories and clothing, which when you tot them up exceed the cost of the "big stuff". In both hobbies, the specialist shops seem to be able to make a living, although they are up against big chain stores and the internet.

 

At a guess, I'd say adherents of each hobby spend as much, and in the case of cycling probably more, than railway modellers, and one difference is that they boast about how fancy their bike/fishing-gear is, how fancy it is, and how much it cost them. There is one-upmanship in "gear", to the extent where people look at me like a total cheapskate because my favourite bike cost £800 in a sale, and is six years old. And, in both hobbies people genuinely value their specialist shops, and will use them to some extent rather than the internet, because selecting a bike, or whatever fishing bods select, is a "hands on" process.

 

Whereas, in railway modelling, there seems to be quite a vibe around getting things as cheap as possible, with no consciousness of what that implies for the specialist dealer. A proportion of people do buy "fancy gear" in the railway hobby, but when they do, they do it very discreetly, usually direct from the commissioner, not via shops.

 

I doubt the margins are much different for retailers between the three hobbies, but there is definitely a hard to put your finger on difference in attitude between potential customers, which is not entirely down to demographics. If I had to start a shop, I'd definitely look to start a bike shop, not a model railway shop (fishing baffles me, so I wouldn't try that!).

 

 

Edited by Nearholmer
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On 01/01/2022 at 11:59, woodenhead said:

Arcadia in Shaw is like that too and then he plies you with plentiful cups of tea too.

 

Work used to take me near it every day but now it's a trek I only make if I want something.

Norman Wisenden was a bit like that too

 

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26 minutes ago, Nearholmer said:

If I had to start a shop, I'd definitely look to start a bike shop, not a model railway shop

A small, specialist bike shop near me closed down about 2 years ago, just before lockdown.

I saw for myself once, and it was confirmed by a mate, that the owner was a miserable so&so, but then my mate did used to deliberately upset him by asking for things like motorbike tyres. :rolleyes:

A larger bike shop a bit further away still prospers, partly I suspect because it caters for more than cycling nuts, stocking kid's bikes, lady's 'traditional' bikes, etc as well as the specialist kit. When looking for bikes as my lad grew up I always felt welcome and was not talked down to despite my obvious lack of knowledge.

It just reminds me of what I read about that seemed to happen in later years at M.G. Sharps in Sheffield. There also used to be a second-hand model railway shop on the other side of Birmingham to me where I only ever visited once, due to the manner of the owner. Now long gone, I expect.

Staff/owner attitude can make a big difference, whatever they sell.

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On 01/01/2022 at 12:23, 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.

.

E-bay changed things in that it provided a very large second hand market where it was easy to find the  item you wanted (and hopefully at the "market price" you wanted to pay).  Previously it was pot luck if a local model shop just happened to have that older item  on their shelves.  So a lot more older model railway stock must have been re-circulated than could have been found in pre-internet days. 

 

Another point, it would have been interesting to know what  mark-up on Piko was applied.

Edited by railroadbill
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The actual profit also depends how long the item has been in stock. Model shops can carry a high value of stock  which has to be financed, that is a cost and the longer its there the higher that will be.

 

Dava

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I don’t think there’s really any surprise in there . The Gist of it is about right . I would query his VAT calculation as there should be input VAT to recover which I think he’s ignored - probably £12 if I followed the piles of coins .  And of course his calculation is predicated on giving full discount , which looked like £22, compare with Hattons/Rails etc , many local shops don’t do that , justifiably because of the overheads like rates etc they have to cover . When I had a local shop he gave discount but about half that of the box shifter . He closed down because of retirement . 
 

I think we maybe also concentrate too much on locomotives , or indeed rolling stock .  Probably things like track , scenery etc can be sold at higher prices or at no discount and may have higher margins although admittedly a lower value of items. You can also make more on second hand goods . 

 

But it is interesting . Approaching retirement I’d thought maybe it would be good to get into retail . I did a few studies and concluded it was much too risky and really a full time job . As others have said you can make a small fortune in retail, but you start with a large fortune! 
 

Add in the vagaries of dealing with people like Hornby (tier systems , lack of supply) and it really was a no brainer. Id probably have more stress retired than in work . 

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31 minutes ago, Legend said:

And of course his calculation is predicated on giving full discount , which looked like £22, compare with Hattons/Rails etc , many local shops don’t do that , justifiably because of the overheads like rates etc they have to cover . When I had a local shop he gave discount but about half that of the box shifter . He closed down because of retirement . 


The difference in discount would just get shifted to ‘other costs’ so it all balances out and doesn’t affect the profit figure. 
 

One thing notable here is Bachmanns simpler trading terms, you must have a bricks n mortar shop, actively supports the shops over competing with direct sales. Did Hornby move to competing with their customers because of the troubles encountered in recent years or purely because the investment owners have pushed for more direct sales simply to increase margins. 
 

The newer manufacturers have all started with direct sales but are actively pushing to expand a trade network too and we’ve seen Bachmann setup EFE to bring in some of those to their network. So why is Hornby heading in a different direction to everyone else? Do they think social media and tv can sustain the brand if their product isn’t on the shelf in a shop or at shows? Ok they attend some big shows but a table full of product is still a big draw to punters at shows. 

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1 hour ago, PaulRhB said:


The difference in discount would just get shifted to ‘other costs’ so it all balances out and doesn’t affect the profit figure. 
 

 

No . If you dont give away the discount its pure profit . There are no extra costs involved , although you may have to pay more tax

 

Overall though we are splitting hairs . For sure model railway/ hobby shops  like most other retail is struggling .  

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9 minutes ago, Legend said:

 

No . If you dont give away the discount its pure profit . There are no extra costs involved , although you may have to pay more tax

 


I did quote your statement below ;) because in that case the reduction in discount is to cover those other costs.  

 

2 hours ago, Legend said:

many local shops don’t do that , justifiably because of the overheads like rates etc they have to cover .


It doesn’t become more profit it moves to covering ‘other costs’ in that case and yes most smaller shops do exactly that to cover their higher costs compared to a bulk box shifter ;) 
 

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1 hour ago, PaulRhB said:

One thing notable here is Bachmanns simpler trading terms, you must have a bricks n mortar shop, actively supports the shops over competing with direct sales. Did Hornby move to competing with their customers because of the troubles encountered in recent years or purely because the investment owners have pushed for more direct sales simply to increase margins. 
 

Which is what I was trying to suggest earlier, Hornby using a greater push on direct sales means they restrict sales through shops to allow them more earnings - in a direct sale they get the profit margin for wholesale plus the whole retail element is profit having already accounted for most of their costs in the wholesale element.  It's a massive win and once the shops have used up their allottment people have only got the full RRP Hornby prices

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7 hours ago, Legend said:

Probably things like track , scenery etc can be sold at higher prices or at no discount and may have higher margins although admittedly a lower value of items.

 

Maybe because those are the things that modellers (rather than acquisitors) need, it's rare I see anyone moaning about the price of track, as you say a lot of the noise is very lococentric. Maybe it's because the loco is a discretionary extra rather than fundamental to a layout and is a commodity which is easy to compare prices on.

 

A few years back I was in a very good heritage railway shop that had probably the best selection of stock of a particular scale anywhere. By the racks stood a very typical hobby buyer taking everything off the racks and checking the price at a well known retailer on his phone. He wouldn't have been able to visit that retailer and see the depth of range on the shelf. I must admit that I told him what I thought and that it would be nice if he supported the shop and the railway with purchases there. He just chuntered and moved off.

 

Every local shop has to suffer this to varying degrees from 'regulars' playing their local shop off against online prices through to those who will ask to see a model running and then turn round to say where they can get it cheaper. Some don't even display a hint of embarrassment at their behaviour. 

 

For the sake of your sanity and temper hold onto your retirement fund rather than risk it in the hands of this small but immensely irritating market sector!

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13 hours ago, Nearholmer said:

There is one-upmanship in "gear", to the extent where people look at me like a total cheapskate because my favourite bike cost £800 in a sale, and is six years old. And, in both hobbies people genuinely value their specialist shops, and will use them to some extent rather than the internet, because selecting a bike, or whatever fishing bods select, is a "hands on" process.

 

Whereas, in railway modelling, there seems to be quite a vibe around getting things as cheap as possible, with no consciousness of what that implies for the specialist dealer. A proportion of people do buy "fancy gear" in the railway hobby, but when they do, they do it very discreetly, usually direct from the commissioner, not via shops.

 

This is where the new Bachmann 47 seems to have opened up a trend, with the super-duper SFX version at £300+ selling out straight away whilst the cheaper versions are still on the shelf

2 hours ago, PaulRhB said:

One thing notable here is Bachmanns simpler trading terms, you must have a bricks n mortar shop, actively supports the shops over competing with direct sales. Did Hornby move to competing with their customers because of the troubles encountered in recent years or purely because the investment owners have pushed for more direct sales simply to increase margins. 

 

13 minutes ago, woodenhead said:

Which is what I was trying to suggest earlier, Hornby using a greater push on direct sales means they restrict sales through shops to allow them more earnings - in a direct sale they get the profit margin for wholesale plus the whole retail element is profit having already accounted for most of their costs in the wholesale element.  It's a massive win and once the shops have used up their allottment people have only got the full RRP Hornby prices

I've made this point in other threads, but Bachmann UK and Hornby do not have comparable markets. Bachmann sells mostly to dedicated hobby enthusiasts; Hornby's brands have a wider and more general reach and in their case it would be market suicide not to do direct sales as the average consumer expects that option. Bachmann in the US occupies a much more mainstream position in the market (akin to Hornby Railroad amongst others) and they do direct sales over there.

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Just now, andyman7 said:

This is where the new Bachmann 47 seems to have opened up a trend, with the super-duper SFX version at £300+ selling out straight away whilst the cheaper versions are still on the shelf

 

I've made this point in other threads, but Bachmann UK and Hornby do not have comparable markets. Bachmann sells mostly to dedicated hobby enthusiasts; Hornby's brands have a wider and more general reach and in their case it would be market suicide not to do direct sales as the average consumer expects that option. Bachmann in the US occupies a much more mainstream position in the market (akin to Hornby Railroad amongst others) and they do direct sales over there.

I understand what you mean and overseas yes a direct sales approach is key, but in the UK there are still plenty of retailers strangling out Hattons and Rails was not about saving retailers it was about Hornby maximising their own profit from UK sales.

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22 minutes ago, AY Mod said:

 

Maybe because those are the things that modellers (rather than acquisitors) need, it's rare I see anyone moaning about the price of track,  (snip)

Well there were a number of whinging posts re the Peco UK hand assembled Cd75 Bullhead range point costs. I expect those to magnify when the slips and crossings arrive, because some people  won’t want to pay for UK hand assembled crossings either, despite the increased cost of components/kits currently available from other UK suppliers.

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3 minutes ago, PMP said:

Well there were a number of whinging posts re the Peco UK hand assembled Cd75 Bullhead range point costs. I expect those to magnify when the slips and crossings arrive, because some people  won’t want to pay for UK hand assembled crossings either, despite the increased cost of components/kits currently available from other UK suppliers.

 

An interesting point (cheap pun) made. Just what are they comparing them to? A less accurate product or materials that would involve time and skills; or just what they think a business would charge based on their own extensive production and marketing skills?

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2 hours ago, PaulRhB said:

. So why is Hornby heading in a different direction to everyone else? Do they think social media and tv can sustain the brand if their product isn’t on the shelf in a shop or at shows? Ok they attend some big shows but a table full of product is still a big draw to punters at shows. 

Other industries have effectively proved that online sales channels can replace the high street. When easyJet and Ryanair et al started they were call centres, that rapidly changed to online sales, that the industry followed through with. Travel agents almost became extinct. Now you see those airlines doing package deals rather than just seats.

With the right approach and IT a company like Hornby could do a similar thing, at the moment having retailers obviously works, but I can envisage a time where a company could go online only.

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22 minutes ago, andyman7 said:

but Bachmann UK and Hornby do not have comparable markets. Bachmann sells mostly to dedicated hobby enthusiasts; Hornby's brands have a wider and more general reach and in their case it would be market suicide not to do direct sales as the average consumer expects that option

I’m not saying they shouldn’t do direct, same as Accurascale and Planet Industrials, but they do seem to be pushing towards that over the shops because of the complicated tier and general stock supply. Two shops asked Hornby reps why their allocation was dropped a week before delivery when Hornby were still advertising stock on their site. The response was it’s ring fenced but you’d think the orders stock from January would also have been ring fenced at the same time? Why annoy shops with definite orders over potential yet to happen sales? It’s just not great customer relations to your trade partners and we’ve seen a couple of retailers on here express frustration with the situation too. 
 

9 minutes ago, PMP said:

Well there were a number of whinging posts re the Peco UK hand assembled Cd75 Bullhead range point costs. I expect those to magnify when the slips and crossings arrive, because some people  won’t want to pay for UK hand assembled crossings either, despite the increased cost of components/kits currently available from other UK suppliers.

 

Yes I agree, but they are trying to compare with items designed with compromises for mass production rather than hand built track from Marcway etc, trying to get them to see that difference though is a bit of a losing battle ;) 

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Just now, AY Mod said:

 

An interesting point (cheap pun) made. Just what are they comparing them to? A less accurate product or materials that would involve time and skills; or just what they think a business would charge based on their own extensive production and marketing skills?

A mix of all of the above, the manufacturing ‘wage’ cost for example never enters their consciousness, similarly with RTR locomotives etc. The fact that you might employ an adult at £10.00 per hour 52 weeks per year to assemble them, let alone their colleague in the warehouse dispatching them, has for some reason always been an inconvenience in their accounting procedures…

 

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29 minutes ago, woodenhead said:

I understand what you mean and overseas yes a direct sales approach is key, but in the UK there are still plenty of retailers strangling out Hattons and Rails was not about saving retailers it was about Hornby maximising their own profit from UK sales.

If we take that viewpoint as fact (and without evidence it is just a viewpoint) we can add in the issue that Hornby has been making losses for the past few years and needs to find a way back to profitability. In that circumstance, targeting the internet bulk sellers and removing the middleman is not greed, it's survival.

 

(I realise that there are a number of armchair experts on RMWeb who know exactly why Hornby is loss-making and could successfully run it profitably from the pub counter in between reading the paper but for the purposes of this point I'll stay in the real world ^_^)

 

2 minutes ago, PaulRhB said:

I’m not saying they shouldn’t do direct, same as Accurascale and Planet Industrials, but they do seem to be pushing towards that over the shops because of the complicated tier and general stock supply. Two shops asked Hornby reps why their allocation was dropped a week before delivery when Hornby were still advertising stock on their site. The response was it’s ring fenced but you’d think the orders stock from January would also have been ring fenced at the same time? Why annoy shops with definite orders over potential yet to happen sales? It’s just not great customer relations to your trade partners and we’ve seen a couple of retailers on here express frustration with the situation too. 

This gets to the heart of the problem, which is not about Hornby's distribution strategy per se, it is the struggle to get sufficient quantities of goods manufactured in China and shipped to the UK. This is not an easy thing to solve because it is a small cog in much wider global supply and economic issues. I'm not claiming that Hornby's alleged communication is perfect, but it is fairly evident that stock expected when order were taken has not equalled stock available for distribution.

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3 minutes ago, andyman7 said:

it is fairly evident that stock expected when order were taken has not equalled stock available for distribution.

 

In our press briefing last month I specifically asked if current issues had led to a reduction in production run quantities and was assured this was not the case. I had the W1 in mind but applied it as a general question to ask if any products had been affected. Therefore, different assumptions may be made.

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32 minutes ago, AY Mod said:

 

In our press briefing last month I specifically asked if current issues had led to a reduction in production run quantities and was assured this was not the case. I had the W1 in mind but applied it as a general question to ask if any products had been affected. Therefore, different assumptions may be made.

Thanks, I missed that point. It's probably fair to say that sourcing production from China is not as quick, easy or inexpensive as it once was, and the trend is towards higher factory prices and longer lead times, all of which make accurate predictions on delivery harder for everyone.

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27 minutes ago, andyman7 said:

but it is fairly evident that stock expected when order were taken has not equalled stock available for distribution.

Then there’s a serious problem somewhere in understanding what’s been ordered or fulfilling a contract!

This is what’s so irritating to trade and customer, why are they taking orders in January then allocating what you can have and yet changing it again 12, 18 and  24 months later? It’s not been a one off either and has been happening since at least the initial Pecketts were released! 

It just keeps happening and why are so many shops and customers now in doubt if they’ll actually get their order?

This started before the pandemic problems and they’ve had what, four years to get a grip on it? 
Why have several reputable shops suddenly put March as the expected date for the APT? You have to assume that’s from Hornby yet it is different to what they are saying on Facebook, quoted on here in that thread. 
 

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The communication isn’t allegedly poor it’s non existent or contradictory. They still can’t answer direct questions as to whether two NDM’s are required for a 14 car set on average layouts gradients and are selling the 7 car set with one dummy and no relevant second powered option to join the extension packs. 

 

I feel for the shops and I can see some just not bothering with Hornby as the new producers get bigger and favour their version over a competing one from the ‘big H’.

 

Personally I’m not seeing that their starter end of the range is that big a part of the market that they can afford to keep disappointing the collector end where traditionally the better margins are. LGB (part of Marklin group) have openly admitted they are focused on that end and they have a similar investment ownership structure. 
 

It will be interesting to see how it goes but my loyalty is swinging to the shops and other manufacturers because I’ve been mucked around repeatedly and due to the info available I’m placing that confusion at Hornby’s door ;) 

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On 01/01/2022 at 12:11, Michael Hodgson said:

If this were a good world, it wouldn't have Covid, cancer, perennial wars, children suffering malnutrition or lifestyles causing climate change.  I can't even scratch the surface of fixing this or if you prefer, "The poor are always with us".

Well I can't disagree with any if that. However, what has this social situation got to do with small MR Shops going to the wall because we are supposed to support the money making set ups? I really can't see the links.

You are looking at a World in change and yes, it is in turmoil in many respects, but my God there is some amazing stuff out there and I also 'can't scratch the surface' of what you appear to be unable to appreciate on the 3rd Rock from the Sun.

We are/were talking toy trains are we not, not Global Philosophy? 

P

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3 hours ago, PaulRhB said:


So why is Hornby heading in a different direction to everyone else? Do they think social media and tv can sustain the brand if their product isn’t on the shelf in a shop or at shows?

 

Because to a large chunk of the non modelling public 'Hornby' IS model railways!

 

To them the fact that there are other manufacturers / retailers out there is irrelevant - indeed as some shop owners will attest some such 'unknowledgeable' will insist on only buying Hornby as it is 'the best'

 

Moreover such types are not in the habit of going looking for model shops - if its not in mainstream shops (which includes their websites) or on the likes of Amazon they won't bother.

 

So by establishing a direct sales channel, Hornby can hoover up sales from such types when the Google 'Hornby'.

 

Bachmann etc are in a different position - their name is virtually unknown outside the modelling world and as such the market Hornby are trying to tap up with their direct sales initiative doesn't really exist for them. If they did do direct sales there is a much grater chance it would actually take trade away from model shops than Hornby's efforts as a result.

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