How does Walthers stay in business?

Model Railroader General Discussion (Model Railroader)
21

A few years ago Walthers invited some long-time customers (including me) to come to a meeting with company representatives to ask about what we liked and disliked about Walthers. We brought up the issue of everything being listed at MSRP in the catalogue, and they mentioned about the sales flyers discounts. When we noted that the flyer sale/discount prices were about the same as what you’d generally find at say an online store, they seemed truly surprised. They seemed to think their prices were a real steal.

Still, in getting their flyer I have sometimes gotten some really good deals that I wouldn’t have gotten otherwise. They recently had some Life-Like dead/winter trees on sale for like 80% off from MSRP and I grabbed a bunch of them.

22

???

Tsk tsk tsk…Sheldon. Arn’t you contradicting yourself here? My LHS buys most of their stuff from Walthers at a 40% discount, and some items a bit more. They’ve offered 20% discount for over 20 years now and are in a NEW building and going strong.

23

And how do you know? Did you pull that number out of a hat?

24

Okay,

I’ve been spending the last day or so tarring and feathering Walther’s over their N scale caboose, but I’m going to step in in their defense on this one.

They are, as has been noted here, first and foremost a distributor. They are a very good distributor. The do make a pretty broad range of products, too, as well as maintain a presence as a retailer. This is called “Vertical Integration” in business school. They can control the flow of product from the factory to the consumer. While this can make for some awkward situations, they do handle it pretty well.

When Walther’s sends out the flier with all those MSRP listings, they do that so as not to undercut their bread and butter customers, the local dealers. When they have an overstock and offer a special in the fliers, they encourage you to contact your local first, and they pass along the discount through the dealers as well. This keeps the relationship strong and healthy.

Dealers aren’t afraid of keeping items in stock that might be price cut later, since they can participate in the sale as well, which increases traffic in their store.

Compare this to Broadway Limited, which sells direct to dealers, then when things get backed up, they turn around and sell direct to the public through Factory Direct Trains at a price the regular dealers can’t compete with. As a result, dealers get angry, and are leary of ordering anything from BLI in any kind of quantity. That kills pre-orders, and in some cases, whole projects. Dealers are left holding the bag on over-priced inventory, while FDT steals customers and blows out BLI products.

I think Walthers has the distributor/local dealer relationship idea down to a science, and they’re very good at that.

Now, if I could just get them to make a better looking NE steel caboose in N scale…[|(]

Lee

25

My [2c] to the issue.

Aside from being a wholesaler/distributor, Walthers is also an importer. A number of materials would not be around without Walthers. A lot of the scenic stuff we use comes from Busch, Noch, Faller, Silflor - all of them made outside of the US. Those companies would never be able to build up an own distribution network in the US. Nor would online stores be willing to handle that business.

26

Actually, Scenic Express handles all those products and a lot more, has them in stock at all times, sells direct and is a lot more hassle free than Walthers. Scenic Express is always my first choice, with Walthers being considered only as a last resort! If Walthers were gone tomorrow, I wouldn’t shed a single tear.

CNJ831

27

I’ve been in this hobby 50 years now and broad-brushing Walther’s customers as “baffoon” or “with more money than common sense” is ill-informed at best. My first Walther’s catalog dates from 1968, and their catalogs have prompted lots of planning, dreaming, and building over the years.

I do not have a local hobby shop - there simply is nothing close. This past spring I got enthused about doing the scenery in the log-loading area of my HO layout. Although I thought I had stockpiled enough ground foam for “flocking” trees, I found that I was quickly running low as I was making several hundred trees. I clicked “purchase” to Walthers on a Thursday and the supplies arrived the next Monday.

Curteous, efficient, dependable, and well-stocked is hard to beat. I didn’t have to stop my project or have my enthusiasm wind down while waiting for the next trip to a train show or city with a decent hobby shop. I don’t feel foolish about supporting a business that has strongly supported the hobby for so long.

Bill

28

You could have saved yourself some dough and purchased it through M.B.Klein or any other reputable online dealer. Way to not support our dealers and LHS (most of the onliners have a brick and mortar store) out there…[V]

29

Guys,I have discovered a truth recently.I ordered several odds and ends and by the time I paid shipping I saved a grand total of-get this-a whooping $7.67…Of course there was no sales tax or the need to make a 52 mile round trip but,wait!

On the way I could railfan in Crestline and on the return trip stop at Galion and watch CSX there.Of course there is Barnes and Nobles where I buy my Western novels…I can have lunch at Coney Island or SkyLine Chili (Yumm-o!)…

Now,I decided since I don’t need to buy that much more and can’t justify large orders(this helps off set the shipping costs) I will help simulate the local economy and buy at the LHS…

30

Everyone seems to be missing the point here. Walthers, or any other business (except the financial firms and a few unnamed automotive giants), stays in business by taking in more money than they have to shell out.

It’s called profit.

Tom

31

Volume.

Rich

32

Since I have no local hobby shop, I buy everything online. Not wanting to pay a ton for shipping charges, I usually try to buy a few things online at a time. My first stop is usually MB Klein’s website. Sometimes though, they don’t have everything on my wish list. Then I buy from Walthers directly. They have a lot of the random things I need all under one roof. Couple that with a flat $8.95 in shipping and you have got yourself a sale.

33

There are 2 issues raised here.

One is why Walthers won’t sell for less than MSRP. That has been answered by other posters explaining that Walthers is primarily a distributor and manufacturer. As such, they work to keep their primary customers - the hobby shops - happy by providing prompt service and not under-cutting the LHS prices. Like most manufacturers, Walthers will sell direct, but usually only at full retail to protect the relationships with their dealers.

The second is why I pay full MSRP. Another poster implied I was a buffoon for doing so. Ultimately, the difference is not what price you pay and what price I pay, but that what you buy and what I buy are worlds apart. You assume that I buy and collect large numbers of RTR plastic or die cast engines made in China. That’s a common mistaken assumption that everybody else in the hobby shares your passions and prejudices.

With a modest hobby budget (currently $40/month), collecting RTR locomotives runs me out of money before I run out of month. If I spend 20 hours per month model railroading - pretty typical for me with family still at home - I need to keep my costs at less than $2/hr. My layout is small in keeping with my space, time, and money limitations so more than 7 locomotives means the extras have to go on display shelves or (worse!) in boxes. I personally see display or storage as a waste of money that could otherwise go to getting/bashing/making that great engine or structure that really fits my layout.

The discounters generally only stock and/or discount popular or high dollar items. I don’t see many all-the-time discounts on Floquil or Scalecoat paints or Micro-Engineering products. And clicking on-line inventories at discounters doesn’t locate NWSL parts and pieces and remotoring/regearing kits. Even if they do stock these items at a disc

34

I am someone who always will look for the best service which includes price. At times Walthers is my choice, other times it might by MB Klein, EBay, or direct from the manufacturer. Sad to say I rarely will buy anything major from my LHS because they are always - and I do mean always - the high price store. They do not honor any of Walthers’ sale prices and even those few things that are marked down can be found other places at a deeper discount. Frankly, I don’t know how they manage to stay in business in this area with our economic conditions.

Being a warehouse distributor, Walthers does provide a valuable service to retailers and as someone already pointed out, their $8.95 shipping charge is a steal. During my career I dealt with many WD’s and almost all of them handled their business precisely the way Walthers does. The exception is that Walthers has a retail side and that is a good thing - and I am sure it is part of their overall business plan.

35

Finally, as was pointed out, most of us try to negotiate the highest price possible for our products - our labor, skills, and knowledge. We only discount the price when forced to by the competition. So why do we begrudge others trying to maximize the price for their products?

  1. There’s “we” and there’s “they”.

  2. We are enligthtened, civilized and highly spirtitual people who are ENTITLED to buy things at rock bottom prices and sell things for all the traffic will bear even at the expense of their ability to make a living

  3. They are money grubbing materialist barbarians who are out to destroy civilization as we know it and they should be grateful that we allow them to continue their miserable existences.

It’s not a hard concept to understatnd. [(-D]

Andre

36

Well it could be that in Iowa rents are so low compared to the rest of the country that one can run a retail business on 20% or 25%. That won’t work here, or in most major metro areas of this country, which is were the customers are.

How much help does he have? What kind of money does he pay them? What are retail wages like in Iowa? I don’t know, but round here you don’t get anyone responsable to work for much less than $15-$20/hr. Also a regional issue that might effect his ability to do well at a lower markup. But again, I am speaking about the whole country in general.

Does your local hobby shop sell Athearn? Walthers does not sell Athearn. He gets a better than 40% discount on that direct from Athearn/Horizon. Does he discount it more than 20%? He is making up some of the those other low prices with more profit on things like Athearn that have a bigger discount.

Does he sell Bachmann? How much? Maybe he buys that direct too. How are his Bachmann prices? Only 20% of MSRP? If he is buying Bachmann direct and is getting people to buy it at only 20% of MSRP, than he is making a killing on each piece of that he sells. But even Walthers sells Bach

37

The easy answer? They’re the place of almost one-stop shopping. If you can get it all at one place, it would probably be about the same as ordering and shipping at different places.

38

Driline, you do business with MB Klein? I know the owner and his long time staffers. I was buying trains there 40 years ago and still do from time to time. I live about 40 minutes from their store. He buys virtually EVERYTHING direct from the manufacturers.

He got his start 50 years ago using a little space in his fathers hardware store to sell trains. There was a wholesale house right around the corner where he could fill customers orders the next day without investing in inventory or paying shipping. So it was easy for him to discount. As he grew, he started buying products like Athearn direct, and even sold Athearn wholesale to other shops.

Eventually the hardware store became a model train store. With a paid for building and a reputation for always having everything and having it at 20% off they did very well for decades. They expanded into mailorder and then onto the internet as the market changed. Still a great store, but not as complete an inventory as years ago.

I assure you there is no Bachmann locos at MB Klein that came through Walthers, they all got there direct from Phily. And all the Atlas comes direct from New Jersey, and so on…

In fact I would bet that most everything Klein’s gets from Walthers, says Walthers on the package.

Sheldon

39

If you buy a product for 70 bucks and make 30 percent, the price would be 91 dollars, not 100. 70 *.3 is 21 dollar mark-up.

40

In retail it is more common to refer to gross margin of selling price than to refer to “mark up”

ALL my comments are based on this industry standard method - not on markup, but on gross margin.

I never used the term “mark up”, and in fact explained the “discount off MSRP” and used the term gross profit or gross margin.

Wholesale discounts are figured backward from MSRP, traditionally 40% in the hobby industry.

So a product with a $100 MSRP would typically cost the store $60 from a distributor and likely cost the distributor about $40.

Extra discounts for quick pay or volume are typically less tha 5% of those numbers.

Using the “mark up” method, you had better be at or above 45% to make any money in retail.

$70 x 1.45 = $101.50 OR $100.00 less 30% (100 x .7) = $70.00

Sheldon