Hobby Industry Study

[tooter]

No one is coercing any of us to buy any of this stuff.

Bingo, Gary!

Greg

 

[Dollie's Dad]

It could also coerce some of us back into becoming real modelers.

I once hear an explanation that it doesn't cost much less to manufacture a kit than a ready-to-run car. I've forgotten all the reasons, but largely it had to do with labor costs and packaging.

I'm now on the prowl for old (read: cheap) rolling stock that I can practice weathering on. I'll be darned if I'm going to buy a $30+ freight car and start daubing washes and paint on it without having perfected the techniques a little on cars that don't matter.

When BB cars were less than $5.00, I didn't care as much.

 

[Cjcrescent]

It could also coerce some of us back into becoming real modelers...

Tom;

Words like that would start a flame war in many forums. Many would get into the discussion on price only to digress into a war over "what makes a real modeler".

While I refer to myself as a "real modeler", its only because of the way I have always had to pursue the hobby. Remember, There's no one RIGHT WAY to Model Railroad! I was raised on kits, kit bashing, some scratch-building, etc. Much taught to me by my Dad. (Thanks Dad!) Example, out of my 400 cars or so, only 6 are RTR. (1 I bought, the others my wife bought.)

Out of my locos, while I do have 8 locos that could be considered RTR, only 2 of those haven't been altered in some way so far. Of my others, 5 are kits, or kit bashes, and the other 11 are brass, which until recently, wasn't considered RTR, needing to be tuned, tweaked, and painted. My newest brass engine is over 30 years old! And of those only 3 have not had extensive work done to them, (better motors, gears, details etc,) as I haven't got around to them yet.

While I do love the "skrill of the bagpipes", (Scot/Welsh), I will spent the money if it gets me what I need. But that ain't that often! My most expensive purchases that I've made the past 5 years, were for better tools or replacements for tools beginning to wear out.

I still have around 50 structures to build, so I won't be needing any of those anytime soon. I handlay my own track and turnouts, because in the past, I couldn't afford not to. Not only has it become a second hand nature now to me to do so, it's still cheaper than commercial components. After all these years, I've found I can build a better turnout than I can buy. To save money on the track, I also cut my own ties.

Now if I can jus figger out how to make the rail, spikes, and rail joiners myself, I'd be a happy camper!

 

[Espeefan]

Alan, I think that a few responses to your post would also prove of general interest in regard to this thread's subject, although I will admit the horizon of the subject at hand seems to be steadily expanding.

Yes, it is We're moving from "is the stuff too expensive/are we being ripped off" to "will it kill the hobby" and assorted economic subjects.

The manufacturers' current approach to keeping turnover going at the expense of long-term availability will definitely harm the hobby in the long-term. It is not as if that Turbine, 2-10-2, or SD-whatever, manufactured 3 years ago will be re-run in 2012 for benefit of newcomers, or those who missed out the first time around. We've already seen that the manufacturers are very reluctant to re-run anything that doesn't have an absolutely overwhelming demand. So...if you weren't in the hobby right when your particular favorite loco came to market and sold out in 30 days, odds are that with the diminishing run-sizes you might never be able to find one. It's an interesting trade-off that indeed benefits a current, limited element in the hobby, but it has another decided downside. Look around for more historically "common" locomotives, especially steam. These formed the backbone of most railroads' rosters (prototype and model) in the past. They are all but gone from the marketplace today. There was a rash of Pacifics, Mikados, etc. at the very beginning of the HO locomotive boom about a decade ago, but little of their ilk since. Even the latest 4-4-0's that have appeared are basically obscure versions not lasting very far into railroading's Golden Age on any but backwoods lines.

I'm right with you here. I wanted the Bachmann Sante Fe GP-9's and they were there and gone so fast I totally missed them. I've also been begging my contacts at Athearn and Walthers for small steam for years. I'd love to see a Harriman 2-8-0, and a Harriman Pacific, but I'm not holding my breath. I've had to buy them in used brass...the only way I could get them. I believe that this has something to do with the fact that it costs as much to tool up for a 2-10-4 or 4-8-4 as it does for a 2-6-0. Frustrating, but other than encouraging everyone out there that wants this stuff to make their desires known, I don't know what we can do about it. Collectively our eyes have always been larger than our minimum radii hence the large amount of northerns, articulateds, and so forth. Spectrum has been the only one to step forward and try and fill this niche, and their line is a medium priced one, their models very nice

It used to be that if you specialized your were out of luck when it came to selection. Today those who want only the most uncommon and bizarre in the way of motive power are on top, while those in need of normal work-a-day engines, who are still in the majority mind you, go wanting.

That's why my brass collection is so big

Now do I expect to pay a similar number of dollars for a new Porsche as I did in 1965...damn right I do! That is, at least when price is adjusted upwards reasonably for inflation. What I'm unwilling to do is pay 3x as much as I did less than just ten years ago for so many items, particularly basic ones, especially considering how little the average worker in the U.S. has gained in the area of salary (if anything, many have lost ground) in the period. As I've pointed out previously, technology steadily advances and in nearly all industries the consumer today is paying less (in many cases far less) in adjusted dollars for much better products than for those that were available in 1985, or 1965. Hobbies are not the exception to the rule either. I follow several other hobby pursuits that involve expanding technologies in their rapid advancement and I have seen little in the way of any dramatic price rises recently.

Well, in the interest of accuracy, I did ask you if you expected to pay the same for the new porsche as you paid for the old beetle but indexing for inflation clarifies your position enough. You seem to be stuck on salaries though, and as one who prices products as part of my job, you would be surprised how small a part of the final price the hourly wage really is. I won't tell you what I make an hour but I will tell you that my company bills more than three times that amount for my services. The labor burden, cost of my benefits, social security, etc, and so on, plus the profit on my time adds up to a tidy sum. Now we don't know what China does for this, and it's probably not near as much as it is here in the states, but i'm sure it's there. There are many "accounting buckets" that get filled when calculating final pricing, and the workers take home pay is a smaller piece of the pie than you might think. There is also the amount of money a given product has to contribute to the company's overhead...the cost of keeping the lights on, and we get to pay that three times, China, the distributor, and a chunk of it comes out of that 40-50% markup your LHS makes. The dollars pile up. It's just plain expensive to do business.

You charge what the market will bear for your product. You have an obligation to your investors to make them money, or to yourself and your family if you're a mom & pop. Eating is nice.

The situation with and the demise of IHC needs clarification and was not as you suggest. IHC went out of business because its supplier, Mehano, failed and cut off IHC's source of product. As a result, the owner continued for a short time just selling his remaining stock and subsequently retired. When Mehano did re-organize, it indicated that if and when it would re-enter the U.S. market it would probably do so on its own with a new product line. Thus, there was little interest for anyone to quickly pick up IHC just for the name.

I don't remember the forum, it may have been the Yahoo Passenger Car List, but I seem to remember that someone over there, the head honcho I think, passed away ending the efforts to keep IHC going. The factors you mention may not have made it into that discussion

The "small runs" point is critical to the current question. Throughout the hobby's history, at least up until very recently, all the manufacturers were likewise enthusiastic hobbyists. They loved model railroading and wanted to see the hobby grow. Profits often took a backseat to promotion. Read Gordon Varney's, Bill Walthers Sr. and Irv Athearn's bios. Product lines offered a selection of common, although not always completely accurate, models for the hobbyist - who was a dedicated modeler - to build/use as is, or modify, as he saw fit. Prices were kept low and individual product availability often spanned a decade, or two, or more.

Fast forward to today. Few, if any, of the current manufacturers are practicing hobbyists. It's now all about business to them. Move the most product in the shortest time at the greatest profit margin. SNIP (due to post size limit) Incidentally, you mentioned the complaints voiced in MR long ago by readers who feared that the advent of plastic cars and locos would ruin the hobby. If you go back and fully re-read those letters you'll see that what they were truly fearful of was something your post doesn't suggest. Those old-timers felt that the advent of simpler plastic car and loco kits, requiring little or no hobbyist input or effort, would lead to a degeneration of the hobby into an all RTR, talentless, pursuit. They termed it "HO tin-plate".

It didn't happen then back then because the hobby was composed of a very high percentage of craftsmen-modelers. But many of the folks who have joined the hobby since the mid 1990's are less interested in modeling overall. They just want to run trains, like when they were a kid in the middle of the last century. They use money to make-up for their lack of personal time to pursue the traditional hobby...leading us down the very road those old-timers' feared: to HO tin-plate!

You've got a couple of points here...first, I agree with you on the business basically passing out of the hands of dedicated modelers, and the big boys all have, but there's nothing to be done about that. There are still small startups out there, Exactrail, Tangent, Wright Trak Models to name a few, but they have a small offering and are doing what they are good at. They don't have a full offering. As to that and the balance of your comments below, yes, RTR is most definitely gaining in percentage. but I don't know that modeling is dying out. Our society has changed quite a bit as well. Now in most families with two parents, both work. We see lots of 60 hour weeks. as you say, our hobby time is becoming scarce as it gets tougher to make a living, so many, like me do buy more RTR. I also build crafstman kits, both wood and resin, but for the common run of the mill stuff, if I can get it RTR, I will, and I'll save my hobby time for what I have to build if I want it. Those modelers in the past were afraid that the hobby would disappear and become HO tinplate, but what really happened was that the hobby they new changed. It didn't die off. If you go to any NMRA regional or national and look in the contest room, you'll see lots of great modeling, we just have to be more selecive in how we budget our time now. I don't see this as a bad thing, I'm glad the products are out there to be had.

The bottom line is we both have opinions on this, and I don't believe we are going to convince each other one way or the other. Without the facts we can't prove our respective points. It would take the actual P&L statements from someone to prove one or the other of us right, and we aren't going to see those!

 

[supergreenman]

I see the same type of comments expressed here expressed in my other hobby of RC Aircraft.

Hobby folks, me included, seem to think that we OWN the hobby and all things included in it. The fact is we don't. We participate in the hobby and all that it offers.

Regardless of how long one has been in a particular hobby this has no effect on the current state of prices.
Costs change for a variety of reasons. Unless one is in business its difficult to fully appreciate all the attendant costs. If a business doesn't make a sufficient profit to stay in that business then they move elsewhere and we lose their products.

I can't fault anyone for making a profit, what ever it is. People are in business for the buisness, for the most part, and not for the "love of the hobby". That was true before and remains so today.

For all the critics of "how much things cost" try making something and selling it. See where all the fun is in that and let us know how the dollars roll in. I think you will be enlightened

Actually we do own the hobby, if it wasn't for our dollars there wouldn't be a hobby. Companies take a big risk when they price things out of reach of the average person they are trying to market too.

The nice thing about our hobby is we are very adaptable. If there isn't a model available(non-existent or priced beyond our means) that suits our needs we adapt and kitbash existing models to suit our needs.

if a Company wants to stay in business they will take these things into consideration.

 

[tooter]

I'm now on the prowl for old (read: cheap) rolling stock that I can practice weathering on.

That's what I do...

...and there's always plenty of cheap food for the bottom feeders.

Greg

 

[RexHea]

As mark-ups go, 40%-50% is on the low end of the spectrum. I would have expected it to be a little higher actually.

That is only at the local hobby shop and not the manufacturing and supply chain.
Of course my LHS decided he would pull a fast one and marked his items 10% above MSRP to cover his 10% discount to frequent customers. (I guess he didn't figure anyone knew the difference). I called him on it; he threw a fit...I no longer shop there.

 

[Outback]

The other side to your comment is that I never would have thunk that I'd make 5 times more than 20 years ago to buy the flex track that costs 5 times as much.

Well I certainly don't or I'd be making $60/hr. I would tend to think most of us are not making 5 times 1980's wages. You must be one of the chosen few.

... I model cheaply because I don't have the expendable cash it appears some others do. I do sometimes 'need' something to complete a project that I feel to be more expense then I like to pay. But it's MY choice to buy, or not. Pay if you like, or don't, but don't complain about the manufacturers ripping you off if you're willing and able to afford it
Just my 2cents

This I am on board with and follow the same principle. I am not able to afford to pay for many of the over-priced things anymore, so I don't, and in certain cases, I bite the bullet when and where it might be required, much the same as you do.

[Devil's Advocate] But don't any of you feel at least a little like you are being backed against a wall and forced to pay exuberant prices to stay in the hobby you enjoy by manufacturers (or anyone else) using scare tactics to get sales? And yes it is being forced or coerced or extorted in cases of buy now or lose out, or get your preorder in or lose out, or limited run get your name in now or lose out. All that type of marketing is designed to get people to do something they may otherwise not do so quickly in order to secure sales before people have a chance to realise what is going on. It's like forcing impulse buying at the expense of decent sales practices and people's household incomes. Yeah, you can say no or opt not to buy, but then what? You miss the item and are relegated to finding one for sale second hand or something else and then perhaps even paying more. There is no choice in instances like that - either you buy or you lose, how is that not indecent and forceful scare tactics? [/Devil's Advocate]

NYW&B I enjoyed your post #58. Very intuitive and what is going through my mind also. I just couldn't express it the way you have. Well written sir.

Supergreenman and Unfettered.... both well posted (post #65 & 66). Again I concur and resemble the remarks made therein.

Please everyone, don't get me wrong, I am not complaining as much as I am questioning. I get along in the hobby since I have returned to it just fine in the same manner as I had in previous years - frugally (sp?). But if no one questions or challenges the current model of marketing, pricing, and sales of our beloved hobby items, where will we end up in the grand scheme of things? To me the present mode gives off an air of milking the cow dry. Then what? If you drive away average Joe by pricing him out of the market, you are going to lose. That's just how it works.

D

 

[Gary B]

[Devil's Advocate] But don't any of you feel at least a little like you are being backed against a wall and forced to pay exuberant prices to stay in the hobby you enjoy by manufacturers (or anyone else) using scare tactics to get sales?
D

Frankly, I've never felt compelled to order anything that was a limited run, and secondly, I get a certain satisfaction when I find items I can use, cheap. Am I the only one who never thinks of buying new releases from Walters but waits to see if they're on sale in their flyer a few months later? Oh and while I kind of get the value of locomotives and such, I cannot understand any market for $10 trees.

 

[Espeefan]

[Devil's Advocate] But don't any of you feel at least a little like you are being backed against a wall and forced to pay exuberant prices to stay in the hobby you enjoy by manufacturers (or anyone else) using scare tactics to get sales? And yes it is being forced or coerced or extorted in cases of buy now or lose out, or get your preorder in or lose out, or limited run get your name in now or lose out. All that type of marketing is designed to get people to do something they may otherwise not do so quickly in order to secure sales before people have a chance to realise what is going on. It's like forcing impulse buying at the expense of decent sales practices and people's household incomes. Yeah, you can say no or opt not to buy, but then what? You miss the item and are relegated to finding one for sale second hand or something else and then perhaps even paying more. There is no choice in instances like that - either you buy or you lose, how is that not indecent and forceful scare tactics? [/Devil's Advocate] D

Nope, I don't feel trapped dr forced Every dollar that leaves my wallet in the pursuit of the hobby does so voluntarily.

I don't believe that the limited run business model is scare tactics. It's what has proven successful so far. This may change, time will tell.

These companies are doing their best to give us what we asked for. The market wanted highly detailed prototypically accurate models. We wanted sound & DCC in our locomotives. If we didn't want that, they would not have done it. Unit cost is a function of run size. Smaller quantities in a production run drive up unit costs, not the other way around. Also, the countries doing the manufacturing are developing, and their work forces want higher pay. The same thing has happened before. Brass moved from Japan to Korea in the eighties. domestic production moved from the US to China. All following cheap labor.

 

[Espeefan]

It could also coerce some of us back into becoming real modelers.

I once hear an explanation that it doesn't cost much less to manufacture a kit than a ready-to-run car. I've forgotten all the reasons, but largely it had to do with labor costs and packaging.

I'm now on the prowl for old (read: cheap) rolling stock that I can practice weathering on. I'll be darned if I'm going to buy a $30+ freight car and start daubing washes and paint on it without having perfected the techniques a little on cars that don't matter.

When BB cars were less than $5.00, I didn't care as much.

Get a box full of old cheapies at a swap meet and practice. Use water based paint & wash off what you don't like. ComArt (Iwata Medea) makes a really nice set of weathering paints that wash right off, even after they dry. You seal them with dullcote if you like what you see. Kind of a weathering "get out of jail free card"

 

[RexHea]

I don't believe anyone has a problem with items that have been improved being more expensive, detail or technical. It's the overall jump in profit margins, even on items that haven't changed one iota. Many of you keep saying: "...but there is more detail, more quality, more ..." I already posted: that doesn't explain why the price of the lowly ground throw, a piece of track, etc, has doubled and even tripled in only a few years.

To say, "You are not being forced to buy." is a cop out. What if you are in the middle of your plans and your plans were based on a budget of x amount of dollars? You want to continue, but.... To me that is forcing me.

Please, someone with economic savy, tell me how it makes sense to continue increasing the price of products that are non-essential (or essential) items, when the economy is terrible and people are tightening their wallets for only the bare essentials. Also, it would interesting to have some hard facts on just where and what the justification is for the amount of markup. As an example: how does an increase in overhead of 5-10% equal a 20% jump in price?

While this discussion is interesting, we might as well be pissing in the wind...nothing is going to change.I, like you, will have to be an idiot and pay the price for those items I "have-to-have".

 

[bobh]

To begin with.. how do you know what the price increases are?

Do anyone have actual costs from concept to product? And does that account for all the costs of doing business?


breathing is a requirement, eating and water is too.. You can throw shelter in to the mix as well but. .. FORCED to buy is a bit silly to me.

 

[RexHea]

Bob:
Simple for your first question: Look at a 2004 Walthers catalog and a 2011. Use their Shinohara track since it is shipped direct to them from overseas.

Forced: what would you call it when you haven't a choice, but to pay the price, if you want to finish a project. Silly? Perhaps you are limiting the use of the word.

Patrick: ain't it the truth!

 

[bobh]

Rex, looking at a catalog only tells the difference in retail prices. It doesn't reveal anything about the underlying cost of things.
I can imagine a huge increase in shipping costs from the Orient to the US just to name one while compairing the 2004 and 2011 costs. I'm sure there are others.

The bottom line to me is that any business that prices their product to the degree that they drive away their customer base is soon to be a "former" business.

 

[RexHea]

Yeah, there isn't a way to factually tell where the markups are occurring nor is their a way for us to determine if it is reasonable or not. We just know that it is happening and with some of us, hurting our abilities to continue modeling with our original plans. It is a shame, but that seems to be the way of the times. If we really get down to it, all areas of recreation are overpriced, but we continue to indulge ourselves with these activities. Just glad I'm not a golfer...I would go broke with green fees alone .

 

[Dollie's Dad]

Yeah, there isn't a way to factually tell where the markups are occurring nor is their a way for us to determine if it is reasonable or not. We just know that it is happening and with some of us, hurting our abilities to continue modeling with our original plans. It is a shame, but that seems to be the way of the times. If we really get down to it, all areas of recreation are overpriced, but we continue to indulge ourselves with these activities. Just glad I'm not a golfer...I would go broke with green fees alone .

Your point about discretionary spending is well-taken. It certainly looks like the economy is heading towards a time when there will be a lot less of it. The hobby suppliers will either respond with more affordable products, or disappear. The current business model works right now, but as more and more people find themselves surviving on ramen noodles and mac & cheese, $40 freight cars will no longer be an inconvenience, they will become an unaffordable luxury. Manufacturers will milk this cow as long as they can, but will eventually adjust, even if it means less sophisticated models, and a return to products more reminiscent of the good old blue boxes. Either way, I intend to have fun.

 

[Espeefan]

I don't believe anyone has a problem with items that have been improved being more expensive, detail or technical. It's the overall jump in profit margins, even on items that haven't changed one iota. Many of you keep saying: "...but there is more detail, more quality, more ..." I already posted: that doesn't explain why the price of the lowly ground throw, a piece of track, etc, has doubled and even tripled in only a few years.

To say, "You are not being forced to buy." is a cop out. What if you are in the middle of your plans and your plans were based on a budget of x amount of dollars? You want to continue, but.... To me that is forcing me.

Please, someone with economic savy, tell me how it makes sense to continue increasing the price of products that are non-essential (or essential) items, when the economy is terrible and people are tightening their wallets for only the bare essentials. Also, it would interesting to have some hard facts on just where and what the justification is for the amount of markup. As an example: how does an increase in overhead of 5-10% equal a 20% jump in price?

While this discussion is interesting, we might as well be pissing in the wind...nothing is going to change.I, like you, will have to be an idiot and pay the price for those items I "have-to-have".

I'll try...not sure how much economic savvy I have, but some I think

The first thing is: nobody knows what the real profit margins are. I'm sure they are up, but the original take was that we are paying 40-50% "extra". That is not so. The LHS buys in large quantities at wholesale prices. They mark up 40-50% out of which they have to pay their costs of doing business. As far as staples like track going up (or anything else), I don't believe that manufacturers are putting all of the extra money in the"profit" column. Costs are up as well. Commodities have been all over the map this year. China raised their minimum wage 15% already this year, and will raise it another 15% this fall.

Then there is what I believe is a real part of the problem. The inventory policy. The big thing in just about any business these days is "Thou shalt keep no more inventory than is absolutely necessary to do business." So say you used to buy 500,000 pieces of code 83 flex track for a years worth of inventory. The order from on high comes to reduce inventory. So now you place four orders a year for 125000 pieces each. Your cost per piece will be higher, as your old price was based on a 500000 Piece order. Instant price increase for the same piece of goods because your volume is down! I think the current situation is a combination of buying policies, increased labor and material costs, shifting around to new vendors after this years earlier shake up, and yes, more profit. If your cost goes up 5-10% that 5-10% gets marked up too, so the net increase could easily be 10-15%. I agree with Dollie's Dad. If things tighten up much more and we adjust our buying patterns, the market will follow, and move to lower cost items. Until then, you'll have to shop hard for bargains, watch the net, hit the swap meets, and be a savvy consumer. As has been said, who really pays full MSRP for anything anyway? I have a relationship with my LHS. I order things in, pick them up right away, and they typically cut me a 20% discount. It's still possible to get things for reasonable prices, you just have to work harder at it!

 

[tooter]

Well I certainly don't or I'd be making $60/hr. I would tend to think most of us are not making 5 times 1980's wages. You must be one of the chosen few.

It takes a lot of hard work to become "chosen"...
Because of having almost no education beyond high school I apprenticed in a practical blue collar trade and started my own business in 1979 when I got laid off in the last big recession. So I know by direct first person experience what it's like to become collatoral damage from an adverse economic cycle, and learned from it how to never become a victim again.

If you can work to own outright, without incurring debt, a production pipeline however small, with a saleable finished product at the retail end... over time that end product holds its intrinsic value like the gold standard. So the increasing amounts of rapidly degrading dollars required to purchase the end product are the only major variable in the equation. Without understanding the principle of intentionally diminished currency value as the only real variable, it is impossible to take the prudent actions necessary to protect yourself from it.

Greg

 

[TH&B'er]

That is only at the local hobby shop and not the manufacturing and supply chain.

All other sectors have the same issues of markups at various levels of production and delivery. Every service and product provider does so to earn profits. The hobby industry is no exception.

Of course my LHS decided he would pull a fast one and marked his items 10% above MSRP to cover his 10% discount to frequent customers. (I guess he didn't figure anyone knew the difference). I called him on it; he threw a fit...I no longer shop there.

I don't blame you.