Another One Bites The Dust

This is sad. We don't have a hobby shop in Seymour,IN and haven't had for at least 20 years. Spencer craft and hobby shop closed a year or so after Jack Spencer passed away. Jack could get you anything you wanted when nobody else could. Now you have to buy online or at train shows. The economy isn't help this problem either.

Being in CA does not help. But the issue is world wide. Part of it is just change. Storefront retail biz now requires much bigger margins than hobbies alone provide. Base expenses, rent, taxes, energy, insurance, payroll and the new laws 1/1 just prompt  many to close up shop. Sad but part of the changing retail market.  

Does anyone understand or know how the distribution system works for the major train manufacturers?

Feet, Spencer Craft and Hobby is one of the local places I would go to for train items. I believe the last hobby shop we had here in Columbus closed about 20 years ago also.

I do not understand, is not Lionel, MTH, and Williams their supplier?

I dont see those places offering lower prices than dealers?

Also, what cheap and phony internet stuff?

There are phoney Lionel, MTH, and Williams Trains?

I went to that one too, don't remember the name of that shop but they had a LGB train in the front window that would run when you placed your hand on the window.

Feet, that is the one. They did have the set in the front window. It was at the 25th Shopping Center. They did not carry a whole lot of O Gauge stuff, a few cars and track and a few starter sets at Christmas.

If you take a look at their website, you can see why they could not compete.

Seriously, I feel bad for them, but it is so inexpensive and easy to get a website with online ordering so YOU CAN COMPETE.

Just having a website that provides a phone number and address along with pictures of the store is a waste of money unless a customer can order from it.

I think what he may mean bu suppliers being competitor sis that there are multiple tiers of distributions, a few are distributors, and or master distributors, and the majority need to but form them.  There may be an additional step between the local shop and the actual manufacturer.  These distributors typically also have retail and web sales themselves.

In other words, a company like Lionel or MTH won't sell at wholesale to them because they don't quality for whatever reason for wholesale pricing, so they have to go thru another hobby shop/distributor, that is probably qualifying as a distributor and also sells as a retailer?

Is this accurate?

If so, it sounds like shops that are distributors and retailers are smart business people, as if I owned a hobby shop, I would not want to restrict myself to walk in shoppers...instead, I would sell on eBay, have online ordering and inventory, and being a distributor etc.

Any shop that depends only on walk in business or phone order business without an ebay or online ecommerce system is doomed since 2005.

Heck, as a distributor, you buy your product from Lionel or whomever, and either sell it yourself to customers or sell it to other hobby shops who despite being open for 30 years, cannot seem to qualify or want to qualify for the same perks?

 I will use one of our forum sponsors "trainworld" as an example.

Seems they go out of their way to promote the hobby, their products, their manufactor's (lionel/mth) products, and are probably distributors and suppliers as well?

Seems to me that sitting in your shop waiting for phone calls and walk ins, is a sure way of going out of business if that is all you restrict yur self to?

Move ahead or get out of the way?

You have to buy a certain amount from  the mfg. to get direct delivery from the big manufactures. If you fall below then you have to go thru a 3rd party supplier. 

The LHS going out of business, has anybody ever heard of them? Not me. Does he have a good web site, no. In today's retail you either compete or fail. 

He blamed everybody but himself, he should have looked in the mirror to know why he failed. 

"I do not understand, is not Lionel, MTH, and Williams their supplier?"

Not necessarily.  While a LHS CAN buy direct from the importer in most cases he/she is buying from a distributor.  aka Lionel/Williams/Atlas sells out most of a production run to these wholesale/mega dealers and then the LHS has to deal with them.  In many situations a LHS can't afford to buy in quantities to order direct from the importer.  If he only can sell certain road names why would be buy cases where 2/3 of the product may not move.  He is better off paying the higher price for a partial case of what will sell than a whole case that won't.

This also isn't just about trains.  Almost all of the "other stuff" you find in a hobby shop in the way of merchandise is available online from a wholesale place with a cyber retail front end.

What's missing in this "model" is the advise/support that a LHS can supply.  If you already know how to do "fill in the blank" and just need parts/supplies the LHS can't compete.  You can surf the web, order from the place with the best price and then have FedEx, UPS, or USPS deliver it to your door.  

Only trouble is there is no instantaneous delivery and if you mess up on a project you will need to wait 3-5 days to get what you need.  

That's part of the trade off with on-line supplier and a "local dealer".

The dealer is dead on about trying to compete with a generation of video game addicts.  I'm surprised that some of the shops have hung on as long as they have.

Personally I feel the tiered distribution is a old concept that needs to be removed.  It comes from a time where all business was local, and you needed regional distribution to meet local need. 

Today you can centrally store items, and ship direct to your door step overnight, with this type of distribution capability small retailers orders could be filled directly at a lower cost than going through distribution.  Each time there is a buy resell step there is a mark up.

I expect to see more close this year-tax breaks that small businesses were getting are

not going to be renewed-internet tax-the internet allwed these stores to get rid of old stock-my local lhs goes thru a distributor named horizon-when your lhs  gets their order and bills from the train companys you have so much time to pay them or else

-add this hobby is seasonal and expensive-I remember when at my lhs a lionel scale sf 2-10-10-2 came in that a customer ordered-the owner told me he hoped it works or he will be out of a lot of money-personally I see where there will be a top 10 traion stores

to buy from-Charlie ro-nichloas smith-etc.-they can buy in quantity and sell in quantity plus their orders are large the train manufacturers can give them a better discount on orders.

the real profit for a train store is ho-the above is just my thoughts and not to be taken as what is going to be-just my thoughts-joe

There are probably quite a few thriving hobby shops in various parts of the country that I've never heard of, nor visited their web sites if they had one.

The hobby business is a tough business to be in nowadays.  Just "not looking in the mirror" isn't the only reason LHS's go under.

Rusty

Gentlemen,

   Noah is correct in his analysis especially in CA, I stopped in his store on the way home from Viet Nam, a nicer bunch of guys you would not ever meet.  His store was like finally arriving home in America to me, I feel badly for it's closing, an end of an era in CA no doubt about it.  In reality we are loosing way to many of these home town stores, especially with the terrible economy we have today.

PCRR/Dave

The brick and mortars that are surviving, including Ro and some larger ones, is because they have adapted. They offer multiple hobby items and market\sell on the internet effectively. One near me is mostly HO gauge, another is mostly RC cars and planes, but Lionel and MTH is almost a must have for them to survive. The cost of this to me, the walk-in consumer is mild disinterest and little personal assistance.(May depend on staff). Not the warm, friendly train store of years gone. The benefit is there are multiple LHS for me to get something when I can't wait. I also pay a little more for stuff I can wait for hoping it keeps them around.

Sorry to hear another good one is gone.

Lionel at one time had a policy that to buy from them you had to carry the whole line not be picky as to what you would sell, wheather that is true today I don't know. Good for Lionel and their bigger vendors/distributers bad for the little LHS.

Who do you think is selling sets that retail for $380 to $420 on Amazon for $145 to $200 with free shipping.  That price is below what a distributor that buys from a major manufacturer direct sells to the hobby shop.  Set sales have dropped off dramatically at LHS in my area.  Even with 20% discounts.   Some of the distributors also sell direct to the public at price the LHS has to pay.

That was not the market model, retail folks could not buy direct from a wholesaler.  Or if they did they had to pay full retail.  Some of these wholesalers selling direct were not collecting state tax either.  Slippery slope.  G

wholesale/mega dealers?

I would love to know who they are, maybe then I can get the trains I want!

It does not matter how nice a group of folks they are, as that only affects the small percentage of potential customers who happen to walk by their store or live in the area and look them up in the yellow pages.

Ignoring 80% of a potential market is a death nell.

Chipset, everyone know who they are for Lionel.  MTH doesn't use this model, and even small stores with good credit can buy direct from MTH.  The discount is not that great though.

Hence the need for distributors that service many stores in a large area.  Do you really think a small store can stock 30 engines that cost the Store $20K to $30K dollars, let alone track, controllers, all scales, accessories, etc...

Having quick access to get items for customers is what is important.   G

Check out some of the banner ads of the forum sponsors.

Rusty

I understand the problem with importers / distributers undercutting their retailers.   My wife and have an eBay business.

We were buying an item directly from an importer.  We had to buy a large quantity of the item to get the "wholesale" price.  The importer was selling the item through many distribution channels including to stores.   

At the beginning our eBay sales were excellent.  Store sales were also excellent because many people like to see the item before buying it.   Then we noticed that the importer was selling the same item on eBay for less than we could buy it from him.   The importer was undercutting all of his distribution channels.   We stopped selling the item and liquidated our stock.

I think that this happens a lot in the modern retail market.  Manufacturers are going to a direct sales approach.   Tesla cars is a change in the auto market.  They don't have dealers and sell direct to buyers.

Franciscan hobbies was mostly an railroad HO shop.  They had a modest collection of O gauge the last time I was there.   The shop really didn't stock much new Lionel or MTH trains.  

Franciscan also had a very large selection of model boats, planes, RC cars, and other hobby materials such as tools, glue, wood, etc.   I would guess that this was a larger part of their business than model trains.

Joe

There is much that can be said about an Importer who under cuts his customers on one of the same online outlets his customer sells on...none of it good.

Unfortunately, customers do not care how to obtain the product they want at the best price, as long as they get it.

And I am sure what you cite is the trend...but...

What if that product did not have to be imported?

The product is made in the same country you sell it in?

I can easily imagine some overseas importer from a dirt bag country selling you the product and then undercutting you in your same outlet and market. 

Having their cake and eating it too?

China, India and Mexico come to mind.

I did not take this comment to mean fake trains, but low quality versions of former quality items of all sort. However --- Nobody knows how many extra of a given item - train or water valve they actually make over there. Not copies, but actual items off the assembly line. They just go in a different shipping container......

Well..if they can get me a LIRR C-420 or C-Liner... more power to them.

I know...bad....

Having been a manager of a LHS for 6 years I can tell you the biggest frustration about the TRAIN hobby was major train manufacturers catalogs!  It is now 2014 and the major manufacturers still haven't delivered half of what was in the 2012 catalog!  If I get a current R/C catalog I can call the manufacturer and ORDER and RECEIVE the piece from THEIR CURRENT catalog!  Not so with trains.  The only catalogs that seem to work in the train biz is Walthers and MicroMark - they only show what they currently can get!  

Second frustration was product allocation.  A company would announce lets say a GS4 Daylight (good for the west coast), our store would get a notice that we would be allocated 2 of them (and we HAD to accept the entire allocation regardless)!  A store on the east coast would also be allocated 2 of them (with the same stipulations) and have NO customers for them so they are forced into having a 'firesale' to get them out!     Russ

Very true Russ, maybe these train makers should re-consider their Chinese and Korean made trains, as obviously, those countries cannot meet deadlines. We sometimes see why that is, everything from wrong colors and other quality control issues, even weather.

I would pay $100-$150 more per $500 spent, just to be able to buy my locos as an American made product, where I can go visit the factory, meet people who work there, maybe even have family working there or working there myself.

Time will tell whether or not overseas manufacturing will ever let US corporations down to the point that they end up making their products here.

Seems to work for the auto industry, i.e. you want to sell your foreign car here? Then either pay a huge tax/fee to the U.S. or build a plant here to avoid that and employ americans.

Seems to work for BMW, Mercedes, Honda, and a host of others.

I have talked to my LHS about this, they have a small website like you describe with picture of store and phone number and a few items listed with no online ordering. LHS is a 1 man operation, owner does everything, can't afford to hire anyone. He says a big website with inventory and online ordering is quite expensive and takes more to maintain than he has time for after doing all the other stuff like ordering, receiving, stocking, pricing, waiting on customers, etc. He is sometimes there long after the store closes doing the things he can't do during the day while helping customers. No way he can afford an IT person to maintain website, even if he could get one set up.

I would be interested in finding out just how much it does cost to put up a good website that tracks inventory and sales accurately, and then what's required to keep it updated and maintained, adding new products as they come out etc. Doesn't sound cheap to me. I know absolutely nothing about it?

He has told me about the distribution chain as others have described here. When Lionel had their big blowout on steamers a while back, he had a couple of those that  cost him maybe a couple hundred under MSRP, and LHS was discounting them about 8-10% or so off MSRP. Lionel's blowout prices were several hundred under their cost. LHS was not to happy about that. I think they still have some left unsold? Lot of money tied up there that they could be using for something else. LHS has to pay for them when they come in, just like we do when we pick them up. Merchandise is not on consignment, they own all of it.

As others have said here, sounds like this is an obsolete way of doing things and the entire system should be changed before there are no more outlets for them to sell their products?

My LHS has quite a large inventory and is the best place (almost only place) in town for O gauge trains. There are a couple HO & N train stores that have no O gauge. A small fortune would be required to stock a store as well as my LHS. Would hate to try and guess what is there in inventory cost. I would guess it's easily well into the six figure range? Plus they have rent, utilities, advertising, and the owner has to eat and have a roof over his head.

I try to support my LHS as much as possible, even if I have to pay a little more. If they don't have something, I try to order it there. Try to visit about once a week. I'm retired and really enjoy talking trains to the owner and looking at the items available. You can see them in person and ask questions about them and I like that too!

Personally, and as has been said here before, I think we should all consider this when making a purchase and trying to save a few bucks on the internet. Is a few bucks really worth losing your LHS? Not that you will be saving them, but it sure couldn't hurt!

To make this even longer , all my life I've always wanted to have a small store like a hobby shop or hardware store. After talking to the owner of my LHS the last few years, I have changed my mind completely, that would be a LOT of work, not to mention risk and money and everything else involved!

And chipset, this wasn't really directed at your post, you just got me thinking about talking to my LHS owner about all this stuff, website and etc. Then I read the rest of the thread, thinking about websites all the while. Nothing bad intended here about quoting your post.

Having only been a kid in the postwar era, and just getting back to the train hobby a couple years ago, I have a question. 

Lionel had catalogs back then and their products were all made here in the good old USA, were they available to order when the catalogs came out? If not, how long sis one have to wait for a cataloged item? What about others like American Flyer, Marx, etc.?

Also, did they have just one catalog a year, or multiple like they do now?

Guess that was 2 questions...

From the last couple of years (my perspective) it sure seems like the manufacturing of trains overseas is a lot of trouble, maybe more than it's worth? I read an article a while back that one of the big appliance manufacturers had re-opened a large plant and moved production some of their large appliances back to the USA. A large side-by-side refrigerator was to be made. When they first started production the employees brought up a bunch of things that were causing difficulty in the manufacturing process and affecting quality. The engineers took their input, redesigned the refrigerator and assembly process. This cut the labor involved in making it way down as well as improving quality and serviceability. After this, they were able to lower the price of the refrigerator by $200. End of article said they are now looking at doing this with more of their appliances.

Makes me wonder if this could possibly be applied to the making of our trains?

I have to agree.  This antiquated distribution system adds unnecessary costs to the product.  "Flattening" the distribution pyramid would allow more small shops to survive. 

A web presence would also help. 

Right now, you get the sense that while LHS prices are high, they are fighting for every nickel and dime.  A distribution system that unnecessarily injects cost into products is a big hurdle to overcome.

George

It's not cheap by any means.  Sometimes you see commercials on TV that promise a fully functional website for some ridiculously low amount of money.  A website that statically displays a set of photos, some text, and contact info is easy.  That's NOT what we're talking about.  Something with a fully integrated back-end that tracks inventory, keeps customer and shipping data, and allows updating is a major undertaking.  You can easily drop north of $20,000 into something like this plus the monthly hosting and update costs.  And let's not forget about security.  Get hacked and have your customer's credit card info stolen - your business will suffer.

George

Had a feeling it would be up there in price, hadn't even thought of the credit card usage, that does add a whole new set of problems. I have fiddled with a database of just stuff, adding, updating, etc. long before internet and Windows became popular and just that was complicated to me. This was nothing fancy, no pictures, just some data and stuff. No invoices, pricing, taxes, or shipping either.

There are many inexpensive tools that allow you to setup the backend via quick books and the like and tie to your front end website with live inventory.  I believe Chase even offers this.  Most of this is completely scale-able to your size with only a monthly cost which people can budget for.  Worse case scenario ebay works fine for this too.

It does not in anyway cost anywhere near 20k to get this going.  In fact the cost is significantly less than setting up a retail shop and more capital can be focused on inventory vs overhead.

If you're talking about achieving the same result with some of these tools, then yeah it isn't that much.  But if you're talking about building a custom website to do what's wanted, the price is up there.  

The problem has to be clearly defined.  

Q.  What is an elephant?

A.  A mouse built to government specification. 

George

One of the most successful LHS had a poor web site, only showed catalog photos and you could not order from the web. You had to make a phone call and if I remember correctly it was not toll free.

So if I understand it correctly some LHS's have to order from a distributor. This same distributor can sell this product cheaper retail than the LHS can purchase form the distributor.

If that is the case I doubt I would sell that line of trains. I certainly do not need a loss leader during these times.

Not true, thru Microsoft Windows Azure as just one example, you can build a fully functional ecommerce site with a working db, inventory, check out etc etc for the price of a Lionel Vision Locomotive and a small monthly fee that is less than what most people people pay for their smartphones.

Cloud Iaas, Paas, and SaaS is putting traditional ways we create and host websites in the past with the dinosaurs.

Direct sales from their own website, and discounts to large retailers like Ama--- and Charles Ro are not only being done by Lionel.  As you may recall, MTH went to a largely direct sales model for their tinplate trains, and has advertised discounted specials in various magazines and email notices.  This is simply a necessary approach in an era with fewer local retailers, particularly in rural and even some urban areas. 

I'd be interested in knowing if Charles Ro or Nassau Hobbies set sales went down this year with the increased internet presence of Lionel sales.  Both of them have competitive prices with the internet, and provide expertise and service, unlike Ama---

and other internet retailers.

Exactly.  A professional looking and fully functional website is well within the grasp of most for what is nominal pricing.

The world simply doesn't function like it did as little as even 5 years ago.  You can even run a fully functional business via the cloud and your smartphone now. Handle all accounting, print from phone, take credit cards, manage inventory, and so forth.