Regarding the RR business

Model Railroader General Discussion (Model Railroader)
1

Hi, I just read an article about the European consortium of Roco/Fleischmann, and their financial troubles. They also compared the problems with the ones Märklin had a year ago.

Article (put it in Google translate to read in English!)

But what was most interesting was this: The shortsighted strategy of the owners with short production runs and the way that the products is sold out at very low prices short after release, makes the dealers lose money and in a long run unable to sell at the recommended price. The customers quickly learn that it pays to wait a while,to get the low prices…

If the BIG European model RR companys are going bankrupt because of those very reasons, I sincerely hope that the US Mfg´s will learn from it!

2

Sadly, they won’t learn a thing. The incredibly cheap production costs in China mean that even when manufacturers blow out stock by the case to online and show dealers at 70% off, they’re still making a modest profit, and at worst breaking even. Sure, they might take a bath on the occasional item, but if they were consistently losing money, they wouldn’t be doing it.

It works for the customers, and they are able to sell enough through retail channels to those who want to make sure they get what they want (blow out tables at shows are often filled with “garbage” road names) that dealers don’t stage a full scale revolt.

It’s a balancing act to be sure. Looks like Roco/Fleischmann may have lost control of it somehow.

3

Google translate? My God, that’s an awful translation, especially when it lets “Fleischmann” go through as a company name in one area and translates it to “meat man” (a literal translation of “Fleisch” and “Mann”) in another. Unfortunately, I’m only able to read about every 10th German word, so have to depend on the translation to try and make sense of the article. That’s what happens when a computer is used to translate idiomatic language X in a {vain) attempt to translate to idiomatic language Y.

One of the questions I have is when the consolidation of manufacturers was taking place, were the purchasing companies taking on companies that were saddled with too much debt? By the same token, were the purchasing companies overpaying for the companies they bought? Overpaying for a company is bad enough. Overpaying for a company up to its neck in debt is almost guaranteed corporate suicide, especially if the purchaser is using debt to finance the acquisition. None of that is covered in the article.

I’m not rea

4

Their market was just as hard-hit, so disposable income is not supporting even as risky a venture and business model as that. Frankly, I’m surprised we haven’t heard of such developments across the hobby, and a lot sooner than this.

Then, again, I recall reading a post by someone here maybe four years ago saying he knew an old-timer LHS owner who said when times were tough, the MR hobby enjoyed an active and lucrative market. People did without some things, repaired others, but hunkered down at home with some fun times in mind. That often included toy trains.

Crandell

5

You have a contradiction in trying to tie short production runs, blowout sales at low prices, and impending bankruptcy of European modle RR manufacturers. Blowout sales of inventory come from 1) too big a production run, and/or 2) cash flow requirements. In either case, there has to be left inventory to blow out. So the “short-sighted” strategy of small production runs doesn’t mesh with selling at very low prices. The whole point of limiting production is to keep the price higher through limited supply.

As Andre pointed out, cash flow issues due to excessive debt service requirements, combined with demand falling through the floor due to recession are much more likely to drive a company under than too small a production run.

You are right on one issue. The low prices to blow out excess inventory have conditioned consumers to expect lower prices if they wait. And has caused dealers to lose money. The combination of excess inventory (too large a production run) combined with insufficient capital reserves (to support carrying the inventory until it can be sold at a reasonable price) pull down not only the company with the problem, but all other companies in the industries as well. Setting up deflationary expectations (it will cost less if I wait to buy) is a huge drag on any economic situation.

my thoughts

Fred W

6

I’m not sure I understand this logic. Once the manufacturers sell out their product to the distributors, they have already made all the money that they’re going to make. Whatever the distributors and or hobby stores sell the product for above and beyond what they’ve paid for it goes into their pockets.

Or are you saying that the manufacturers are blowing out the product to get rid of it?

7

So I guess you can´t see the same happening in the US?

I think otherwise, as the small run, pre-order strategy isn´t so unlike what the big US Mfg´s has as a standard practice nowadays.

It isn´t that they manufacture too many of the items that forces them to sell out the stocks, it is that they don´t like to keep stock or making smaller runs in a long span of time!

It costs money to make money and somehow the Mfg´s seems to have forgotten all about it by now.

It is especially a real shame that well established companys with lot´s of goodwill that has taken more than 70-80 years to build are being erradicated by shortminded business strategies.

I know i´m not made in the “American dream mold”, being Swedish and all. But what I have learned is that the company that has the greatest profit margins isn´t even on the stock market: IKEA!

Maybe Ingvar Kamprad knows something about businesses that the market should learn…

8

Yup!

That makes it almost impossible for the brick and mortar dealers to compete with the big Online-shops that buys their stocks at maybe half of what the original wholesale price was…

9

All it tells me when I see a company do that is #1, somebody realy goofed when they ordered the roadnames and or color scheme or #2, they don’t have the financial foundation to be able to “own” their own merchandise. Thatis to say they’re operating on “borrowed” money and I think it’s pretty obvious after that last few years that that way of doing business is very risky in certain areas of manufacturing.

Something old “Irv” would never have considered doing, hence his company was always as solid as a rock, and there were others as well.

Mark

10

Couldn´t agree more!

11

Mark, Andre and Fred have covered the major points here quite well.

Companies like Broadway, have repeatedly intorduced new product, held dealer discounts and thereby retail prices high at first, sold as much as possible, then lowered dealer discounts or sold retail through exclusive dealers at much lower prices to move the “rest” of the run.

This leaves dealers who “invested” in having the product on the shelves for their customers stuck with product they paid too much for. But even more importantly it has undermined the value of BLI products in the eyes of many consumers - I know I am one. I don’t by BLI until/unless it is 40% or more off.

BUT, I buy Athearn happily at 20% off - why, because it seldom goes below that by very much.

Even Bachmann, who consistantly sells direct to dealers at a deep discount, is consistant. That deep discount applies the day a new item comes out, so an expected “street” price is established and maintained. Bachmann is sold at 25% to 40% off retail - ALL THE TIME - and very seldom for any less.

These newer manufacturers who apparently cannot afford to “own” their inventory, and a number of dealers in similar situations, have done this hobby a great disservice.

By being able to “own” their inventory and wait for customers to purchase it at a fair price, manufacturers expand the market. All this “limited production”, sell it out in 10 minutes non sense is running people out of this hobby in my view.

How is someone supposed to look at a model layout, and say “I’d like to do that”, with no reasnable expectation that a reasonable amount and selection of supplies will be available when they need them? If I was new it would discourge me.

In a recent thread about hobby shops, “Brakie” commented about shops with “old” inventory - most of this stuff does not really have an experation date - and it would be even more “timeless” if the hob

12

Sheldon,

You forgot to mention the Pick Up Truck!!!

Mark ;-]

13

Disagree again. If a production run is sized right, they have nothing to sell out. Dealers have ordered it all. Fire sale prices are a very strong indication of producing or stocking too much. From economics, lowered prices mean supply has exceeded demand.

Importers don’t own production facilities, they rent them. But even if they own them, costs are kept lower and revenues increased by re-using production facilities as quickly as possible. Even Ikea does batch runs, re-using the same lines for multiple products. Stretching out a production gains nothing, and increases costs - usually way beyond the interest costs of carrying the inventory.

The real worrisome strategic decision by most importers has been to chase the upscale market in regards to price, detail level, and quality. Nearly every manufacturer/importer has abandoned the lower price points to chase the higher profit levels from serving upscale clientele. This trend is not limited to model railroading, and has had the effect of increasing prices across the board. And with too many chasing the limited upscale market, there is always a bubble bursting when supply starts exceeding demand.

just my thoughts, based on my understanding of business and economics

Fred W

14

None of you understand what the world economy and banking have to do with the situation. If (very big if) you can get a short term loan how many should you make? 10000 At x$ or 5000 at 2x$. By the way, good luck fguring out the fickle or cash strapped consumer. So they come in and they don’t sell as planned but the bank say’s give me my.money. Got any other options then dumping them?

15

My two cents. When my family came to the US from Germany in 1954 (I was 3) one of the few things my father brought along was a few pieces of Marklin. I grew up with it and have something like 40 years of Marklin catalogs. While Marklin was a marvel of engineering it was also aimed at the kid market. Every village seemed to have an area in the local store devoted to model trains, either Marklin or Fleischmann. The catalogs always had pictures of boys and their fathers with the trains. I suspect that the kid market gave Marklin a foundation which they used to support the more complex models. At one time Marklin even had a fantasy train collection geared to boys which showed that they were willing to fight for the attention of the youth market. The problem is not that they lost the kids but that there aren’t enough kids anymore. The replacement rate among ethnic Germans is way below what is needed for a stable population. The immigrants don’t seem to have the same interest in playing with trains. The market has changed drastically and the various German companies are trying to come up with ways to cope. I wish them well. I had a lot of fun with my Marklin while growing up.

Werner

16

I know i´m not made in the “American dream mold”, being Swedish and all. But what I have learned is that the company that has the greatest profit margins isn´t even on the stock market: IKEA!

The reason it’s not on the stock market is that it’s privately held. That leads to the question, how doi you know that IKEA has the highest profit margins? Is it required to report quarterly and/or annual financial data the way publicly traded companies are?

IKEA, sells home furnishings and related items and has a much, much broader market than any model railroad company ever could even if you could combine all the model railroad manufacturers world wide into a single company. A model railroad manufacturer will only sell to those interested in model railroads. IKEA, on the other hand, has a potential market which consists of the set of people who use furniture (a market with billions of potential customers). Comparing IKEA to the likes of Fleischmann, Roco, etc. goes way beyond the proverbial apples to oranges comparison. It’s like trying to compare the market for toilet paper to the market for corporate jets. There’s just no way to make a sensible comparison.

Maybe Ingvar Kamprad knows something about businesses that the market should learn…

Well, one obvious lesson is that you have a better chance of success if you sell stuff everybody can use rather than stuff on which only a tiny fraction of the population is willing to spend their money.

Then there’s the fact that stuff he sells in Sweden sells elsewhere as it fulfills a widely felt need. We have 4 pieces of IKEA furniture in our house. How many Swedes (or Germans, Brits, French, Italians, Aussies, Saudis, Israelis, etc.) would be willing to part with their local currency for the likes of an MTH Milwaukee Bipolar, Genesis Big Boy or Walthers new model of Los Angeles Union Passenger Terminal?

17

If companies do go pre-order only I suspect some here would set up a wail then…

But even pre-orders have failed as well…people back out at the last minute…materials go scarce…then you see prices collapsing as they needs clear inventory.

megh…it has been done before, it’ll happen again…

18

I don’t own anything from IKEA, most of it offends my sense of aesthetics, but then again I live in a 1901 Queen Anne style house.

But I do respect its quality and value - just not for me.

Too many businesses today are working on too much borrowed money - it will be our economic down fall.

Too much debt - government, personal and corporate.

But the pickup, the victorian house and the trains here are all paid for.

Sheldon

19

Even Bachmann, who consistantly sells direct to dealers at a deep discount, is consistant. That deep discount applies the day a new item comes out, so an expected “street” price is established and maintained. Bachmann is sold at 25% to 40% off retail - ALL THE TIME - and very seldom for any less.

Seems to me that, regardless of manufacturer, MSRP is a total fantasy, driven more by the idea that if someone can be induced to think they’re getting a “bargain” than any economic reality, they’ll buy an item. Micro-Mark is selling DCC and sound equipped Bachmann 4-4-0’s for $249.95 and the MSRP is $445. That’s a 44% discount from the stated retail price and it’s ludicrous. If Micro-Mark can sell them to retail customers for a profit at $250 and Bachmann’s making a profit wholesaling them to retailers for some percentage of that $250, why not just have the MSRP be $250? If you insist on tricking people into thinking they’re getting a bargain, why not retail them for $300 or so so that people can still pat themselves on the back for scoring one for cheap?

I’ve finally figured out why I haven’t been able to unload a well known bridge over the East River in New York. You know, this one: http://en.wikipedia.org/wiki/File:Brooklyn_Bridge_Postdlf.jpg

The problem is that I’m trying to sell at MSRP (in this case $154,999,974.95). If I give a huge discount, I can unload it in a hurry. Hmm $5000 sounds like a screaming bargain, especially since I only paid $500 for it my self (a huge discount from $56,482,356.89). [(-D]

Andre

PS. The only reason I can think of that Bachmann doesn’t have an MSRP otf $100,000 for the 4-4-0 is that most (not all, but most) people would realize that their chain is being yanked when they see that they could pick one up for $250. They’re yanking chains at $445, it’s just not as obvious. Still, it’s probably a source of

20

[quote user=“andrechapelon”]

Even Bachmann, who consistantly sells direct to dealers at a deep discount, is consistant. That deep discount applies the day a new item comes out, so an expected “street” price is established and maintained. Bachmann is sold at 25% to 40% off retail - ALL THE TIME - and very seldom for any less.

Seems to me that, regardless of manufacturer, MSRP is a total fantasy, driven more by the idea that if someone can be induced to think they’re getting a “bargain” than any economic reality, they’ll buy an item. Micro-Mark is selling DCC and sound equipped Bachmann 4-4-0’s for $249.95 and the MSRP is $445. That’s a 44% discount from the stated retail price and it’s ludicrous. If Micro-Mark can sell them to retail customers for a profit at $250 and Bachmann’s making a profit wholesaling them to retailers for some percentage of that $250, why not just have the MSRP be $250? If you insist on tricking people into thinking they’re getting a bargain, why not retail them for $300 or so so that people can still pat themselves on the back for scoring one for cheap?

I’ve finally figured out why I haven’t been able to unload a well known bridge over the East River in New York. You know, this one: http://en.wikipedia.org/wiki/File:Brooklyn_Bridge_Postdlf.jpg

The problem is that I’m trying to sell at MSRP (in this case $154,999,974.95). If I give a huge discount, I can unload it in a hurry. Hmm $5000 sounds like a screaming bargain, especially since I only paid $500 for it my self (a huge discount from $56,482,356.89).

Andre

PS. The only reason I can think of that Bachmann doesn’t have an MSRP otf $100,000 for the 4-4-0 is that most (not all, but most) people would realize that their chain is being yanked when they see that they could pick one up for