The Hobby Business, 'Frustration 101'

Well , our Hobby shop still has a few advantages over the blow out guys:

1) A reputable name, face, and display that will keep me coming back.

2) Layaway 3 months same as cash

3) Handles all repair returns

4) a whopping 10 percent discount when paying with cash

5) If its out there they can find it.

6) Stands by the product or will REFUND your money.

Dear Bill,

Please feel free to vent here all you want if it helps. It sounds like a vacation might be in order...

Mike Maurice

Bill,

Communicating with us OGR forum members is the way to go!

Price is not everything!

Great communications, website, reliability and accurate online inventory and processing will overcome any discount from a dealer who is poor in the above skills.

I just bookmarked your website, and just some feedback, had you not posted just now, I would not have known about your store, which has a nice web site and many items I wanted but could not find elsewhere.

In fact, on some of the items I am looking at on your site, you already have them at better prices than anyone else I have looked at and most dont even have it in stock and you do. I wish I had known about your store sooner!

Please make your OGR Advertisement up top on this page, more eye catching as well, and make your store name an active link to your website in your forum signature.

Thanks again for posting and you have gained a potential customer in me.

Bill:

I feel your pain. The retail business is really tough and what you describe does happen. I think John makes several good points how small to mid sized businesses can successfully compete in today's market conditions.

Hang in there, as a Forum member I appreciate your sponsorship and your contributions to all of us.

Henning's is also a OGR Forum sponsor in the links at the top of the page....

For you post-war guys, Henning's is certainly a go-to place, they have a ton of hard to find parts.  They even have some exclusive sale items.

You won't get any grief from me, Bill - I sympathize with you.  That situation has to be frustrating.

Best wishes for your business to continue for a long time.

A worthy rant! Hopefully the moderators will leave it on.

   Ah the old days when a small local hobby shop could sell an item at the same price as the big movers and shakers. Nice level playing field for everyone to play on.

   When Lionel stopped allowing local service centres from selling products(1990's)and only selling to volume Distributors/wholesale discounters is when things started toget bad.

   Now, internet sales kill the local shops. Guys come in to check out the new product in the store and then go buy it on line. When doesn't work they go to the store and want it fixed on warranty.

     There is certainly something to be said for the local shops that are still around, but they will all need some level of support to stay open.

    Al

I was friendly with our local hobby shop owner back in the mid-1970's. While I purchased other hobby supplies from him, I never purchased any current production trains. He told me his cost was more than what I was paying when I purchased via mail-order.

I do feel for you but in retail this happens all the time. The bigger you are the deeper discounts you get from the mfgs.

The food company I worked for dealt with this for years. For instance, we would buy 5000 cases of cereal. When the big box stores came on the scene they would buy 50,000 cases, so who do you think got the better deal? They could price their items in their stores cheaper then we could. Fair?  Who knows. But it is the new retail, either compete or close. 

The owner of my LHS has the same complaints. They are a small shop and have to also buy from a distributor. They are not happy with the manufacturers involved. I also think that it would be in the manufacturer's own best interests to promote the small, local hobby shops. I get 90-95% of my new train items from my LHS for many of the same reasons as J Daddy above. The 5-10% I get elsewhere are things my LHS can't get, usually older items and used stuff not currently being produced.

Almost sounds like the time Williams decided to offer product directly to the consumer for about what he was selling to the dealers for. It didn't work out to well for him.

Brad

A good idea, Chipset.

I just took care of that for you, Bill!

Out of curiosity, is the Pyramid concept being used here whereby the select few major dealers get the good rates direct from Lionel at a wholesale price and the those dealers pass stock onto other dealers below them tacking a cut on the way and then those new dealers pass on stock again to the bottom feeders with another cut involved again.

Basically for every layer involved the final end seller is paying a much higher price than the dealer at the beginning, so it means that they are always goingyo be at a disadvantage for competing.

Perhaps if this is the case then there needs to be an overhaul on how dealers from top to bottom can get the same items for a basic wholesale price from Lionel so that a level playing field is set

I have been in the 'hobby' biz from retailer, manufacture, consultant and wholesaler. Not always in the train hobby but always in the scale model end of the hobby.

The frustration stories I could tell......some I can't as it may affect current operations.

Not trying to one up you.....but rather to agree with you. This business of leisure time hobbies is a business you'd better LOVE.....as 99.9% of us ain't gonna get rich in it!

It will not make you feel better but we can't get any product at all right now.....and we are not sure why?? It's out on the market but not for us??? Extremely difficult and hurting the bottom line. 

I feel your pain.

Frankly, i cannot understand how any business with a physical store makes money, what with the high rents being paid.

A friend of mine who's father owned several kosher butcher shops, told me that the only way to make money was to run any store with 2 employees for every 6 you really need.

I feel for you, being in the auto parts business (now retired) for 30+yrs I had to deal with the same issue, but customer service, knowledge of the products you sell and word of mouth goes a long way.

Art

Bill-

I believe the market shift is still fallout from the economic downturn over the past few years.

I live in the Central Valley of California. We used to have some fine train stores all the way from LA to SF. They have all closed. The hobby shops that are left offer a very limited selection for us Model Railroaders.

Personally, I am hesitant to order from the online houses unless I absolutely have to. A very bad experience with Walther's was the latest thing. They couldn't get my order placed, and I had to deal with a snotty salesperson, to boot.

I also prefer to see something in person before I know what I'm getting.

Have you though about peddling on Ebay? To me, that's the next best thing.

As a (would be) customer out there, in this "boom"? economy, with cash flow what it is, I'd hate to be in the O scale or three rail model business (and I don't know if it is any better for HO and N).  However, HO and N seem to have plenty of different products and variety, and I do NOT see that in three rail (that appeals to me).  I bought nothing out of the last run of catalogs..more are due next month...what NEW will be in them?  I will be pouring through looking, but braced for disappointment.

There was a shop in a nearby city...I think it has closed...I'd go in there and the

shelves were bare...everything was on backorder.  Who wants to pay overhead with

no stock to sell?  That is a mfg. problem and I think one that is getting worse.  The customer may make a deposit, but the dealer sits and waits until, man~ana, the order floats in and he can collect the balance, IF the  customer hasn't thought, "Shove it!". and canceled the order. (or, as in my, probably not unique case, completely forgotten he ordered whatever)

I suspect cash flow is the reason Williams and K-Line had blowouts to big dealers,

who could pay fast for a quantity, with a minimum of fuss, and all shipped to one or

a few locations. They may have had creditors threatening bankruptcy suits, or ??

And, of course, they may have overproduced...and found that not every three railer

wanted a caboose lettered for the Obscure and Forgotten.

Just look at new car sales dealers...what are the manufacturer's recalls doing for

their businesses?  Mfrs.' erratic decisions force me to change makes every time I

shop for a car. A number of those dealers closed in the last little economic "downturn".

I'm not sure if this applies to the model train business or not but there are laws intended to require manufacturers to price their products the same to all of their customers in a given geometric market.

It is known as the Robinson Patman Act and the Sherman Antitrust Act.

Two competing customers in the same marketplace must be given the same price for the identical product. Volume discounts can be allowed and the credit worthiness of the customer can play a role in pricing.

Assuming all is equal two companies competing in the same marketplace must be given the same pricing.

Violations of these acts are difficult to prove and litigation can get very expensive  hence the treble damages awarded when a company is found to be in violation.

The best thing for small local hobby shops to do would be to form an alliance and in turn a buying group. Then discounts can be negotiated with the manufacturers since you would not be a single voice crying out in the forest but rather a voice of hundreds.

My LHS is reliable and consistantly sells Lionel at a the same or lower price then M/O dealers.

My advice...Find a new distributer.

Joe

Would love to have this problem with just one volume of the new catalogs. I have the opposite problem, MTH usually has me cleaned out before I get half way through the catalog, and I only buy modern diesels, no steam (steamers are way out of the budget range for me). Have to trim my want lists way more than I would like. That doesn't leave any room for any one else's stuff that makes the want list.

The top five dealers can purchase directly gaining at least a 5% or more advantage over buying through distribution.

Fact is.. its not cut and dry... Aside from other perks that come and go throughout the year, some distributers discount more then others, offer free shipping, early payment discounts, early buy discounts and single unit sales rather then being stuck with case lot sales.

Joe

Well Bill, you must realize this has been going on for a long time. When I got back into the hobby around 1990, dealers would tell me they couldn't afford to be a "virtual catalog" for people who wanted to "see" the product first, before they mail ordered it.

And this particular has only gotten worse. Of course, it's only a problem for the local lower volume train store. But now with the BTO on high end products, and manufacturer product cancellations coming much more decisively if orders are not there, its going to effect everyone.

People complain about local stores not having products they want. But is it just "want" or "willing to buy." Dealers learn quickly not to stock products that do not sell. If a dealer only stocks starter sets and lower cost traditional products, it's probably because that's what sells. And if it's HO and N only, well same thing.

It's natural that the consumer wants the lowest price. But if the dealer wholesale playing field is not level (and it hasn't been for a long time), smaller dealers are going to disappear, no matter how much they love the hobby. Business is business.

You sometimes read the comments the train companies need more bonafide train guys working for them. Well, MTH is actually run and owned by a bonafide train guy, and he has a business to run too, which is why he has to cancel products.

Another contributing factor is that the train companies are expending (or have expended) so much money into new tooling and the ever rising production costs of having all these products made, that this favors the large distributors (who are sometimes also retailers) who are putting money upfront for product. They're paying upfront, buying larger quantities, and thus get a much better wholesale price.

You can love trains, and love the hobby. But business is business - and love doesn't pay the bills. And that applies equally to the guys making - or more accurately, importing the trains as well as the guys selling them.

As Allan Miller often says "we're our own worst enemy." We wanted more variety, more features, more accuracy - all at the lowest price.

And now we have a more demanding and diversified 3-rail audience, fewer train retailers, thinner train magazines (loss of advertisers), lower margins for dealers, fewer dealers who can afford to stock an entire product line, smaller production runs, replacement parts that are not available, built to order products and far more impending cancellations.

The world is hardly coming to an end for 3-rail trains. But things are changing. For the better or not, remains to be seen. I certainly don't envy you Bill, or anyone else in the train business. It's NOT impossible, but it's not easy either.

I have heard this many times form many different shop owners. The most successful dealers I know have other incomes, own their properties, etc... otherwise they wouldn't be in business. There has long been an unfair advantage in the 3 tier system (Importer, Distributor, Dealer). Especially when the lines are blurred and Importers and Distributors sell direct to the public.

I did some research a few years back because I wanted to open a train store. I couldn't make the numbers work unless I had a huge amount to invest upfront. The old adage " How do you make a million... start with 2 million." certainly seemed to apply. After talking to a few shop owners and businessmen I decided it was best left as a pastime. At least perhaps until retirement when I could afford to just break even.

IMHO, we will eventually see most dealers fade away unless they can diversify and provide real value add. I think the writing is on the wall... We will see more and more direct sales by the importers.

Purchasing from a distributor also adds an extra tier of profit that has to be made, which someone has to pay for. If the big dealers are buying direct from the manufacturer at the same prices as the distributors are paying, then the LHS has to pay the distributors profit as well. This makes the LHS pricing higher than the big dealers right off the bat. There is also an extra round of shipping involved that has to be paid for, to the distributor and then to the LHS. The big dealers have only one round of shipping from the manufacturer to pay for.

The law surrounding what are called vertical restraints on trade is unclear at best. 

That's exact model that the late Bob McBratney of the Western Depot did to maintain his business successfully.  He was not only a hobby store owner & manager, but also a commercial property owner.  He made his core money on rent and lease from other businesses in the area.  The train store was literally a "hobby" for him, and not no much a means of earning a living; I think he would have probably closed up shop long ago if he didn't have those other business interests.

As I mentioned in my post earlier, pyramid selling as a distribution method will always disadvantage the bottom layer of sellers/dealers. It is an unfair approach to selling to give an equal level playing field for everyone from top to bottom.

>>>>I have heard this many times form many different shop owners. The most successful dealers I know have other incomes, own their properties, etc... otherwise they wouldn't be in business. There has long been an unfair advantage in the 3 tier system (Importer, Distributor, Dealer). Especially when the lines are blurred and Importers and Distributors sell direct to the public.<<

Being very familiar with the hobby shop business, in this day of declining interest, its become a tough life, period no matter what the discount..

I can't see how anyone who limits themselves to train sales can be profitable enough to survive today without being diversified in some way or another.

Joe 

quote:

It was ok to pay $1000 when it was released, but now, even though its still sealed its only worth half That certainly can't help dealers either.

Doesn't Lionel's warantee policy expire based on age since manufactured?
If so, that has to hurt the value of new, old stock trains.

I also can understand Bills frustration and I also see the manufactures need  to survive. But you do not hurt the hand that feeds you. Hobby stores serve a purpose to educate and promote the hobby. With our success the manufactures will thrive also. 

I can see having specials to move product but I agree level the playing field. I know when stocking items you do have to pay for the item and it is difficult to buy/stock a item which we know you cant sell at retail to begin with. Then you stock it and 2 months later it is on sale below or at what you paid for it. 

It makes it very difficult to manage inventory and profit. You add in the cost of commercial real estate and soon you see another LHS going out of business. 

I think this will be a problem till the market adjusts itself or there is less product on the market. As a store we have continued to grow but I would not want to be exclusive on any one product. Especially trains only. I see the train season only getting shorter each year. 

Hopefully manufactures will embrace the LHS and see us a face of their product and support to the customer. If not you will just see more close and customers will be limited to online or buying direct only. 

Time will tell but this is a tough economy  and the way retail is done is changing quickly...I dont see things getting better for anyone soon I just hope it doesnt discourage new people  from the hobby with order cancelations or themselves buying a item at full/retail price only to find it on sale for less 2 months later. 

We are all in this hobby together...Good or bad..lol

I agree 1,000% with Bill's thoughts.  At a time when retail is literally changing by the minute, we have what is essentially an ages-old distribution system in place that serves to favor the "good ole boys" dealers and distributors.   Seriously, why is there even a need for multiple levels of distribution nowadays?    I personally don't see the value proposition in such an archaic distribution model, but I also don't see it changing any time soon -- with one exception... and that's BTO.

Think about it... BTO essentially levels the playing field to as near "level" as you can get -- with the exception of discounting based on pure volume orders.  But then again, BTO can help the mom-and-pop toy train store both in terms of risk management as well as volume ordering.  With BTO, there is essentially no need for a distributor.  But for smaller shops to take advantage of BTO, it means they need to be aggressively seek customer mindshare (and thus marketshare) early during the pre-order process.

We saw that very phenomenon occur right here on the forum months and weeks before Lionel's latest BTO order deadline earlier this year.  A couple of forum sponsors realized that they had a target audience ripe for the picking right here.  And I'm 100% certain that they snagged many more Big Boy pre-orders, for example, that would have otherwise gone to the likes of Charlie Ro had the Big Boy been a regular-order item.

After all, let's say mom-and-pop LHS snags 30 Big Boy pre-orders with a reasonable $100 deposit to secure them.  Even some larger dealers were taking $500 deposits.  30 pre-ordered Big Boys has gotta be a huge number compared to the number a small LHS might otherwise order if they were ordering 1 or 2 "on spec" via the old business model where they just hoped for walk-in customers. 

I'm not suggesting that snagging BTO pre-orders is easy or a given just for the asking.  But it's certainly a game-changer for small LHS's that take advantage of it, since BTO gives them the opportunity to order in much larger quantities than the traditional business model -- and possibly gain better pricing from importers by ordering direct... all without the risk of holding large quantities of product in inventory.

It's a start -- even if BTO items only represent a fraction of products offered in the catalog.  Companies like Charlie Ro didn't get as big as they are today overnight.  Small LHS's need to start "somewhere" in terms of bootstrapping themselves from their current size to the next step.  And BTO just may be the answer for them.  

BTO isn't the answer for everything that's facing the mom-and-pop LHS these days, but it's definitely worth watching this space to see how the first round of BTO products impacts smaller shops who jumped into the game early.

David

Like most in the US, I don't have any "LHS" - unless you count Hobbytown a good

30 miles away in Mobile's western suburbs (I live in the eastern suburbs) - and I

do not know how ANYBODY below the "Majors" in size can make any money. I admire anyone who has a go at it.

I have known one hobby shop owner who insisted on shooting

himself in the foot (he was open only when most of us were at work, and he didn't understand why nobody showed up; well-stocked, though), but more often than not it just seems to be a rough business.

But, when I see a big-buck item at a hobby shop for $750 even after "discount", and I can

order it from Train Universe for $550...I can't justify the hobby shop price, though he

may be the nicest guy in the world. So I buy a package of styrene and a magazine, and

go home and call Train Universe. 

Like I said, I admire you guys who attempt this business, especially in areas - which is most of them - outside the hard-core winter basement-hobby region and/or really big cities.

It is if you're among the very rich! Not enough of them are buying model trains, though, I imagine.

(The reasons for middle class economic problems and why normal people have less money? Rent the movies "Inside Job" and "Inequality For All" -- eye opening, guaranteed.)

I understand the OP's frustration, but imagine the frustation if he wanted to buy a hundred units , but had to pay the same as another who bought only one!

Fred

Sorry to see your frustrations, and I sympathize with you. But it's always been this way in the retail business. My father had a record store (anyone remember what records were?). In the early 60's, we used to go to EJ Korvette to buy records because we could get them cheaper there than he could from his distributors.

Sounds like the more things change the more they stay the same.

Gerry