I think we've hashed this one out and then some. Time to get back to trains and modeling, fellas.
Thanks,
Tom
https://tstage9.wixsite.com/nyc-modeling
Time...It marches on...without ever turning around to see if anyone is even keeping in step.
LastspikemikeThe biggest "retailer' in the world needs no stock whatsoever. Amazon basically brokers
Somebody has never been inside even a "small" Amazon warehouse.
No stock whatsoever?
-Kevin
Living the dream.
riogrande5761,Stuck a fork in it? If only that were true. Lastspikemike,According to various online dictionaries, Free Market is: "An economy operating by free competition." - "An economic market or system in which prices are based on competition among private businesses and not controlled by a government." - "An economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies."So far, I don't see how this relates at all to this discussion. No government is setting prices, no monopolies are controling markets. Instead, manufacturers set the MSRP (Manufacturer's Suggested Retail Price), and the discounts to wholesalers and retailers are based on that. Hobby companies are not selling $55 items to a wholesaler, they are selling items at 45% off the MSRP.richhotrain,So, why is pre-ordering bad?Doughless,Actually, manufacturers would prefer that all the units would be sold out as soon as they arrive. That gives them the maximum return on the money already invested in that production run. The faster they can turn the money over, the more money they make.You're assuming facts not in evidence about leaving money on the table. Because there have been a few anecdotal posts over the years about people supposedly missing out on something new because they didn't pre-order, the thinking seems to be that there must be a vast reserve of unsatisfied modelers. There's simply no proof of that.I'll give you an example from my club. In 2003, we paid MDC/Roundhouse to make 300 New Hampshire Northcoast open hoppers as a custom club car kit (in two road numbers). http://www.ssmrc.org/past_cars.aspx We sold 'em like hotcakes, and they sold out in less than 6 months. For months after they sold out, we kept getting letters & e-mails from people looking for our NHN hoppers. Wow, must be even more demand than we thought! Great, let's do it again, and we bought another 300 more car kits in one road number and one unnumbered with decals. We sold the first 100 cars in just a couple months...and then sales dried up completely. It took another 5 years to sell those last 200 cars, and to sell them we painted the underframes, put them together, put on the numbers, and we eventually had to get price them at a deep discount just to get them out of the basement. Yes, there was pent up demand for our NHN hoppers and we clearly left money on the table after that first run...but the second run? We figuratively lost our shirts chasing that last dollar.You talk about a series of whiffs, as in there aren't enough pre-orders to make the product and thus no product gets made. Far better to whiff on a pre-order and cancel it than whiff on a production run and go bankrupt.And how else are manufacturers supposed to learn the market without pre-orders? They should just bull ahead and make something without it? Just take a wild guess? How can they possibly use the history of the market when it comes to making something new? When Atlas first made the HH660, no one had ever made one before in injected plastic...ever. Who knew what the market would be for such a thing with zero history to go by?You are assuming pre-orders are thinning the ranks of our hobby based on what?Like puppies for a food dish? Really? Or musical chairs? But that's not how it is at all. In a pre-order system, the manufacturer will make units to fill every order they get. There's no competition, there's no race to the food bowl. If you pre-order, you'll get it (unless your retailer doesn't pay his bills). If anything, the old days led to the "gotta-buy-it-now" rush down to the hobby shop to get yours before they're all sold out. With a pre-order, it'll be sitting there behind the desk waiting for you to pick it up. And your Best Buy example? That's without pre-orders. If they could pre-order their "door crasher" Black Friday deals and pick them up when they want to, no one would be lining up.
Lastspikemike,Our hobby manufacturers come up with an idea to make something. It will then be drawn up sent to a Chinese factory to design the product for mass production. After some back and forth with the design, the Chinese factory tells them the tooling will cost X to make, and that the unit price will be Y based on the number of units made, Z. As Z increases, Y decreases and as Z decreases, Y increases. If these numbers are acceptable, the contract is signed and 100% of the tooling cost is paid for immediately as tooling begins. After tooling is completed and inspected, a test shot is made and inspected. After that passes, 50% of the assembly cost is paid for, and manufacturing begins. Once complete, everything is put in a container and brought to the dock. Before it's put on a ship, the remaining 50% of the assembly cost is paid. Once the check clears, it's loaded on the ship to North America. That's how it works most of the time. All the production numbers are set at the time of the signing of the contract.Have you ever worked retail? There's an old expression that has always remained true in retail: "Pile it high and watch it fly." Not only have I worked in retail for 25 years, I have several fellow club members that have worked as managers for Woolworths, Fanny Farmer, Family Dollar, and many other stores with decades of experience in Boston and around the area. They all say, "Pile it high and watch it fly." Leaving your shelves mostly empty discourages sales. It makes your store looks like it's going out of business, that you can't even afford to stock the shelves. It even applies to train shows, where I've also been a dealer for 30 years. If you only put out one car and leave 29 more in a box under the table, you won't sell many (if any). Put out all 30 cars and you'll sell more. It's a fact.And BTW, one of my local hobby stores has a strict "No haggling" policy with the sign that says, "How would you feel if your boss asked you to do the same for work for less? We feel the same way when you ask for a discounted price." And goodness knows, I've certainly dealt with haggling customers. The price is the price, and if they don't like it, the exit is over there.Sorry, I have to quote you here because there's so much to unpack:
All this talk about production numbers being fixed and preorders determining production just has to be wrong.No. No, it is not wrong. Production numbers are fixed when the contract is signed between the North American company and the Chinese factory. Period. The North American company sets the production numbers based on expected sales, which is based in part on pre-orders and the unit price based on what the Chinese are going to charge them.To start production costs $x. Regardless of quantity. Marginal cost of extra units just has to be tiny. No. No, it is 100% dependant on quantity. Production is incredibly labor intensive as a simple 40' ice reefer can have over 200 parts. Each unit is hand assembled by well-paid Chinese workers (by Chinese standards). These are not built by machines but by actual humans who are quite skilled. Whether they make one or 5000, it takes the same amount of time to build it. Where would you get the idea that extra units are "marginal" in cost?
Production can easily be expanded during or even after a run. No. No, it can't be easily expanded. You can't just turn the tap on and make more come out. If it's a bigger production run, they have to hire more people to shoot the plastic, cut the parts, paint the models, QA checks, final assembly, packaging, etc. Everything is planned out ahead of time by professional Chinese manufacturing engineers to maximize labor use and minimize dead time. They don't even like making Undec. models because it disturbs their production process. I can't imagine their reaction to being told to make another 100 in the middle of a production run would be any better.The key is to pre sell enough units to make the initial investment a sensible risk. Once that point is reached the sky's the limit, literally. Pre-selling is a non-starter in this hobby, and fraught with difficulty. What happens if you don't get enough? Then you have to return the money. It's much easier to pre-order (not take any money). Those moulds aren't going anywhere and cost beans to store if sales dry up. Molds are very heavy and there can be hundreds of molds and slides to store and possibly get damaged. It would not do to let them get exposed to the elements, especially if they are steel, so humidity control would be a must.Even assembly skills just aren't that specialized as witness the very wide variety of assembly skills exhibited by modellers who end up with the product. One piece of model railroading equipment is more or less identical to another from an assembly skill perspective.Ha. That's funny. Just try it. Watch some of the Rapido factory tours and just watch what those Chinese ladies are doing. And not just one car or one engine, but thousands of 'em...day after day for months on end, and the result has to be almost perfect every time. Dip a grab in the ACC and stick it in the #80 holes without getting glue on the surface. Now do it several thousand times. And you say it's not a specialized skill? Ha.
I'll go so far as to suggest that the manufacturers and their client factories very probably make deals among themselves to borrow each other's moulds and assembly facilities. I'm very sure car makers do and have done for decades now. Um, no. No, they don't. There are Chinese factories that make product for many different North American companies. That's true. However, they don't share tooling. Or rather, if they do, they call it theft and lawsuits are a result (see: Lionel vs. MTH vs. Korean Brass).Doughless,The reason why the older companies went to pre-orders instead of flooding the market with large runs like they used to is due to market changes. P2K would crank out generic models painted in their favorite roads and people would buy them. Today that's not the case.I would remind you that Rapido has three (yes, three) different factories in China that they "own" (as much as they can in China, anyways). And ScaleTrains has their own factory in China, as well. I seriously doubt there's any "production window" problems for either company. Oh, and we'll never have production numbers...ever. It's the most closely guarded secret in our hobby.So while I agree that we don't know if more or fewer models are being sold today vs. 1988, just take a look at all the new companies that have come along in the last 10-15 years making quality products. Rapido, ScaleTrains, ExactRail, Arrowhead, Tangent, Moloco, Fox Valley, Spring Mills Depot, and Wheels of Time just to name some. If the hobby was being killed by pre-orders and limited runs, then how are all these new companies continuing to succeed? Especially when you consider that the old companies like Atlas, Walthers, Bachmann, Kadee, et al, are also still around, with Athearn cranking out ~500 loco SKU's every year.
Lastspikemike If demand for factory time is so high then that would explain high costs of production. Pricing rules apply to all input costs as much as to the final product. I remain sceptical that demand for Chinese factory time is at all limited.
If demand for factory time is so high then that would explain high costs of production. Pricing rules apply to all input costs as much as to the final product.
I remain sceptical that demand for Chinese factory time is at all limited.
The factory owner needs contracts for brands to use his factory and labor, so the brands have to compete for factory time. The brands have to plan around production window times more than they have a sales window limits. JMO of course.
- Douglas
mlehmanThese are essentially luxury goods
I had no idea I was making luxury purchases.
That is a fancy way to describe electric model trains.
(I know luxury indicates an unnecessary discressionary purchase for no practical reason, just having fun)
If you're relying primarily on someone's economic theory to explain real world niche markets of objects involving discretionary income, then you'll be baffled by what happens here.
These are essentially luxury goods, so many of the tenets of free market theory are simply useless. People pay what they think something is worth.
How much is a model worth? Consider how many hours it would take to build it yourself, as perfect as they generally roll out of the box. How much is YOUR time worth? Then price that against even high end cars like Tangent, Moloco, etc. Betcha every one of those items is way cheaper than DIY, err, that old fashioned model railroading thing.
So most of this discussion about wringing the last increment of price to "bring value" to the consumer is pretty meaningless. People are getting great value in RTR in most case compared to actually building it. There's no way you can spend 6 to 10 hours building a car, plus paint, etc unless you actually enjoy doing that as some of us still do. You sure can't make money on that once you count your time in. I probably had about five or six hours in each 3000 series I built from a kit that cost $15. My time is worth at least $10, more like $15/hour. I can never do as good a job building it as Blackstone does. That was when the Blackstones hit the market at something like $29.95. No need for exact math here. That's why RTR is popular via the pre-order system. It's the easy road to a decent looking layout. As a build it myself fellow, I'm OK with that, even indulge from time to time strategically when the funds are available.
Markets are notoriously more sloppy than they appear in theory.
Mike Lehman
Urbana, IL
Lastspikemike All this talk about production numbers being fixed and preorders determining production just has to be wrong. To start production costs $x. Regardless of quantity. Marginal cost of extra units just has to be tiny. Production can easily be expanded during or even after a run. ............................... I'll go so far as to suggest that the manufacturers and their client factories very probably make deals among themselves to borrow each other's moulds and assembly facilities. I'm very sure car makers do and have done for decades now. ============= If demand for factory time is so high then that would explain high costs of production. Pricing rules apply to all input costs as much as to the final product. I remain sceptical that demand for Chinese factory time is at all limited.
All this talk about production numbers being fixed and preorders determining production just has to be wrong. To start production costs $x. Regardless of quantity. Marginal cost of extra units just has to be tiny. Production can easily be expanded during or even after a run. ...............................
I'll go so far as to suggest that the manufacturers and their client factories very probably make deals among themselves to borrow each other's moulds and assembly facilities. I'm very sure car makers do and have done for decades now.
=============
To look at your first point, perhaps the marginal cost of producing extra product material from the moulds is tiny. However, the labour in subsequently assembling all the various components to produce the completed model remains the same. The manufacturing is less, but not by a significant amout for the higher end models.
The manufacturers are very unlikely to "borrow each other's moulds". A mould is very specific to a particular model, and can't be simply adapted to something even slightly different. Some manufacturers do incorporate replaceable inserts to allow for some variations in the base model but that will be for variations they plan to make. A different model of locomotive will require all new moulds.
As to your third point (from a later post), a number of prominent manufacturers recently had their planned offerings delayed by more than a year when one Chinese factory suddenly shut down. We are a niche industry and factory time is indeed limited. When one of the Rapido products proved popular beyond all expectations (though pre-orders), it tied up the factory much longer than originally scheduled and other models were delayed.
===================================
And to get back to the general discussion, most seem to be looking at pre-orders as just something done by individual modelers. In fact, the hobby retailers can also pre-order for stock, trying to guess how many of those folks who didn't pre-order will suddenly find they do want one after all. But even the retailer doesn't want to have much product gathering dust for years, eating up shelf space and operating capital.
John
mlehman Doughless I'm responding to the notion that companies produce items in batches that can be sold in a three month period. That means the timeline is driving the number of units, and not the demand. The timeline driving the number of units and not the demand is what we see when we read comments about consumers wanting to get a new model, but can't get it because its sold out everywhere. Profit was left on the table. I think the timeline is being mangled here badly. The mfg is generally NOT building for the demand over the three months an item is typically available if it's not an immediate sell-out. When an announcement is made for a popular road with a large following that will see runs of other items from it before and after is the only time that the number produced in a run comes close to the concept that it's being produced to satisfy immediate demand. Mostly, items produced are for roads with less numerous fan clubs. Then that batch that will be produced will need to satisfy pent up demand, current demand, and (if they are wise) future demand of consumers who realize that one unit that the Podunk & Lost Sheep owned will likely NEVER be rerun no matter how much whining from the Peanut Gallery happens. Given that part of the process of pre-orders is publicizing their potential availability within a window after which production numbers are finalized, if you're interested in new production cars and you're asleep at the wheel when it comes to announcements, then it behooves you to pay attention to things so you can order in a timely manner. I have a feeling these people are the grandchildren of those who complained that the LHS was out of a popular item that was just announced as on the shelves last month. "Why, how could they not make enough to satisfy my need now! They surely could've anticipated I would need some now even if I didn't need it a few weeks ago." I think mfgs have enough on their hands trying to produce accurate and affordable models in countless variations. Expecting them to also be mind-readers is probably asking a lot.
Doughless I'm responding to the notion that companies produce items in batches that can be sold in a three month period. That means the timeline is driving the number of units, and not the demand. The timeline driving the number of units and not the demand is what we see when we read comments about consumers wanting to get a new model, but can't get it because its sold out everywhere. Profit was left on the table.
The timeline driving the number of units and not the demand is what we see when we read comments about consumers wanting to get a new model, but can't get it because its sold out everywhere. Profit was left on the table.
I think the timeline is being mangled here badly. The mfg is generally NOT building for the demand over the three months an item is typically available if it's not an immediate sell-out.
When an announcement is made for a popular road with a large following that will see runs of other items from it before and after is the only time that the number produced in a run comes close to the concept that it's being produced to satisfy immediate demand.
Mostly, items produced are for roads with less numerous fan clubs. Then that batch that will be produced will need to satisfy pent up demand, current demand, and (if they are wise) future demand of consumers who realize that one unit that the Podunk & Lost Sheep owned will likely NEVER be rerun no matter how much whining from the Peanut Gallery happens.
Given that part of the process of pre-orders is publicizing their potential availability within a window after which production numbers are finalized, if you're interested in new production cars and you're asleep at the wheel when it comes to announcements, then it behooves you to pay attention to things so you can order in a timely manner. I have a feeling these people are the grandchildren of those who complained that the LHS was out of a popular item that was just announced as on the shelves last month.
"Why, how could they not make enough to satisfy my need now! They surely could've anticipated I would need some now even if I didn't need it a few weeks ago."
I think mfgs have enough on their hands trying to produce accurate and affordable models in countless variations. Expecting them to also be mind-readers is probably asking a lot.
Mike, agreed for the most part. My problem is not with the pre-order process as a means to gauge market demand. It shouldn't be the sole factor though. Nobody is suggesting that a company just build 5,000 units when a pre-order process wont attain 2,000 units (assume 1,000 leass than break even).
The issue with me is the concept that they want to set the pre-order window for the amount of product they think they can sell out in three months after production. That smells more like a production limitation problem than a profitability concern.
What I'm complaining about is seeing product that is already sold out. I'm not complaining about not getting enough orders to produce the product in the first place. So I see the pre-order process as helping to create a get-in and get-out as quickly as possible mentality that can often short the actual demand.
Athearn just announced the new GP15 with TS2 sound decoder and LED lights and cut off the pre-order window short as of June 2020....to be available not until 2021, one year in the future. The announcement is still on the website with a pre-order period 30 days expired now. I assume Athearn and hobby chatter will advertise and talk about the new run, so I would think Athearn is well prepared to produce significantly more units than what they got during the pre-order window. Compare that to the company who limits production to the amount of pre-order units plus a few extra for spares. The latter is less risky, but leaves profitable sales on the table, even if there is an incremental cost to holding some inventory as time passes.
DoughlessI think when companies that would compare to Life Like, Atlas, Athearn, MDC,etc back in the day turn to a pre-order process, whereas those kinds of companies didn't do in the past, its a sign of either a dwindling market, or dwindling access to dwindling or more centralized production facilities.
Or ... a much wider variety of models, prototype- and era specific variations (unheard of back in the day), etc. Not to mention 60 years of more new real-life equipment since the "good old" 1960s when drives were rubber bands and every GP7 was the same, no matter the livery. And too wide, to boot.
DoughlessReduction of total units would be a sign of a dwindling market, but I have no data on the number of total units sold in the hobby in 2018 compared to 1988.
Right.
Layout Design GalleryLayout Design Special Interest Group
Lastspikemike All this talk about production numbers being fixed and preorders determining production just has to be wrong. To start production costs $x. Regardless of quantity. Marginal cost of extra units just has to be tiny. Production can easily be expanded during or even after a run. The key is to pre sell enough units to make the initial investment a sensible risk. Once that point is reached the sky's the limit, literally. Those moulds aren't going anywhere and cost beans to store if sales dry up. Even assembly skills just aren't that specialized as witness the very wide variety of assembly skills exhibited by modellers who end up with the product. One piece of model railroading equipment is more or less identical to another from an assembly skill perspective. I'll go so far as to suggest that the manufacturers and their client factories very probably make deals among themselves to borrow each other's moulds and assembly facilities. I'm very sure car makers do and have done for decades now.
All this talk about production numbers being fixed and preorders determining production just has to be wrong. To start production costs $x. Regardless of quantity. Marginal cost of extra units just has to be tiny. Production can easily be expanded during or even after a run. The key is to pre sell enough units to make the initial investment a sensible risk. Once that point is reached the sky's the limit, literally. Those moulds aren't going anywhere and cost beans to store if sales dry up. Even assembly skills just aren't that specialized as witness the very wide variety of assembly skills exhibited by modellers who end up with the product. One piece of model railroading equipment is more or less identical to another from an assembly skill perspective.
Yep. Factories and labor is expensive to hold 24/7 365, and are often owned/controlled by third parties serving multiple brands. The brands have a production window problem more than they have a sales window goal. JMO of course.
cuyama Doughless I'm assuming that the pre-order process is beginning to thin out the number of people wanting to participate in the hobby. Since pre-orders have been around for many years, on what data do you base this assumption? We get that you don't like it, but the pre-order process has brought the greatest variety of products ever to the hobby, as well as a number of new manufacturers.
Doughless I'm assuming that the pre-order process is beginning to thin out the number of people wanting to participate in the hobby.
Since pre-orders have been around for many years, on what data do you base this assumption? We get that you don't like it, but the pre-order process has brought the greatest variety of products ever to the hobby, as well as a number of new manufacturers.
DoughlessI'm responding to the notion that companies produce items in batches that can be sold in a three month period. That means the timeline is driving the number of units, and not the demand. The timeline driving the number of units and not the demand is what we see when we read comments about consumers wanting to get a new model, but can't get it because its sold out everywhere. Profit was left on the table.
DoughlessI'm assuming that the pre-order process is beginning to thin out the number of people wanting to participate in the hobby.
Paul3 richhotrain,I'm still trying to see the downside to pre-ordering. Why is that so bad in your eyes? What I'm seeing so far is that pre-ordering is bad because it is bad. Why? Sheldon,According to the BLS, $2.00 in 1971 = $12.95 today.And the 1971 Athearn BB is not what you're buying today with Athearn RTR. The paint is superior and there have been improvments made (no more red washers, metal wheels, better couplers, fit and finish is better, and some have tooling improvements).FWIW on houses, in 1968 my folks built a Cape (3 bed, 1 bath, full unfinished basement) for $16k in Massachusetts, the cost of land not included.Lastspikemike,The consumer determines the selling price only in the most general way. The seller sets the price and customers choose to pay it or not. If they don't, the seller has the option of changing the price but he doesn't have to. The seller may just wait for someone else to sell it to.In a perfect free market world, everything would be sold via auction where the consumers literally set the price. But that would be a pain. Doughless,If a company was continuously making product, the break even point would be important to note because then you could adjust production accordingly. But remember that our hobby is batch production. Each model costs the same to make, no matter if it was the first one or the last one. And no, it's not a good thing to sell a product 3 years after making it. Yeah, great, you finally sold it, but that money you invested in that unit was doing nothing for three years when it could have been making you more money invested in something else. You lost the money you could have made by warehousing a product for 3 years.
richhotrain,I'm still trying to see the downside to pre-ordering. Why is that so bad in your eyes? What I'm seeing so far is that pre-ordering is bad because it is bad. Why?
Sheldon,According to the BLS, $2.00 in 1971 = $12.95 today.And the 1971 Athearn BB is not what you're buying today with Athearn RTR. The paint is superior and there have been improvments made (no more red washers, metal wheels, better couplers, fit and finish is better, and some have tooling improvements).FWIW on houses, in 1968 my folks built a Cape (3 bed, 1 bath, full unfinished basement) for $16k in Massachusetts, the cost of land not included.Lastspikemike,The consumer determines the selling price only in the most general way. The seller sets the price and customers choose to pay it or not. If they don't, the seller has the option of changing the price but he doesn't have to. The seller may just wait for someone else to sell it to.In a perfect free market world, everything would be sold via auction where the consumers literally set the price. But that would be a pain.
Doughless,If a company was continuously making product, the break even point would be important to note because then you could adjust production accordingly. But remember that our hobby is batch production. Each model costs the same to make, no matter if it was the first one or the last one. And no, it's not a good thing to sell a product 3 years after making it. Yeah, great, you finally sold it, but that money you invested in that unit was doing nothing for three years when it could have been making you more money invested in something else. You lost the money you could have made by warehousing a product for 3 years.
I'm responding to the notion that companies produce items in batches that can be sold in a three month period. That means the timeline is driving the number of units, and not the demand.
The timeline driving the number of units and not the demand is what we see when we read comments about consumers wanting to get a new model, but can't get it because its sold out everywhere. Profit was left on the table. There is no guarantee that the other product that was produced in its place sold with more profit or sold at all. Lessing the sellout time...IOW not meeting total demand... merely limits the risks of loss of capital, not the maximization of profit (the accretion of capital).
It comes down to knowing your market. If a company continues to do only pre-orders, what happens if they don't get enough? Then the next, then the next. A series of whiffs means you produce nothing at all, and sell nothing at all, so they have to have some level of knowing the market before they even entertain the notion of a pre-order. And knowing the market even better would allow them to meet demand and not just cut it off after a three month sell out period.
I'm assuming that the pre-order process is beginning to thin out the number of people wanting to participate in the hobby. I know MBKlein seems to run out of inventory quickly. I think when producers/retailers resort to tactics that places one consumer over another like puppy dogs running to the food dish or like musical chairs, by having to sign up to get product announcement alerts to place your order in a short time or belong to a gimmicky sales club that gives you an advantage, other consumers who take their shopping less seriously (but still have plenty of money to spend) eventually just move along because they cant ever find the product. Getting customers to line up to buy product like BestBuy sells cheap TVs on Black Friday leaves many potential customers going elsewhere or simply learning to do without.
deleted. See below.
If I didn't know better, I would swear that Paul is the OP of this thread!
Rich
Alton Junction
I think Paul3 pretty much put a fork in it!
... and Bob's your uncle!
Rio Grande. The Action Road - Focus 1977-1983
Doughless,If a company was continuously making product, the break even point would be important to note because then you could adjust production accordingly. But remember that our hobby is batch production. Each model costs the same to make, no matter if it was the first one or the last one. And no, it's not a good thing to sell a product 3 years after making it. Yeah, great, you finally sold it, but that money you invested in that unit was doing nothing for three years when it could have been making you more money invested in something else. You lost the money you could have made by warehousing a product for 3 years.With your comparison to Bachmann vs. Rapido, and Honda Civic vs. Ferrarri, the prices just aren't that different between the models to justify that kind of hold on a product waiting for some high roller to walk through the door. The new Russian Decapod from Bachmann has a retail price of $579 with sound. The Rapido Royal Hudson with sound went for $699. A Honda Civic starts at $20k while a Ferrarri is $260k to $330k...literally 13 to 16 times the cost. To put that in perspective, the Rapido Royal Hudson would have to retail for $7,500 to $9,500 in comparison to the $579 cost of the Bachmann 2-10-0 to match the Ferrarri vs. Civic price differential.As for the 1st sale over BE and not the 201st sale, that assuming that they're all going to sell. There's no promise of that. It could just as easily be 201 unsold units just sitting there, literally forever. If it was your money, which side would you rather err on? The one that makes you sightly less profit that you can recoup on a second run, or the one that puts you out of business?And yes, even Rapido makes more than they have pre-orders for, if nothing else to handle warranty replacements. Maybe 10% over pre-orders for a typical run? I don't know. I do know that about 6 months after our 8600 coaches and parlor cars were delivered, Rapido offered to sell us about 30 to 50 NH cars they still had on hand and we bought them. They didn't offer to sell us any more diners this time because we still have 300 of them; instead they sold them to their dealer network.No manufacturer wants to "fly blind" into the marketplace...which is why they take pre-orders in the first place. Without pre-orders, the would be flying blind.
Douglas and others--
Some of the "assumptions" about accounting and the model train business are flawed. Trust me, they are not ascribing different values to the 201st item sold if 100 was "break-even". Also, they have to pay ONE price for an entire product run. If that run includes 100 undecorated diesels, packed differently than all the factory finished models, then those undecorated units are amortized over the entire product run. The added extra cost of making undecorateds is generally not broken out separately. It's a "hidden" cost; undecorateds when made are more a "customer service" gesture, at least on the part of some.
As others above have tried to explain, the importer has to pay for all the items before they leave China. They need to recover their investment quickly, because they want to make something else next. They want a quick sellout--3 weeks, not 3 months. That is how it is, period.
There is NO consideration of market "down the road" other than potential for x number of reruns. The whole production scheme is geared toward sellout or very near sellout within 3 weeks. That is it. It was already pointed out above that Athearn's literally hundreds of diesel items over just the last couple years would represent millions of dollars if a few of each were left in inventory for "future". It just ain't going to happen. Nobody has that kind of money to tie up on a "wishful sale".
Pre-order real world case in point: Athearn offered an inexpensive (old body) F-7 diesel in a famous paint scheme and made it available in entry level train sets, and then another manufacturer, who was NOT privy to Athearn's plans roughly concurrently offered the same scheme on a more detailed higher-end F-7. The other manufacturer only received about 40 (or less) actual reservations/pre-orders, and the model was cancelled at that time.
A couple years later, the same F-7 paint scheme was re-advertised, received enough pre-orders to get made, and is currently in production.
There are certain months of the year that are NOW known by the manufacturers to be HORRIBLE months in which to make a major new announcement. Generally they are summer months. Walthers has been burned when announcing new passenger trains in those months, and then subsequently cancelled production.
So--you can pick the wrong calendar time of the year to make an announcement, and, because generally speaking, new products are kept secret, you can have the misfortune of making virtually the same item as somebody else at the same time, and losing sales there, too.
Also, Atlas especially, and some other companies DO communicate behind the scenes to other manufacturers "don't bother making that because we are already making the tooling". This saves money so that others do not waste it on something brand new that is already in the pipeline. So there IS a sort of "gentlemen's agreement" where certain new product knowledge is actually shared, to avoid duplication of product lines...but that doesn't seem to extend to paint schemes on existing products.
Atlas and Intermountain both offering modern autoracks at roughly the same time: they both are selling well, and they do represent different cars from slightly different eras. I actually own both and am happy with both; the new Intermountain racks are exceptionally well done regarding the fit of the metal panels on the body. Much better than first runs...and the Atlas car just looks and runs great, at a lower price point. The Intermountain captures the "real metal" look exceptionally well, because it is.
tstage John, Pre-orders still do not guarantee delivery. I've seen pre-orders get cancelled because there wasn't enough interest to meet the unspecified minimum quota in order to make the run financially viable for the manufacturer. It does happen on occasion. Tom
John,
Pre-orders still do not guarantee delivery. I've seen pre-orders get cancelled because there wasn't enough interest to meet the unspecified minimum quota in order to make the run financially viable for the manufacturer. It does happen on occasion.
Hello Tom--
Fully aware, pre-orders are not a guarantee, indeed (though in my real world example, BLI states the Santa Fe mikado has enough orders to be a go, and they have begun work on the tooling, and they plan to make a re-announcement to generate more sales). I made reference above to cancelled products and Athearn combining pre-orders into the one that they actually made...
Sometimes brass dealers require a deposit on reservations, which are still essentially "pre-orders". A brass dealer kept my $50 deposit on an Overland Models caboose that Overland never made.
dti406 Doughless A successful entreptrenuer would not have to resort to that, nor would they not have an understanding for the demand for a potential product only until he set up a pre-order window. How long they been doin' this? I think there is a distinction here that I've been trying to make. While a company like Athearn may set up a pre-order window, I get the sense that they feel they are going to produce the item anyway because they already have a good sense of what the market demands. They wouldn't bother entertaining the idea of setting up pre-orders unless they felt strongly they could hit their break even without them. They certainly understand the model train business. I don't what kind of accounting degree you got, but many of the things you have said make no accounting sense. The 5,000 items left in inventory do not have a lower unit cost than the items already sold. When an item is costed it is the entire batch of products and that sets the cost of all the items in the batch. As a matter of fact those items left, have a much higher cost than the items sold, as you then have to factor in the cost of storing that item including the insurance, and the cost of money tied up in inventory that is not sold. Hobby shops back in the 70's could afford to stock every car that Athearn made, a $2.00 car cost the hobby shop $1.20 and there were a limited amount of different road names, now with a car costing $30.00 the hobby shop now has to pay $24.00 and then offer a discount of MSRP to sell it. Can't stock the same amount of cars as back when they were $1.20 versus the $24.00. Back then Athearn also batch processed car and some would only be run every three years so they had to have enough to last that period, but with their cost to produce a $2.00 car about $0.50 you could eat the storage costs. MBA's have determined that it is not cost effective to keep a large inventory, so the manufacturer only produces what he knows will sell, so they produce the pre-order quantity plus a small percentage for opportunity sales. They have shifted the inventory from the manufacturer to the dealer, in many cases the wholesalers have dropped out of the product stream, many have closed and there are only a few left like Walther's. Not only that many are going to direct sales like Exactrail and for the most part Tangent and Scaletrains. Back in the 70's the hobby shop I worked for, the CPA that did their books told them that any item still in stock after 3 years was costing them money (especially in Ohio where the inventory was taxed as personal property). I am sure that with the increase in costs that the time frame has shrunk and they would have a fire sale after one year. And, by the way the Southeast railroads and NYC does not sell for the manufacturers, which is why so few are built. Like Rapido's B36-7's, the SP and ATSF ones outsold the CSX ones even though CSX had the most prototype B36-7's. Rick Jesionowski
Doughless A successful entreptrenuer would not have to resort to that, nor would they not have an understanding for the demand for a potential product only until he set up a pre-order window. How long they been doin' this? I think there is a distinction here that I've been trying to make. While a company like Athearn may set up a pre-order window, I get the sense that they feel they are going to produce the item anyway because they already have a good sense of what the market demands. They wouldn't bother entertaining the idea of setting up pre-orders unless they felt strongly they could hit their break even without them. They certainly understand the model train business.
A successful entreptrenuer would not have to resort to that, nor would they not have an understanding for the demand for a potential product only until he set up a pre-order window. How long they been doin' this?
I think there is a distinction here that I've been trying to make. While a company like Athearn may set up a pre-order window, I get the sense that they feel they are going to produce the item anyway because they already have a good sense of what the market demands. They wouldn't bother entertaining the idea of setting up pre-orders unless they felt strongly they could hit their break even without them. They certainly understand the model train business.
I don't what kind of accounting degree you got, but many of the things you have said make no accounting sense.
The 5,000 items left in inventory do not have a lower unit cost than the items already sold. When an item is costed it is the entire batch of products and that sets the cost of all the items in the batch.
As a matter of fact those items left, have a much higher cost than the items sold, as you then have to factor in the cost of storing that item including the insurance, and the cost of money tied up in inventory that is not sold.
Hobby shops back in the 70's could afford to stock every car that Athearn made, a $2.00 car cost the hobby shop $1.20 and there were a limited amount of different road names, now with a car costing $30.00 the hobby shop now has to pay $24.00 and then offer a discount of MSRP to sell it. Can't stock the same amount of cars as back when they were $1.20 versus the $24.00.
Back then Athearn also batch processed car and some would only be run every three years so they had to have enough to last that period, but with their cost to produce a $2.00 car about $0.50 you could eat the storage costs.
MBA's have determined that it is not cost effective to keep a large inventory, so the manufacturer only produces what he knows will sell, so they produce the pre-order quantity plus a small percentage for opportunity sales. They have shifted the inventory from the manufacturer to the dealer, in many cases the wholesalers have dropped out of the product stream, many have closed and there are only a few left like Walther's. Not only that many are going to direct sales like Exactrail and for the most part Tangent and Scaletrains.
Back in the 70's the hobby shop I worked for, the CPA that did their books told them that any item still in stock after 3 years was costing them money (especially in Ohio where the inventory was taxed as personal property). I am sure that with the increase in costs that the time frame has shrunk and they would have a fire sale after one year.
And, by the way the Southeast railroads and NYC does not sell for the manufacturers, which is why so few are built. Like Rapido's B36-7's, the SP and ATSF ones outsold the CSX ones even though CSX had the most prototype B36-7's.
Rick Jesionowski
I'm not sure the exact terminology I used in previous posts, but my point was that the 201st sale of an item after Break Even provides for a greater Total Sales/ Total cost ratio than the 1st item sold after BE. Yes, long inventory holding costs can change that ratio by raising the BE point. (And there is a difference in what BE means for a produce than a retailer, which gets more confusing because the producer is acting more like a retailer these days)
A company always wants to achieve maximum sales in the shortest time possible, but it also does not want to leave sales on the table for a given batch (maximizing the batch sizes to more quickly amortize capital investments). That was my main point here about the topic. Even still, as long as that long-held item still sells at a profit, even after three years produced, its a good thing.
And higher end products can have a longer hold period than basic products. A used car lot will keep a Ferrari on its lot for over a year where it will take a Honda Civic to auction three months after its aquired to free up lot space for another car that might sell quicker. The reason this works is that buyers for higher end products don't come around as often as buyers for basic items. You have to give them time to acquire the interest, find the product, or aquire the funds.
A Rapido item should have a longer profitable shelf life than a Bachmann. It needs to be that much better of a product. It shouldn't just be priced higher, it should be on the shelves longer too. Expecting it to turnover as quickly as a more basic item is missing the market.
If the company is gauging their total sales possible over the profitable shelf life by simply looking at the amount of pre-orders during a short window, IOW, the demand that exists right now to sell out 3 months after production, they will probably only achieve that 1st sale over BE and not the 201st. JMO.
I'm assuming that all companies intend to produce more items than they get pre-orders for to allow for increased demand during the year long production cycle and after the item first hits the shelves. Free youtube reviews can attract interest and the producer wants to have an item in inventory to accomodate this new demand.
And few pre-orders might say that the total demand over that longer holding period might not be enough. Not questioning that.
In the end, its still about the producer understanding the market before they decide they want to produce something. Not flying blind and just making as many items as you have orders for, which I think has been implied.
On a personal note, I received my accounting degree over 35 years ago, but I've never been a practicing accountat. Apologies if I butchered some technical terms. My experience is more about understanding bigger-ticket business risks and not general retail, especially not the model train business. I assume the concepts of higher end products having a longer sell out period and longer period for the market to acquire a demand (possibly after seeing the actual model) holds for the model train business.
ATLANTIC CENTRALYes distributors are dead, that is the part of the margin that now stays in the consumers pocket..
I've wondered about this. If the importer no longer needs to give the distributer a cut, why don't they pocket this themselves?
You are correct on all but one point. Yes, there are many more item numbers today, for a number of reasons I have explained over and over.
But, $2.00 in 1970, is more or less, $20.00 today adjusted for inflation. The the inflation adjusted value of each piece of rolling stock (at least using Athearn RTR as the example) is pretty similar.
Forget the fancy government inflation calculations:
gas in 1968 $0.30, gas in recent times, $3.00 = 10x
"average" auto in 1968 $2,800, today $28,000 or more = 10x
Simple 2,000 sq ft home on modest lot in 1968 $35,000, today $350,000 - more or less = 10 times
Athearn blue box kit $2.00 or RTR version offered about that time for $2.49, recent RTR car from that same design/tooling $25.00
Are there other factors that effect the "value" of that money invested in inventory? Sure, but it is not a function of the "higher" numerical price.
Again I will suggest that people running these sorts of businesses on borrowed money at the "mercy" of bankers or bean counters don't stand much of a chance of getting out from under these "problems".
I have been self employed most of my life. My various businesses have had little or no debt. That is part of a formula for success.
Want to start a business? Need money? Earn it first or find an investor who gets what you want to do and who is able to be in for the long haul.
I worked in hobby shops in the 70's and early 80's too, managed the train department in one of them. We saw most of these changes coming back then.
Yes distributors are dead, that is the part of the margin that now stays in the consumers pocket.........and they still want it cheaper.......
Sheldon
Paul3 richhotrain,One thing that hasn't been explored well yet on this thread is why not have pre-orders? What's the downside?
richhotrain,One thing that hasn't been explored well yet on this thread is why not have pre-orders? What's the downside?
richhotrain In my view, there is really no good reason for continuing this discussion since the whole issue of pre-order is mostly academic. Manufacturers are gonna do what they want to do. And a few here are going to continue the argument over the supposed virtues of pre-order, when in fact we should all hope that it is not the future of model railroading. Rich
In my view, there is really no good reason for continuing this discussion since the whole issue of pre-order is mostly academic. Manufacturers are gonna do what they want to do. And a few here are going to continue the argument over the supposed virtues of pre-order, when in fact we should all hope that it is not the future of model railroading.
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