***LIONEL NEW CEO PRESS RELEASE***

[Anonymous]

Lionel Names Jerry Calabrese Chief Executive Officer
10/07/2004
FOR IMMEDIATE RELEASE

COMPANY CONTACT:

Mark Erickson

[phone] x1467

Lionel LLC



MEDIA CONTACT

Hollis Rafkin-Sax

Financial Dynamics

[phone]





Lionel Names Jerry Calabrese Chief Executive Officer



Chesterfield, Michigan – October 7, 2004 -- Lionel LLC, the leading marketer of model trains and accessories, today announced that Gerard Calabrese, 56, has been named chief executive officer.



“We’re happy that someone with Jerry’s talent and experience has agreed to join Lionel,” said Greg Feldman, Managing Partner, Wellspring Capital Management LLC. “Jerry is a dynamic leader with a history of innovative thinking that has helped companies develop new and exciting products and markets. We believe that his fresh perspectives and operational expertise will propel the venerable Lionel brand to new growth, ensuring that Lionel trains continue to bring happiness to hobbyists for generations to come.”



“I’m very excited about coming to Lionel at such an important time in its 100-plus year history,” said Calabrese. “Lionel is one of the world’s most respected and recognized brands and the unquestioned leader in its core business of model trains. For more than a century, Lionel has been defined by its ability to create the best and most innovative products, and it’s a tradition I’m very serious about continuing. I have the greatest respect for hobby based businesses because they depend on the trust and loyalty of the fans that support them. Anyone who knows me knows that I will take nothing more seriously than the trust our fans have invested in Lionel over the years.”



Calabrese is a widely respected marketing innovator in consumer brand development, publishing and entertainment, and sports programming, having worked closely with NASCAR in creating and selling its highly successful 50th Anniversary program, as well as establishing NASCAR’s first marketing effort directed at kids with NASCAR Racers, an animated show on Fox Kids Network.



From 1990 through 1996, Calabrese worked for Marvel Entertainment, serving as head of Marvel’s consumer products division, foreign publishing and licensing and as President of Marvel Comics Group. During his tenure at Marvel, he oversaw the exploitation of a half dozen popular network and syndicated kids television shows, including the #1 rated X-Men and Spider-Man, which became the top promotional and licensing properties of their time, solidifying Marvel’s position as one of the world’s premier kids marketing companies.



Lionel LLC is one of the world’s leading marketers of model trains and accessories. Established in 1900, the Lionel name is the most widely recognized brand in the toy train industry and one of the most recognized brands in America. Lionel has been at the center of every major innovation in toy train manufacturing and marketing since its inception.



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[Anonymous]

Mark Erickson is the PR honcho.

[Anonymous]

Hi John,

Thanks for posting the release from a New York PR agency. We spoke to the agency this morning. Please look on our home page and note that we took the lead on this and posted the information about Jerry Calabrese about two weeks ago. I don't know why it took two weeks for the official announcement.

Sincerely,
Neil Besougloff
editor

[Anonymous]

"“We’re happy that someone with Jerry’s talent and experience has agreed to join Lionel,”

I'm "Happy"... Your "Happy"... Is Everybody "Happy"???


Geeeeshh!!! Such enthusiam for a new CEO. It makes you wonder exactly "how happy" they really are, doesn't it.

Only time will tell, I guess.

[prewardude]

I've gotten to the point that I wish Mike Wolf would just buy Lionel and get it over with. Remember what happened the last time they brought in somebody from outside the industry to be CEO?

[Anonymous]

Speculation and rumors that MTH should/would acquire Lionel, is just that... speculation.

However, what has not been discussed, is the role the U.S. Government might play in this scenerio.

The FTC (Federal Trade Commission) is responsible for enforcing antitrust laws to prevent unfair competition.

If two large companies, who, together, already have a substantial market share of their business... and, if merged together, become so large as to "restrain" competition... then, the FTC may have jurisdiction over the approval of such a merger.

Just another "fly-in-ointment"... when such talk, between these two companies, arise.

[Anonymous]

MR, If Mike Wolf bought the entire 3-rail industry, there would be no antitrust issue, particularly in today's political and regulatory environment. The whole shebang would be the proverbial pimple on Mattel's[censored]

[Bob Keller]

As for Government intervention, I personally favor making the Government it a requirement that every household possess either a standard gauge, O gauge, or S gauge layout. And, of course, persons operating HO or N should be under observation by Homeland Security. An exception could be made for OO since the UK is our best ally. [:o)] [:D]

[cnw1995]

I second this notion and propose to send it to my congressperson. Classic toy trains for everyone! Ask not for what you can do for yourself, but what you can do for O gauge. A chicken, uh toy train, in every pot.

[Anonymous]

Bob, OO is also exempt because Lionel made OO trains before the war COMPLETE WITH THE CORRECT NUMBER OF RAILS. BTW, did you know that prewar Flyer HO track is joined with the same exact track pins they used for "O" Gauge track?

[lionelsoni]

Lionel OO also had the correct track gauge.

[Roger Bielen]

This announcement is probably why authorized dealers were "invited" to attend a meeting at corp., I think it was this week that my local dealer mentioned when I was in the store last week.

[Anonymous]

johnblair,,,,??? Correct number of rails? I heard the class 1s are concidering going to 3 rail given the success that the model industry has had! I hear there wantin' some of that action!!![:D]

[brianel027]

I know Bob Keller's bit about government regulation that every household having a train set is of course a joke. But if the hobby is going to grow and reach new people, it is more than likely going to be because of business and not regulatory reasons. It's going to take promotion, advertising, fair distribution and pricing along with reasonably priced quality product.

It remains to be seen what will happen at Lionel. But I for one have no concern or worry over the new CEO and wish Mr. Calabrese the best of luck. I know these feelings here are not going to be popular with many adult modelers, but there has not been enough emphasis on the lower end affordable product... maybe Mr. Calabrese will change this if it is in his power and ablility. From what I know, Lionel's distribution rules need to be be assessed and changed.

Look gang, regardless of the competition and who is making what, when newcomers go into a train shop it is probably the Lionel name that brought them in. I'm sure Lionel knows this. Those new customers are going to ask to see the Lionel product. Unless they've been sent in by a seasoned modeler, they don't even know K-Line, Williams and MTH even exist. Therefore it is imperative that Lionel have the kind kind of product the newcomers with kids want and at the prices they can afford. When the other companies make the sale, it is probably because the customer has done some comparing of price and quality and decided to buy another brand. BUT it's still the Lionel name that brought them in. It's just that times have changed and folks aren't as willing or simply can't afford to pay more just for a name on the box.

Truth be told, when I show my trains to folks with kids, even though a majority of my stuff is K-Line, these folks can't tell the difference. To them it all looks like Lionel. It's the suggested list prices (and the dealer's ability to discount) that makes the real difference between Lionel and the others.

Those Lionel catalogs from a few years back were a joke... the ones with the excited young boys holding big train engines that cost $1,2000. There's a person that should have been fired. How many kids get a train set that costs that much, let alone a single locomotive? That's a fool's fantasy. The covers of the catalogs should be showing product that would appeal to the families with kids... that's the group that needs to be reached. The seasoned train guys already know what the Lionel catalog is about and know about the trains already.

We talk about too many catalogs. Yes, so the second catalog should be geared and aimed solely at the newcomer with kids audience, showing the product they might buy and can afford. I tell you the truth from solid experience: the current Lionel catalogs frighten people away. I know... I constantly show the catalogs to folks with young kids and the reaction is always exactly the same: "This is an expensive hobby for adults only." And they're almost right... although there is a good selection of beginner product, the catalogs are completely lopsided affairs with 90% of the product aimed at wealthier or advanced modelers. Remember in business, FIRST impressions are important. If young families have to fumble through a 150 page catalog to find the 10-15 pages of product they might be interested in, they'll probably loose interest.

I know there are many here who are worried they'll see fewer scale sized offerings from Lionel. Although it wouldn't be entirely too good to alienate the advanced scale modelers, there's also no shortage of product for them from everyone else. The Lionel name has a distinct advantage though when it comes to bringing in new customers. The name needs to be backed up with the kinds of products that appeal to those young new customers at reasonable competitive prices and quality levels.

More name/logo licensing is not the total answer. Sure it brings in needed revenue. And yes, it is great cost effective advertising. But Lionel has already had their name on all sorts of products, like the popular clocks, watches and food tins... it needs to be backed up with product for the newcomers along with outreach - the consumer see the name on a clock, so OK, now an idea has been planted. But where does he go to find Lionel trains? And what will he find when he gets there? A superior comparison value K-Line train set at a better discount price???

I think Mr. Calabrese has his work cut out for him and I wish him and the company the best.

As a closing observation, I was waiting for an appointment last week. There a was a young boy waiting with his folks too, and the boy was getting antsy. I pointed out there was a toy box at the other end of the office. The boy went over and pulled out a plastic toy train engine and started yelling at the top of his lungs with all of the excitement of Christmas morning "Look Mom, Dad, a train!! A train!!" I wish I had a camera at that very moment. That's the kid Lionel needs to reach. There is still a love for trains with kids.

I know if I were Mr. Calabrese, I'd be flattered and honored to put in 120% of my effort and abilities to the end result of reaching that kid. After all, it is because of the trains we all had as kids that 99% of us adults are in this hobby today.

[Anonymous]

Agent 027 is a voice of rationality. Putting the product line on a diet is a good idea. If you cannot present an entire line of trains in a 30 page catalog, there's something wrong. Scale folks will still have Weaver and Atlas. If Lionel took the organizational effort they WASTED on just one of their special announcement locos and redirected it to having a complete functional Fastrack line, the company would be much better off. The 80-CW transformers seem to have reliability problems. but where are Lionel's engineers? --off designing some $2.000.00 train set that less than 1% of their customer base would seriously consider purchasing. The cleansing was needed, now Lionel needs to get their product out to the consumer and the LHS around the country are going to have to work with Lionel to find an equitable arrangement for service and retailing of accessories. LHS need to also realize that for every thousand sets that Lionel sells in a mass market retail situation, 20 or 30 new hobbyists will be created. The LHS would be lucky to sel 10 sets in the same time frame. These newly minted model railroaders will need service and products that cannot be found in a toy or department store. Lionel needs to treat it's service stations fairly. Then all will have an opportunity to prosper.

[Anonymous]

So where do you think Lionel should go from here. More scale offerings?, More starter products? I want to see Lionel gain a TV presence and an overall strategy of going where the costomers are (NOT the LHS) and sell TOYS . Then bring the customer into the HOBBY of model trains by servicing trains at the LHS The LHS could also have an enhanced line of products that the mass retailers could never stock. The whole strategy would be to create customers and nurture them. Lionel needs to realize that small businesses like the LHS need to manage their servivce business as a profit center so fair treatment is a must. The LHS is necessary for lionel to market their higher end product line. and receive the customers that Lionel and it's mass retail partners have developed for them. In an ideal implementation of this steategy, the mass retailer and the LHS would be no more competitors than a high school and a college. Companies like Macy's and Sears Built Lionel, NOT hobby shops It is time for Lionel to do what it does best. SELL MASS QUANTITIES and use the LHS as a partner to service their compleete line and sell the better stuff to a MUCH LARGER customer base than the local hobby shops are getting now.

[brianel027]

Well John, without "seeing the books" it's hard to know what is going on and what really works. The last period when there was any extensive TV advertising and mass-retailer exposure was during the mid-1970's during the MPC years. I do recall seeing Lionel commercials on TV (and many times too) and seeing a full line of Lionel product in K-Mart, including track, accessories and separate sale cars. The last time Lionel product was in K-Mart was over a decade ago and that was only one single train set. And though I've heard there was a Lionel commercial, I have not seen one in over 14 years.

BUT was the MPC era the last period of real growth in sales of starter sets? I do know a bunch of modelers today who got their start with the much criticized product of the MPC period. Lionel press releases of recent years all state starter set sales (and direct related product) are up... up more than the MPC period? Up more than the increase in sales of high end product?

So Lionel will do as they will. I do know some of the things Calabrese has said are things I've been saying for years, so we'll see what happens. I think there's a profound and immediate need for more attention to the lower end of the product line because this is where you find future customers.

But is Lionel in the position to put money into the high and low end product at the same time?? You can bet all this new scale product tooling is costly and doesn't see an immediate return on the development costs. Yet the scale modelers are a vocal group and they want more scale product. On the other hand, kids don't even know about Lionel trains (until someone like me - or you - shows them their trains), so they're not too vocal about what kind of product they want.

So who will Lionel listen to: someone they hear from and spends big bucks on their product or the guess from someone who is unaware of the company?

And as much as I love Neil Young's music (all of it - even the stuff he dislikes) and admire the technical contributions he's made to Lionel, even Neil himself in interviews has admitted to being a lucky man as far as his music career goes. So there's a big difference between what Neil Young can afford to spend on trains and what the average Surfer Joe can afford to spend. The high tech items NEED to be affordable if they''re going to be effective at enticing newcomers into the hobby.

And regardless of what Lionel customers want, the final result / decision of these lawsuits could change things in a way none of us foresee.

Obviously Lionel can't completely abandon the high end product. There are too many customers who support and buy it. But they could trim it back: more median priced items, and fewer top dollar items. I think they do need to do this to some extent.

I know if I were in the decision making position, I'd be looking for ways to bring down prices overall to meet the competion. I'd be looking for ways to promote the company and looking at the distribution / wholesale / dealer network and looking for ways to improve sales. I'd drop many items from the product line like the specialized animated items like the urinating dog and the bandstand. I think most average modelers want accessories that that interact with the trains directly. I'd drop many of the Postwar reissue cars except those with obvious sales appeal - and I'd want to put a modern touch on those that do go out. I'd be interested in developing an interim command control system that is transformer based and runs any train with wireless control. I'd be looking for cost-effective ways to improve and diverify the lower end product line (there are actually ways that I've already designed and done). I'd re-establi***he Lionel kid's club... it was a mistake to drop it, even if it wasn't an immediate money maker... it's the way to the future.

I'd be watching the economy too. The numbers are getting worse. Here where I'm at, 55 workers just got pink slips yesterday for a temporary layoff until March 2005. BUT there's 55 folks who aren't gonna be spending big dollars this holiday season. You can bet if there's a train collector in the group, planned holiday train purchases have just been eliminated completely (believe I know this one).

This is where price is a big factor. Nevermind getting into a debate over the ethics of overseas manufacturing... the simple fact remains that if you go to Wal-Mart, nearly everything is made in China and nearly all of it is bargain priced. You could buy a DVD player for under $40.00! I remember a few years ago when DVD players where close to $200.00!

Which begs the question, if Lionel trains are made in the same place that all these other cheap products are made, why are Lionel trains still as expensive (if not more) than when they were made here in the US?

Like it or not, all this overseas outsourcing may be good for business profit reports. But there a lot of American's who used to be able to afford to buy more than they do now. And when they do buy, PRICE is a very major consideration. If the bulk of the Lionel line remains the most expensive of all, I doubt any amount of promotion or other gimmicks will help increase sales. Lionel list prices need to come down to levels that reflect the lower production costs, what the competition is doing and what the consumer can willingly afford.

Judging by all the blowouts, even the existing train customers can't afford to buy all they want to either. And it seems to me that when they are buying, it's directly because of the blowout prices.

Late news: I just looked at the morning paper and the headline is that the local picture tube plant may close November 1 eliminating over 800 good paying jobs!!! My area does NOT need this kind of devasting DISMAL news!!

And you can bet good money (if you have any) that overseas competition is playing into this upcoming decision. Again it begs the question with all this overseas manufacturing, if there will be anyone left in America who can even afford to pay their living expenses, nevermind buying some $800 dollar train engine made in the same dang place that just caused them to loose their own job.

Maybe the train companies should start buying television advertising in China and Korea?

[Anonymous]

Agent 027, The tooling Lionel has now will carry them for a good long time.The only really new thing Lionel needs to do is modernize TMCC. Rotating thru diesel and car road names will keep them going for years. That was the formula they used in the postwar years and they now have a far larger suite of tooling so that it will not be as boring as the postwar years were. A friend has told me that Jerry Calaberse has been quoted as having said that he would like to shrink the Lionel catalog drastically. OK but there should be uncataloged store special sets and cars to add variety for the collector. The high end user has been spoiled in the last ten years and they can expect few really new products in the next few years but cost has to go down and volume has to go up for Lionel to succeed.