All is not well in Toyland

Every so often my friend Michael (www.macfilos.com) in London alerts me to some interesting tidbits regarding my obsession with trains. So it was again a few days ago when he emailed me a link to the Daily Telegraph (London) with a story about one of the more iconic British model train manufacturers. Hornby has been around since 1901. It is probably the best known of the model railroad companies in the UK. 

I am not surprised that Hornby has problems. There has been a wave of bankruptcies and consolidations in the model train industry. Fleischmann and Roco, once rivals, are now merged into the Modelleisenbahn GmbH. Sachsenmodelle company is no more. Märklin has gone through several bankruptcies and gotten into bed with Trix and LGB. Aristo Craft is gone. Lima, Joeuf and Rivarossi all had difficulties and were eventually bought by Hornby. 

It is really not all that difficult to see why this is happening. For one there is the quality of the products. For example Hornby models are just not that good and they are too expensive for what one gets. Their manufacturing technology seems to be stuck in the 60's or 70's. Roco, Fleischmann and the others seem to be light years ahead of Hornby in that regard. If Hornby's pricing had been right I could have seen them selling more models. PIKO seems to have gotten the message on that. Compare one of their HO steam locomotive models to one from Hornby:

 A PIKO HO scale model 

A PIKO HO scale model 

 A Hornby OO scale model

A Hornby OO scale model

Both models are about the same price. Roughly $250. However I think that one gets a much better quality model with PIKO. Of course price and quality is a bit immaterial when one attempts to model British steam in the 1940's or so. There is no choice: Hornby would be the only game in town. 

I am not picking on Hornby. The other major difficulty seems to be the fact that all the manufacturers are beginning to price themselves out of the market. Remember that this is a hobby, not a necessity! $250 is a good chunk of cash to spend on something that may give some pleasure, but generally just sits there and on occasion just runs around in circles.  

The interesting thing also is that the $250 price point is at the lower end of the scale. Take a look at this TRIX HO locomotive model:

 A TRIX HO model

A TRIX HO model

This model is $650. Admittedly it has DCC and sound, but geez, $650? Or this:

 A Märklin coach for Gauge 1. (Garden railroad dimensions like LGB)

A Märklin coach for Gauge 1. (Garden railroad dimensions like LGB)

This little gem is around $850. For one single coach! 

Again, how many of these can they sell? How many folks have the discretionary income to acquire one of these, much less several during a year just to keep the TRIX/Märklin stock holders happy? I for one will have to be a bit more choosy on how and on what to spend my hard earned cash. And that is what the manufacturers are seeing. 

OK, I am done ranting. Here is the article from the Telegraph:

Hornby shares plunge following post-Christmas sales slump

The value of shares in Hornby collapses as the model railway maker issues a doom-laden trading update warning of losses, sales declines and writedowns

Model maker Hornby’s shares plunged almost 50pc after it warned of big writedowns and a post- Christmas sales collapse that will result in annual revenues falling and losses widening.

In a blunt message to investors, the company warned that it expects to report an underlying pre-tax loss of between £5.5m and £6m for the year, with sales falling up to £3m, mainly due to poor trading in the UK.

The loss represents a huge reversal compared to last year’s £1.6m profit, and a major fall on annual sales, which were £58.1m in 2014, as the company battled operational issues, having gone off the rails the previous year with a £1.1bn loss.

The troubled business - famed for its model railways and Airfix planes - said a restructuring and shake-up of its supply chain and logistics, which both required major investment,were also holding back its performance.

In a trading update detailing trade around the festive period, the Aim-listed business said UK sales were strong in the run-up to Christmas, rising 17pc, but January’s were in “stark contrast”.

Since the start of the New Year, Hornby said there had been “a disappointing response to January product promotions combined with poor underlying sales”.

This would result in “negative year-on-year revenue growth and sales for the month being substantially below expectations”.

The company, which also owns the Scalextric and Corgi brands, said it expects sales in February and March to improve. But it cautioned they “would not reach previously anticipated levels”.

The company added that the international arm, which suffered almost as badly as its UK operations, was “now through the main period of major disruption” as it reorganised its management and distribution operations in its European units.

A major stocktake and review of Hornby’s European units also contributed to the troubles, resulting in a £1m writedown.

The worrying update could also mean that the model-maker will breach its banking covenants next month. However, Hornby said its managment team has “enjoyed a long and supportive relationship with its lender, with whom it is currently in discussions”.

Describing the news as a “substantial blow to the company’s business recovery plan”, Richard Ames, chief executive, said the management team is now “analysing the causes and consequences of this poor start [to the year]”.

"This has been a real year of change at Hornby,” Mr Ames added. “Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish. The feedback from customers at the recent international toy fairs was encouraging and we are facing the future where, with the right platform, we can build value for our shareholders and drive the group's recovery."

The shares were down 47pc at 43p in mid morning trading.