During my professional life, I did quite a lot of business with Chinese manufacturers. My company was dealing in bespoke precision castings for various industries. Most of them were rather complicated parts, quite similar to the complexity of a model locomotive. The cost for these parts were around 30% of the final retail price. For a $300 part, we paid about $100 until the part hit our warehouse. A 10% duty on that price would result in a cost of $110, and the final retail price would have come to $310 and not $330, the increase amounting to 3.33% and not 10%.
I would not consider it to be a wise move for anyone along the chain of distribution to capitalize on the tariffs levied to the product and try to pocket the additional $20 as per the example described.
Happy times!
Ulrich (aka The Tin Man)
"You´re never too old for a happy childhood!"
Doughless andrechapelon There’s actually a real problem with the speculation that the 10% tariff would raise retail prices 10%. BLI actually raised prices only 7%. It's in the first post as part of BLI’s official announcement. Andre Yes. The cost of the product would include whatever shipping/distribution costs were included at the port. Costs to distribute etc. within the US should not go up, so total MSRP on the shelf should not increase a full 10%. There is nothing extra to mark up once it arrives at port. I was speaking in general terms, not necessarily agreeing that BL1 was gaming the system.
andrechapelon There’s actually a real problem with the speculation that the 10% tariff would raise retail prices 10%. BLI actually raised prices only 7%. It's in the first post as part of BLI’s official announcement. Andre
There’s actually a real problem with the speculation that the 10% tariff would raise retail prices 10%. BLI actually raised prices only 7%.
It's in the first post as part of BLI’s official announcement.
Andre
Yes. The cost of the product would include whatever shipping/distribution costs were included at the port. Costs to distribute etc. within the US should not go up, so total MSRP on the shelf should not increase a full 10%. There is nothing extra to mark up once it arrives at port.
I was speaking in general terms, not necessarily agreeing that BL1 was gaming the system.
Businesses need to work on a total gross margin per dollar invested. Having managed a model train department in a hobby shop, sold Matco hand tools, manufacturered and sold custom tractor parts, and also being in the construction business, I think I have some experiance here.
If the wholesale cost of my product goes up, I need more cash to operate, period. I still need for my gross profit before overhead to be above the 30%-35% mark.
Micro managing "overhead per unit sale" is not practical, not even in today's information age.
Sheldon
rrebellAnyone know the HS/HTS code for their stuff ?
9503.00.00
Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls; other toys; reduced-size (scale) models and similar recreational models, working or not; puzzles of all kinds
ATLANTIC CENTRALI think they are worried, is anyone else in the industry in this panic?
Atlas, Bowser and Scale Trains have made similar postings concerning increased tariffs. Perhaps others but you might have to be one of those Facebook/Twitter users to find out.
https://www.scaletrains.com/blogs/company-news/upcoming-tariff-on-model-trains
https://shop.atlasrr.com/b-a-statement-regarding-the-possible-trade-tariffs.aspx
Cheers, Ed
Agreed, nobody pays retail, but the MSRP is used to backwards calculate the various price levels. Cost levels were always discussed/calculated in terms of percentage of the retail price, as in 40% off, 60% off, etc.
In my example I used percentages from the 60's/70's, when most production was still here. Discussions of current percentages are frowned on........
Back in the day of the mom and pop shop, manufacturer sold the $100 item for $38/$40, mostly to regional wholesale distributors in case lots, wholesale distributor sold ones and twos to small shops for $58/$60. Shops asked retail or very close to retail.
Discounting started when big shops/mail order outlets starting buying at the distributor level, and giving all or part of that 20% to the customer.
Today, it is all changed...........and I'm not telling, but you are right, MSRP is not what it once was.
ATLANTIC CENTRAL andrechapelon There’s actually a real problem with the speculation that the 10% tariff would raise retail prices 10%. BLI actually raised prices only 7%. It's in the first post as part of BLI’s official announcement. Andre It suggests that they are concerned about the effect of higher prices on sales, and they are willing eat some of the markup on the increased landed cost. They have always operated as if they are cash poor, quickly dumping surplus inventory when sales slow down. That's how I bought every piece of their product I have, deeply discounted after the "new" wore off. I think they are worried, is anyone else in the industry in this panic? Sheldon
It suggests that they are concerned about the effect of higher prices on sales, and they are willing eat some of the markup on the increased landed cost.
They have always operated as if they are cash poor, quickly dumping surplus inventory when sales slow down. That's how I bought every piece of their product I have, deeply discounted after the "new" wore off.
I think they are worried, is anyone else in the industry in this panic?
Who, in their right mind, pays full MSRP? BLI sells the bulk of their product to 3rd party vendors, who base the pricing on what BLI charges them, which can be somewhat less than the calculated wholesale price given direct distribution and a volume discount.
In any case, discount retailers still have pricing leeway even if it turns out that the percentage differential between the increased MSRP and the vendor’s actual selling price is slightly less than before.
Example follows, pricing based on what I actually paid 2 years ago.
Bought an Athearn engine from MB Klein for $320. MSRP was $400. That’s a 20% discount. Let’s say 10% tariff imposed, and Athearn only raises MSRP 7% to $428, but MB Klein raises selling price 10% to $352. Thats a 17.8% (rounded up very slightly) discount to the new MSRP. It’s also a 12% discount to the original MSRP.
Of course, the above assumes the landed price exclusive of the tariff add on has remained the same since 2017. From the looks of the BLI price list, MSRP’s had already been raised due to other factors, including wage increases in China and there was probably already some slop built in for contingencies. In any case, BLI’s revenue doesn’t depend on direct retail sales to the end customer any more than Bachmann’s, Atlas's, or Athearn’s do. Bachmann’s MSRP’s in the US approach the downright comical.
I also worked in retail for a few years when I was younger, albeit in auto parts, so I do have some idea how it works.
- Douglas
Using the old business model from this industry, an item with a MSRP of $100 typically left the factory for about $38 and had a cost to produce not counting overhead of about $20.
If we assume the factory overseas is delivering the product for that price, a 10% tariff would increase the landed price to $22.
At the same margin it would now leave the manufacturer here for $41.80, and again, at the same margins that would translate to a new MSRP of $110.00, or a 10% increase.
The manufacturer, and the distributor/retailer will have to lay out this extra money, any good bean counter would say it needs to be marked up, not passed thru.......
Doughless rrebell BLI is gaming the system, a 10% incress is less as only the cost of good is affected and then maybe not even that. Anyone know the HS/HTS code for their stuff ? Good point. Technically, the tariff would be applied on the cost price from China, not on MSRP. I think we assume the tariff would result in a 10% increase in retail price, when a tariff essentially is applied before retail markup, if I understand it correctly.
rrebell BLI is gaming the system, a 10% incress is less as only the cost of good is affected and then maybe not even that. Anyone know the HS/HTS code for their stuff ?
BLI is gaming the system, a 10% incress is less as only the cost of good is affected and then maybe not even that. Anyone know the HS/HTS code for their stuff ?
Good point. Technically, the tariff would be applied on the cost price from China, not on MSRP.
I think we assume the tariff would result in a 10% increase in retail price, when a tariff essentially is applied before retail markup, if I understand it correctly.
The problem is that the retailer has to pay that extra 10%. This means he has to borrow more to buy the stock and thus pay more interest. Or, if he's using his own money he buys less stock and needs the higher margin per piece to cover his expenses and whatever salary/profit he makes.
So yes, I would expect that a 10% tariff will raise our prices 10% unless the retailer absorbs part of the cost - something small operations like model railroading may not be able to do.
Paul
drgwcs In a bit of a stranger take on tarriffs- About two months ago I stepped into a hobby shop in a different city. (This place kind of looked like a hoarding problem with a hobby shop but I digress.) I had been in there once or twice before when I had been in the area. I picked up a car in a box near the front to look at it and started to ask the price. He said that was part of a bunch of stuff he had just bought and that he was waiting to price everything until he heard what was going on with the tarriffs. (Mind you the other two times I had been in there it looked just as much of a mess with stuff like this) The car I had picked up had been made in the 60's in the US mind you- wow. Looked around a few minutes and found everything way overpriced. All the while I heard a speel about all of the hobby shops closing and how tarrifs were affecting everything. (Most of the stuff he had sure wasn't going to be affected by tarrifs except track etc.) Can you guess how much I bought- Zero Zilch Nada
In a bit of a stranger take on tarriffs- About two months ago I stepped into a hobby shop in a different city. (This place kind of looked like a hoarding problem with a hobby shop but I digress.) I had been in there once or twice before when I had been in the area. I picked up a car in a box near the front to look at it and started to ask the price. He said that was part of a bunch of stuff he had just bought and that he was waiting to price everything until he heard what was going on with the tarriffs. (Mind you the other two times I had been in there it looked just as much of a mess with stuff like this) The car I had picked up had been made in the 60's in the US mind you- wow. Looked around a few minutes and found everything way overpriced. All the while I heard a speel about all of the hobby shops closing and how tarrifs were affecting everything. (Most of the stuff he had sure wasn't going to be affected by tarrifs except track etc.) Can you guess how much I bought- Zero Zilch Nada
I agree that this sort of thing is annoying, and it sounds like his particular actions don't make alot of sense.
That said, margins in retail are low and expenses can be high. If tarrifs drive prices up a bit across the board, it makes sense to price everything up a bit. Even used stuff as there's a chance you can get a higher for used stuff from in a situation where buyers are looking for a bargain compared to the (now higher) price of new product.
A slightly related story about the increasing "value" of older trains compared to new items:
My local shop is absolutely packed with NOS kits and such, much of it going back a decade or two. Generally great prices with most at what they were priced when he first received them. When I first started shopping there some items seemed a bit high in price when compared to train shows or newer, improved versions. However, every time prices hike up, his prices (which almost never go up) seem better and better.
Sure, I might be able to do better if I wait a month and drive out to the "GMTShow" but being able to go into his shop anytime and walk out with a new BB/EMC/Roundhouse/etc kit for $8-12 feels great compared to what I'd pay for even the most basic new-production railcar.
Visit the Chicago Valley Railroad for Chicago Trainspotting and Budget Model Railroading.
Without intending to trod over the treacherous ground of politics - a number of toy manufacturers in my country have moved their production back to Germany and other Europen countries. China has just become too expensive - and that without any duties imposed.
Tinplate Toddler Doughless The idea of avoiding monopolies or captive situations is sort of what regulations are supposed to consider, if the people making such decisions are executing them correctly. It was the lure of higher profit margins that facilitated the move to Chinese manufacturing and the decline of local resources - not only in the model railroading business. Whatever the intention of the imposed duties is, it won´t bring back the jobs lost to China, or to Vietnam, or any other country in the world.
Doughless The idea of avoiding monopolies or captive situations is sort of what regulations are supposed to consider, if the people making such decisions are executing them correctly.
It was the lure of higher profit margins that facilitated the move to Chinese manufacturing and the decline of local resources - not only in the model railroading business. Whatever the intention of the imposed duties is, it won´t bring back the jobs lost to China, or to Vietnam, or any other country in the world.
That's a different discussion centering around politics. Frankly, I don't think anybody at a high level of politics cares much about bringing toy manufacturing back to the USA. If my highly detailed RTR train items get caught up in the geopolitical wash, then I guess I''ll go back to acquiring Athearn BB or Accurail kits and run them with plastic wheels again. We'll still have Kadee.
The only things I need to buy immediately, ever, is food, clean water, gasoline, and HVAC, which are all affordable mainly by the abundance of land and energy.
As some have said, the moving of train jobs to oversees may have improved profit margins, but what it did for us consumers is give us highly detailed RTR models. If tariffs continue, that party may be over, but maybe Athearn, Atlas Branchline, and Accurail will benefit. Don't know where those molds will be located, here or somewhere else.
Tinplate Toddler Custom tariffs are levied on the purchase value (landed cost) and not on the sales value an importer aims at selling the item. Just a remark for those who think of developing new manufacturing resources outside of China - it took over 10 years to develop the Chines makers into a reliable resource, delivering the quality the discerning and paying customer expects to get. Going back to square one by moving manufacturing to Vietnam, Brazil or even Africa may not be the smartest solution.
Custom tariffs are levied on the purchase value (landed cost) and not on the sales value an importer aims at selling the item.
Just a remark for those who think of developing new manufacturing resources outside of China - it took over 10 years to develop the Chines makers into a reliable resource, delivering the quality the discerning and paying customer expects to get. Going back to square one by moving manufacturing to Vietnam, Brazil or even Africa may not be the smartest solution.
Vietnam and Brazil already possess mature manufacturing, so there's already workforce with technical skill in place. Samsung makes half of their smartphones in Vietnam. Brazil exports $6b in commercial aircraft every year (Russia, for instance, is just $460m). These guys aren't exactly new to making things.
DoughlessThe idea of avoiding monopolies or captive situations is sort of what regulations are supposed to consider, if the people making such decisions are executing them correctly.
10 years is fine with me, there is always ebay and my modeling skills to supplement any new item I may want to buy, and good for my kids if they get into the hobby.
I'd think that Atlas, Athearn, IM, etc would appreciate having multiple outlets and locations with which to shop their production.
Kind of like a business here in the US having access to NS and CSX and not being captive to just one. The idea of avoiding monopolies or captive situations is sort of what regulations are supposed to consider, if the people making such decisions are executing them correctly.
Just a remark for those who think of developing new manufacturing resources outside of China - it took over 10 years to develop the Chinese makers into a reliable resource, delivering the quality the discerning and paying customer expects to get. Going back to square one by moving manufacturing to Vietnam, Brazil or even Africa may not be the smartest solution.
Knowing not much about tariffs, is the tariff levied against the manufacturer based on the MSRP? or the price they sell to dealers at? If the MSRP was lowered, would that have any effect on any potential price increases?
I would think that companies moving productions to lower costing and developing countries in Asia is a good thing. Breaking up any monopolies that exist from having all products made in one country would seem to be in my best interest, as well as being able to negotiate many independent terms and play different countries off one another. I'm usually for what is in my best interest and not necessarily someone else's and short term price fluctuations in trains isn't that big of a deal since I'm never in a short term hurry to buy anything.
riogrande5761That is likely to poke some "make it in America" bears. You just threw your own country under the buss. Gratz!
.
That was not the inention at all, it is the truth, and I have no way of knowing if my experience with these instruments is typical or not.
-Kevin
Living the dream.
SeeYou190My favorite guitar is an asian made Stratocaster. It sounds much better than my USA version
That is likely to poke some "make it in America" bears. You just threw your own country under the buss. Gratz!
Rio Grande. The Action Road - Focus 1977-1983
Eilifanyone heard any rumblings about production moving to other countries like Vietnam, Indonesia, etc?
Bachmann is owned by a Chinese company, Kader. Possibly other companies are also owned as well. Kader is described as one of the largest makers of maodel trains. It's hard to see them moving.
Kader also manufactures many products for other companies. I don't know all the in and outs, but about 10 years ago when there were some manufacturing problems in China, some American companies had trouble moving their tooling to a new company or getting their tooling back to the U.S. Don't know what the current situation is, but I doubt the Chinese governement is going to be real helpful about it.
And of course with a lot of companies potentially moving, how fast can other places like Vietnam ramp up factories, workers, etc.
Short term I think we're mostly stuck with prices increases if these tariffs get imposed.
azrail Expect a lot of Chinese production to go to SE Asia if things heat up more.
Expect a lot of Chinese production to go to SE Asia if things heat up more.
That is my expectation as well. However, I'm not an expert in these things and I don't know how deep the extenuating circumstances go. Stuff like..
-Chinese companies not being able to move companies. Kader, etc...
-Chinese subcontractors owning the tooling.
-Inability of smaller train companies to find suitable makers.
As mentioned, my limited experience is with instruments and there, you had large companies with massive experience, setting up their own factories.
As an example: Cor-Tek (Cort instruments, etc) made alot of instruments for many companies in their Korean factory. As cost of production went up, they opened factories in Indonesia and China. They had the the expertiese for this and presumeably they were even able to move some tooling. They still make "Premium" and domestic instruments in Korea, but their (and many other companies) lower and middle quality instruments are being made in China and Indonesia. Could this be a model for Chinese companies? I'm not sure who has the werewithal to relocate to a new country.
If it did happen, it could have some long-term positive effect on prices, but there would still be:
-The need to keep production going in China for now with the accompanying higher prices.
-Lower investment in US facilities and US employees (fewer hirings, raises, bonuses, etc) as the resources are redirected toward new facilities.
EilifAs a bassist, I companies like Lakland, Peavey and Ibanez making some surprisingly high-end instruments in Indonesia.
My favorite guitar is an asian made Stratocaster. It sounds much better than my USA version. It is also finished much better, for 1/3 the price.
The major camera makers..Nikon, Canon...source a number of their components from Vietnam. And all of the JTT scenic details come from Vietnam. Expect a lot of Chinese production to go to SE Asia if things heat up more.
Production is certainly not coming back to the states in great amounts, but has anyone heard any rumblings about production moving to other countries like Vietnam, Indonesia, etc?
China has a very good infrastructure in place but many other precision products are coming out of other asian countries. As a bassist, I companies like Lakland, Peavey and Ibanez making some surprisingly high-end instruments in Indonesia.
I don't buy many new trains and I'm not in the high-end train market so I don't see the tarrifs affecting me much but it's an interesting situation to watch.