Athearn/Horizon Hobby is Squeezing the Life out of Brick & Mortar


B

bigB

Active Member
This is not good for the hobby to say the least...from BlueRidge Hobbies LLC owner Frank Ruby, Greenville,SC.

There are always two sides to every story, but I have known and dealt with Frank for years and have always found him to be honest, straight-forward, and hard-working. He has worked hard to build and maintain his business.

Brad



August 07, 2013
SAVING YOU MONEY EVERYDAY! tm
NEWS FROM BEHIND THE COUNTER


For those of you who did not know, last year when we moved our retail store and shipping department in August of 2012 to our current location, we also changed our business from a sole proprietorship to an LLC. This was effective on 09/01/12. All of our vendors and suppliers where notified of this change in status. All but two did not change our status to LLC.

For the remainder of 2012 and up until 3 weeks ago, Digitrax and Athearn / Horizon Hobby still had not changed our status.

With the impending move of the retail store to the Miniature World of Trains location that we announced a couple of weeks ago, we felt the need and finally had some time to remind Digitrax and Athearn / Horizon Hobby about the status change. Digitrax made the change two weeks ago. However Athearn / Horizon Hobby had not made the change and required Blue Ridge Hobbies to fill out a new credit application which is okay.

However, Athearn / Horizon Hobby also demanded a personal guaranty. The purpose of ane LLC is that "members"of the LLC are not personally responsible for the LLC's debts and liabilities.

Per LegalZoom.com:

"Definition of a Limited Liability Company or LLC Like a corporation, a limited liability company or "LLC", is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The primary advantage of an LLC is that its owners, known as members, have "limited liability", meaning that, under most circumstances, they are not personally liable for the debts and liabilities of the LLC. For example, if an LLC is forced into bankruptcy, then, absent special circumstances, the members will not be required to pay the LLC's debts with their own money. If the assets of the LLC are not enough to cover the debts and liabilities, the creditors generally cannot look to the members, managers or officers for recovery."

Athearn / Horizon Hobby (A/HH) does not agree and refused to approve the new application for Blue Ridge Hobbies as an LLC without a signed personally guarantee claiming the all dealers have to sign an personal guarantee!

As a customer of A/HH we have always paid our bills starting in 2008 when we opened our first retail store. But that does not seem to matter to A/HH. Changing to an LLC 11 months ago obviously was not meant to avoid paying our bills and we have proven that with all of our suppliers over the years.

It seems that A/HH been treating dealers and ultimately, you, the model railroad hobbyist unfairly even though you may not know it directly. We have discussed these issues over the last 2 years in emails about the status of the hobby so we will not rehash old situations and opinions here. Today's situation just seals my personal opinion of how A/HH wants to push the local hobby shop out of business thus limiting your availability for local customer service and product support.

Unfortunately, and by our choice not that of A/HH, as of 9pm this evening, we will no longer be offering any Athearn, Roundhouse or McHenry Couplers via our website. We are liquidating all rolling stock and locomotives in our retail store immediately!

For those of you that have open back orders or advance reservations with Athearn, Roundhouse or other items ordered via Horizon Hobby, as of this email you should not worry. We will still be receiving the product and paying for it using our corporate credit card. We will not incur any credit risk this way for A/HH to worry about! But they will also not get any new sales either going forward either!

A/HH has been holding 3 large back orders until this situation is resolved. As of 3pm today we advised A/HH that we will not offer their proprietary products via our website. They where not concerned that they would be losing a large dealer such as Blue Ridge Hobbies!

The back orders should be released tomorrow and at BRH for shipping to you by Tuesday.
We are sorry for the delays caused by this unfortunate situation but we will move forward.

With this in mind, we are also adding another 10,000 items to our database from a new model railroad supplier, Heartland Hobby. We hope to have their items added to our website database in the next two weeks.

So with the negative, there is positive!

As I have stated in previous emails, we continue to restructure the retail store so that we can continue to offer both our retail store and website customers the lowest prices!

We are here to stay as long as there is product to sell!

Thanks for the support!
Frank Ruby
 
Ever since Athearn gave up on inexpensive blue box kits I have NO USE for ANY of their products. I have had to deal with Horizon Hobbyabout RC Helicopter transmitter problems where they did NOT honor the warranty, even though THEY KNEW their was a problem with it. Horizon can suck eggs!
 
Given the fact that HH now sells rival companies' products (Bachmann, and I think, Kato, and maybe some others) from their website, it really is looking like they're trying to cut the local HS out of the loop. Because I don't model diesel era stuff I haven't had much occasion to buy Athearn. But I always had a fondness for the old Roundhouse/MDC line, and I was glad to see some years back that Athearn/HH seemed to have rescued Roundhouse. Perhaps that wasn't as wonderful as it seemed...
 
There is probably more to this story - if he was a sole proprietorship before he had a personal guaranty (without actually having signed one) with Horizon, as everything was in his name. By going to an LLC that does not exclude you from signing a personal guaranty, and it is probably warranted for Horizon to request one, as they are now in a worse position.

Horizon probably didnt require it before as he signed as himself, now that he formed the LLC, they want the guaranty. This is pretty normal actually, and Horizon is probably not out of line requesting it.
 
Mattchu60 said:
There is probably more to this story - if he was a sole proprietorship before he had a personal guaranty (without actually having signed one) with Horizon, as everything was in his name. By going to an LLC that does not exclude you from signing a personal guaranty, and it is probably warranted for Horizon to request one, as they are now in a worse position.

Horizon probably didnt require it before as he signed as himself, now that he formed the LLC, they want the guaranty. This is pretty normal actually, and Horizon is probably not out of line requesting it.
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Having a personal guaranty kind of defeats the purpose of being an LLC then. I don't think Irving would agree with this requirement...
 
And what exactly was the reason Blue Ridge Hobbies changed to an LLC? What was the purpose of that change?
 
Horizon is the largest hobby conglomerate in the world. I have been using Tower Hobbies (a division of Horizon) for nearly 25 years in my R/C Aircraft habit. I have a love/hate relationship with them. They use their muscle to squeeze anyone (retailers) they deal with. Like them or not, you simply cannot win in a fight with them. They simply have too much money and control most of the hobby world.

They own:

Horizon Hobby
Tower Hobbies
Athearn
Hobbico
Blade helis
Dynamite RC (Battery Chargers, Speed Controllers, Nitro Engines)
E-flite
ElectrixRC
Force RC
Hangar 9
HobbyZone
ParkZone
Pro Boat
Team Losi Racing (various RC models, parts)
Spektrum Radio equipment
Vaterra

...to name a few.

It is also the exclusive distributor of JR Radios in North America. They have brick/mortar distribution centers in England, Germany, and Japan. They are the largest distributor of OS Engines in North America as well. In my 25 years in R/C, I have seen them swollow up most kit makers of R/C aircraft if the competitor shows any sign of gaining momentum.
 
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Just so you know, I'm not big fan of Horizon here, I don't like a lot of the changes they have made and how they dropped the blue box line. I hardly have bought anything from them since that time (except for one Genesis GP9, which really doesnt run all that great for the price I paid).

But, I do have a lot of experience from working in commercial real estate on how LLC's/corporations function and their reasons for being. We dont know why Blue Ridge formed an LLC, I would guess for tax reasons. But it shouldnt mean they get a free pass on being liable for anything. The personal guaranty request is not out of line from a pure logistics standpoint (take the emotions out of it). Simply being an LLC does not mean that they cannot request a personal guaranty in order to do business with them, otherwise wouldnt everyone want an LLC so we are not liable for anything?
 
Mattchu60 said:
Just so you know, I'm not big fan of Horizon here, I don't like a lot of the changes they have made and how they dropped the blue box line. I hardly have bought anything from them since that time (except for one Genesis GP9, which really doesnt run all that great for the price I paid).

But, I do have a lot of experience from working in commercial real estate on how LLC's/corporations function and their reasons for being. We dont know why Blue Ridge formed an LLC, I would guess for tax reasons. But it shouldnt mean they get a free pass on being liable for anything. The personal guaranty request is not out of line from a pure logistics standpoint (take the emotions out of it). Simply being an LLC does not mean that they cannot request a personal guaranty in order to do business with them, otherwise wouldnt everyone want an LLC so we are not liable for anything?
Click to expand...

This is true and it depends on what end you are on. I had an aviation software company and we were one of the first Limited Liability Companies in Texas in the 90's. We formed under the LLC umbrella for tax and limited personal liability that this covers. Having a company held responsible for its actions is the driving force here, not someone personally. This has been argued in court and precedence shows this to be true. It is an arguable point to be sure and you truly have to take emotion out of this process from a personal standpoint.
 
Motley said:
And what exactly was the reason Blue Ridge Hobbies changed to an LLC? What was the purpose of that change?
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So that the sole proprietor is not personally liable for losses or damages as a result of operating the business.
 
Incendiary title of thread doesn't match contents. LHS trying to avoid personal responsibility, that's his prerogative. Also Horizon's prerogative to want a guarantee for accounts receivable. LHS not being "squeezed" at all.
 
GenSet said:
Incendiary title of thread doesn't match contents. LHS trying to avoid personal responsibility, that's his prerogative. Also Horizon's prerogative to want a guarantee for accounts receivable. LHS not being "squeezed" at all.
Click to expand...

I strongly disagree with you. I titled the thread as such bc that's the same phrase the hobby shop owner used in his email. He goes on to say he paid every bill he ever got from Horizon. Requiring him to sign a guarantee is nothing more than an end run on his choice to have his company be an LLC. Yes, that's his choice as an LLC principal, but it was obviously one he chose as it insulates him from personal liability.

Explain to me exactly how Horizon's decision to make Blueridge sign a guarantee is good for his business, the hobby, or brick & mortar stores.
 
bigB said:
Explain to me exactly how Horizon's decision to make Blueridge sign a guarantee is good for his business, the hobby, or brick & mortar stores.
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It's not anything to do with his business. It's Horizon's business. Just because your LHS wants to paint Horizon as unreasonable with an inflammatory email doesn't mean that Horizon is unreasonable. If your LHS has "always paid his bills" and always intends to, he shouldn't be worried about guaranteeing that to Horizon -- so what's his big deal?
 
GenSet said:
Incendiary title of thread doesn't match contents. LHS trying to avoid personal responsibility, that's his prerogative. Also Horizon's prerogative to want a guarantee for accounts receivable. LHS not being "squeezed" at all.
Click to expand...

I agree as well. The LHS owner may feel squeezed and may have taken offense at his treatment, however, everything was purring along until he changed his business status. If Horizon came out of the blue with new T&C's on a group of hobbyshops for no apparent reason, there might be some justification for the title. Like it or not, the bigger the company, the harder they can be to deal with. Horizon has a right to request a guarantee, or protect themselves in whatever legal manner they see fit. The LHS owner has a right to to business elsewhere. Welcome to life in Corporate America!!!
 
Here's the bottom line.

All of you should know the state of the hobby right now is not a good one with the lack of product availability as I have discussed in several emails to my customers.
I am a big supporter of the model railroad industry and hobby. I have been a modeler in my second married life for over 30 years and prior to that as a kid growing up in New York and buying trains at Trainworld!

With that said, when I moved to Greenville, SC there was no real, supportive and price competitive hobby stores in this area. I used to go to Atlanta, 2 hours away to buy product or order from on line suppliers. After five years here, I decided to start Blue Ridge Hobbies in 2005, on line with the intent of opening a retail store soon after. After years as a sole proprietor and with business and customer traffic flow in the store increasing, we had to make a change.

Blue Ridge Hobbies formed the LLC over the sole proprietor for tax reasons based on the suggestion of our financial advisor. And second, as Blue Ridge Hobbies grows and moves soon into the Miniature World of Trains featuring the Transportation Museum of the World (www.miniatureworldoftrains.com) in the next few months, we felt the need to do this with the inevitable increase in traffic flow through the Blue Ridge Hobbies space within MWOT and the possibility of potential lawsuits and bigger liability issues.

Now, we have over 350 manufacturers and over 135,000 products on our website for sale. We receive this product from several different wholesalers that until yesterday included Athearn / Horizon Hobby and the mom and pop suppliers like Ribbonrail and Coffman Graphics for example. Out of all of these companies, A/HH is the only one that was requiring a personal guarantee with the LLC. They did not make the change last year after we notified them of the change, yet we continued on and we still paid our bills as an operational LLC! But, with A/HH even customer history and length of time in business does not matter.

My reason for not wanting to do the guaranty was based more on principle then financial. We have always paid our bills and have done business with A/HH since 2008 when we opened our first retail store. We signed a personal guarantee as a sole proprietor in 2008 and we feel that with the track record of BRH and our support of the hobby, that the guaranty was not a customer friendly request. They demanded it to sell product and said they require all LLC's to do the same. Then what is the point of becoming an LLC!

A/HH used to supply about 25% of BRH's business. Since late 2011 when they made a push to sell more directly via Horizon Hobby Trains, Ebay and Amazon, plus the factory issues in China, that 25% has dwindled to about 5% of our in store and online business. Today, out 2300 proprietary items offered by A/HH only about 500 are available to sell. And based on my conversations with them at the National Train Show two weeks ago, the production issues will not change anytime soon!

BRH and other local hobby shops need product to sell to stay open. We can not wait a year or two years for a product to come to the store to sell.

I feel personally that A/HH is trying to squeeze out the LHS to sell the product directly to maximize their profit. Which they have the prerogative to do. The problem with that, as I has discussed in the past, there will not be and currently are no real knowledgeable people the can answer questions like a LHS can. Ultimately in the end, this hobby along with the other hobby's they sell will die off slowly without good, local technical support. People need to see the difference between foam roadbed and cork roadbed in person to make an informed decision. You can not do this type of customer service over the phone.

So, with all of the factors in mind, we decided to forgo selling A/HH proprietary items yesterday as we did with Exact Rail back in 2011 when they where doing the exact same thing. Exact Rail never supported the LHS! A/HH is on that track right now.

Athearn / Horizon Hobby just wants to be the big bully in the model railroad "playground". They want to take our friendly hobby with a great community of support in which most of the other manufacturers and suppliers respect and support properly and still safe guard their financial interests.

I think Irv Athearn would roll over in his grave if he knew what Horizon Hobby is doing!

Frank Ruby
Owner Blue Ridge Hobbies
Chairman and President Miniature World of Trains
 
GenSet said:
It's not anything to do with his business. It's Horizon's business. Just because your LHS wants to paint Horizon as unreasonable with an inflammatory email doesn't mean that Horizon is unreasonable. If your LHS has "always paid his bills" and always intends to, he shouldn't be worried about guaranteeing that to Horizon -- so what's his big deal?
Click to expand...

Don't you find it odd that out of hundreds of brands and suppliers, Horizon/Athearn is the only one who required he sign a guarantee? That and, lets face it, athearn is the largest supplier and most popular brand of mainstream modelrailroad rolling stock, is what makes it his 'big deal.'

LLCs are created for worst case scenarios; to prevent business owner(s) from being personally liable for business losses. If you can predict with 100% accuracy where the economy will be at any time in the future, there would be no need for any LLCs, MOUs, or other liability insulators. But of course, no one can, so we have theses mechanisms to deal with both the instability and unpredictability in our economy and the liability it creates.
 
One more thing. This has been discussed almost endlessly, but Horizon did not dump the Blue Box line. We did. That is to say "we" as a market. There was a mountain of BB inventory when Horizon bought Athearn and they sold it until it was all gone. The market now wants more highly detailed models. BB doesn't fit this bill. It's primitive 1960's tooling. Even if they had kept it, increased manufacturing costs would have caused a jump in price anyway. For those of you who still want it, go find a swap meet or other train show. You'll find hundreds of them, and there are probably thousands more in basements that will some day appear in estate sales. You should be able to find BB for years to come. The current market OTOH, wants a much higher detail level in RTR format. That was "our" decision so don't blame the manufacturers for following the demand. That's their job if they want to stay in business. Gas isn't 25 cents a gallon, new cars aren't $2500.00, and new houses aren't $15,000.00 anymore either. Time to deal with it and move on :rolleyes: ;)
 
Frank,

I feel your pain. I think if you did sign and agree with HH demands, your only recourse would be filing for personal bankruptcy should anything happen to your business.

One case in point was Carl Goldberg Models. CG was formed in the 50's. When the original owners passed-on, the new owner drove the business into the ground. The fine models that CG produced were all put in the grave when HH swooped in and bought them. I was a died-in-the-wool CG fan and had/have several of their fine flying aircraft. HH killed off all the kits and most of the ARF's (almost ready to fly) line when they decided to swollow them. It was a sad day for me and many other R/C modellers.

The business practices of HH are silly really. Filing for Chapter 7 or 11 would nullify any agreement they could bear against anyone in the end. I think it's all because of the poor economy and HH being a bully to be honest.
 
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most companies are LLC or enterprise formed to limit damage to just the company so they cant go after personal assetts , really not a huge deal
 
When Athearn changed over to Horizon, I also had to go through the credit re-check since I was an LLC too. As for attitude, the Horizon representative told me flat out that I "should feel honored that Horizon will deal with you". That attitude seemed to be the feeling of the other shops in my area. At that point I decided not to deal with them as their terms for dealers were way above my other distributors - especially in terms of monthly minimum orders. This was years ago and, from what I have heard, things have not changed. They can make any rule they want since "it's their ball and rules". That doesn't mean I (or anyone) has to deal with them. Just my two cents as a former shop owner of 16 years. Your opinion may vary.
 
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