ExactRail Changes Business Model to Direct Sales

Model Railroader General Discussion (Model Railroader)
1

I received an email today from ExactRail stating that due to higher production costs, they are eliminating their dealer network and moving to direct sales. Apparently they have been experiencing an increase in production costs and feel to stay competitive, they need to eliminate the middle man, in this case the retailer.

"As of May 1, 2012, ExactRail will no longer offer a dealer discount and will discontinue our dealer network. Cost of production has increased considerably for ExactRail over the last two years. We have absorbed most of these increases through our margins, however this is not a supportable model for our business. Our conclusion is that we can keep prices reasonable by serving you directly. We believe we can both benefit from having direct interaction. "

I would imagine that this is probably not too well received by the Hobby Shops. The LHS rely on offerings by the popular manufacturers to bring traffic into their stores. With ExactRail going to direct sales, there is now one less manufacturer to help create that traffic into the hobby shops or even for the internet based retailers. It also says to me that the costs associated with our hobby are on the rise and time will tell, but we will probably see other manufacturers increasing their prices or also going to direct sales to stay profitable.

Guess we will have to wait and see what the future holds for the hobby.

Pat

2

The costs have risen for this hobby because of all the RTR items we allegedly wanted.

I’ve introduced my LHS to Accurail which is a model maker who hasn’t caught on too much in Canada. At least not from what I have seen.

This allows me to keep the piece of the pie that Athearn & Roundhouse abandoned when they went RTR exclusively.

Thank you Accurail!

3

Allegedly? Whoa now, don’t you think the manufacturers are simply responding to demand? Allegedly? Lets be honest about this, we the consumer have large back logs of unbuilt kits and are happy to buy RTR models - I’m one of them. Even our venerable John Armstrong admited back in the 60’s and 70’s that the typical modeller had far more kits than he had time to build. So don’t give me alleged. Thats like saying we can allegedly fly to Europe on a 767 - oh yeah, I flew to London to meet my “now wife” on one of those.

Yes, well, maybe ExactRail doesn’t make enough Canadian prototypes or else I imagine they would be more popular up in the great white north.

W/E

See Atlas HO forums for about 8 or 9 pages of discussion and hand wringing!

4

Hmm, don’t recall mentioning anything about being prototypical!

Didn’t mention ExactRail either!

What I was trying to convey is that Accurail still makes kits, inexpensive kits at that. Made in the U.S.A!

The prices over their kits haven’t changed that much since the late 90’s.

5

I don’t see the need for a bickerfest over it…

A LHS near here started dealing with Exactrail the same way as with a few others…no big whoop here.

6

I for one am disappointed in this announcement. I liked carrying some of Exactrail products while not the best selling brand in the world, it didn’t do bad either, the quality was very good. I can not see this working out for them. People still like to see product in the stores and Internet buyers usually by more than one brand or types of products while shopping online(cars, structures,figures, etc). I think this move will handicap them, the companies that seem to do well use as many outlets as possible to move product whether that is Hobby Shops, E-bay, Amazon, train shows, direct sales. I think this is like cutting off a limb. Hundreds of dealers like me helped promote this company, now they have foolishly thrown that all away! Possibly part of the problem is they only offer higher end products, maybe they should have tried a Walthers Trainline or Atlas Trainman type budget product line. People’s spending money continues to shrink due to rising gas prices, health care , food, taxes you name it. I agree with the fellow who mentioned Accurail as good economical brand, I think a lot of folks are reconsidering kits and lower costs alternatives, some surviving shops are doing great with used product sales.

7

I work in manufacturing. In the past 2 years our supplier prices have increased and shipping costs have increased due to fuel prices.I’m not a CEO or economic genius,but to maintain a profit margin to remain in business there has to be some give and take to maintain a strong customer base.It all comes to “quality versus cost”.

8

No, but you did mentioned that we “allegedly” wanted RTR models, as if it was only a supposed truth rather than reality. The RTR trend is a response to market demand - it’s simple really.

For those who want kits, train shows have tables and tables of them in boxes getting worn out from all the trips to the shows.

Now, what was the title of this topic?

9

I fully agree with you James.

Combating rising costs by killing your market distribution is, frankly, idiotic. When they can no longer rely on those hundreds of dealers purchasing units, they’ll have to begin producing less. And when they produce less, costs per unit will go up even higher!

Do they really believe customers will take the extra time and spend the extra shipping to buy direct. I shop specifically to bundle so that I SAVE on shipping. If a product isn’t available at any of the various online/local hobby shops that I browse, the product doesn’t exist.

10

Another cost they will incur is they will need a larger staff to process orders,pack products, handle returns, answer phones, etc. Folks expect their products shipped quickly nowadays. I know of another manufacturer that is having a lot of problems with getting orders out promptly due to limited staffing, I imagine they will be in the same boat and Matt is like most customers they bundle orders to get the most bang for the buck.

11

You want kits better look at Atlas Trainman kits…

I suspect you better hurry and buy some of those Trainman kits before Atlas tires of loosing money on kits and adds them to the RTR line.

There’s still tons of BB kits available.

12

The Trainman kits are the Branchline Yardmaster kits they got from aquiring Branchline’s rolling stock line. They have also re-released many of the Blueprint series kits, using the Branchline name for those.

–Randy

13

Absolutely!

But.

The Berwick 50’ boxcar has already be release as a RTR car…I suspect the other Blueprint cars will be released as RTR as well…I highly suspect the current stock of Blueprint kits to be the last of their kind.

Atlas could go either way with the “Yardmaster kits” depending on sales but,they won’t loose money on a stock pile of kits.

My advice? Better hurry and buy those kits while you can.

14

This is surely bad for hobby shops/retailers - of all sizes and methods of sale - but it may not be bad for ExactRail at all.

For all you “young people” out there, there has always been a core of small, direct to the public manufacturers in this hobby. And a few fairly large by model railroad industry standards have gone to direct sales and done just fine -

Campbell Scale Models - maker of wood craftsman structure kits since the 60’s, is now sold only direct. For the longest time they did not even have a web site, yet they are still in business.

http://www.campbellscalemodelsonline.com/Default.asp

Now I know for many of you, a wood structure kit is not on your radar - but yet they are still in business some 50 years later.

Over the decades the pages of MR and RMC have been full of small ads for special products sold directly by small manufacturers - and that was BEFORE the internet.

MARK MY WORDS, I have been saying this for years on here - distributors are all but dead, most products in this hobby will be sold directly to retailers by the manufacturers and/or directly to the public by the manufacturers in the future. It is already happening with a large amount of product, the trend will only continue.

Athearn has single point distribution direct to retailers, Walthers is more about their own products rather than being a distributor, Bowser is the same, ConCor as well. The last three just mentioned use to be big DISTRIBUTORS - now they import/manufacturert and sell mainly their own stuff.

Dozens of smaller companies are selling direct to retailers and/or consumers with e-commerce web sites.

You the public demanded “discounts”, and apparently also demanded high detail, RTR, proto specific products which require much higher developement and production costs - you cannot have your cake and eat it too.

Manufacturers, distributors and retailers can not do all this,

15

I think this change will greatly reduce sales. I understand their desire to not increase prices, especially considering they’re high already. But I don’t think they’ll survive this change.

I don’t think the problem is with RTR, but with highly accurate, highly detail models. You can still buy RTR for a lot less if you will accept less accuracy/detail.

I have a Mantua 1860’s Boxcar decorated for the Maryland and Pennsylvania railroad. The details are mostly cast on - even the stirrup steps are not open. The door guides and end ladders are unpainted black plastic with the end ladder applied over the lettering. The wheels are plastic and the couplers are horn hook. And of course it’s an 1860 boxcar for a railroad formed in 1901. Sill the list price is $10.99 and I bought it at a train show for $5.

But the rising prices are also a sign of another trend. Overseas cheap labor started with Japan, shifted to Korea to Taiwan to China. In each case labor starts cheap and then rises with the increase in the standard of living. Some production has now shifted to Vietnam, but I don’t think they are big enough to absorb it all.

As others have pointed you still can find BB kits and MDC kits as well. I just bought a MDC old timers kit at an antique store last week for $4.95.

Enjoy

Paul

16

Branchline old RTR versions of their Blueprint kits before they sold to Atlas, I have several. 4 road numbers offered as kits, and another 4 offered as RTR of the same car. Nothign new here, really.

ANd it’s all “back tot he future” - back in the early days of the hobby EVERYTHING was direct sale. There were other distributors gathering up the small mom & pop shops besides Walthers in those days.

–Randy

17

Imagine … together we can totally resolve this age-old model railroading issue in just one thread

… [:-^]

My sense, and it is just one guy’s experience, is that the combination of the relatively high price of ExactRail and the present day’s world of “just in time” minimal inventory control meant that most hobby shops at best carried a rather incomplete selection from the line. So I suspect ExactRail was doing plenty of direct sales anyway. They do make beautiful stuff. But the only time I saw a significant sampling from their line was at the very large train shows such as TrainFest or Mad City, and at that, I had to go to various tables. Nobody had it all, or even very much.

Dave Nelson

18

I must admit being “addicted” to some of the offerings from Exactrail and being able to purchase them RTR. Now before someone wise person starts lecturing me about “building kits or scratch building my own from a chopped down tree” so I can be a real model railroader, let me simply state I have been in this hobby for a lot more years than most of you, I have scratchbuild, earned my MMR #138 in the NMRA, and actually know how to use tools. But, time marches on, when Exactrail announced the 4427 covered hoppers in Santa Fe, I started buy RTR wherever I could find them and now have a total of 139 of those covered hoppers for my grain train oriented layout. No way could I have put together that many kits in my lifetime. I am 75 years old, have arthritis affecting my hands, my scratch build days are over. Even kits are tougher now.

I was able to accumulate those covered hoppers through two major shops that carried ExactRail, and worked their tails off helping me accumulate the cars, and at less cost than if I had ordered from Exactrail direct. By the way I bought the first cars direct from ExactRail and when I went to re order, they were out of stock, but these other guys had them on the shelves and that is where I bought them.

My wife is ready to divorce me, the hobby shops declared dividends, but I got my cars so I can enjoy them before I die. I also purchased other Exactrail cars from those two shops and never ordered again direct from Exactrail. After all, they charged more and usually didn’t have the cars I wanted.

So yes, I am grumpy, I am grumpy that I got old and can’t scratchbuild, I am grumpy that some company has to build the backbone of my car fleet, I am grumpy because I actually saved a lot of bucks buying from the two shops, I am grumpy because I haven’t had my morning coffee, so will sign off and get some.

Grumpy Bob

19

Audrey keeps telling me to remember my apoplexy…[|(]

20

A distribution chain is a wonderful buffer from the sharp end of business.

The distribution chain absorbs a lot of product as it takes inventory to stock shelves.

A distribution chain is a great place to un-load excess stock of items that have been built as a result of poor forecasting and the reading of the market.

A distribution chain can handle many thousands of transactions that would be hard to do from a single source.

The retailer markets your products, changes market perceptions, and introduces uninformed modellers to your product. How many respected hobby shop owners and employees have made a point of showing these fine models to customers that come into the store browsing?

But there is a cost. The cost is lower margins, But these are easy sales, as a manufacturer you don’t have to work hard to get this business compared to the direct sale.

No doubt the folks at Exactrail understand all this and have decided that there is no value in what the dealer network has to offer? No doubt they understand the ramifications of climbing on the back of a dealer network to get market traction and then walk away?

We have no access to hard numbers, so everything is speculation. Only the folks at Exactrail know for sure what the math is. How much must they increase direct sales to compensate for the lost margin for sales to the dealer network? How these projections will impact volumes and the cost of production?