"Limited" quantities

Hi!

Since most new runs of items are "limited quantities", shouldn't this be the norm? If a whole bunch of items are produced, they could call it "gusher quantities" or something! :teeth:

 

Seems so. I was interested in reading "Preorder or Else" on Tony's Train Exchange site: http://www.tonystrains.com/tonystips/2007/053107.htm

I don't mind preordering, I usually do from a proven company. But only if it is something I want. All the coercion in the world won't make me preorder, or order, a product I simply don't want.

Ben

 

Nice link, Ben!

My loco roster is saturated. There are no more "must-haves." My days of snapping up four of everything--four mallets, four Mountains, an ABBA consist--are finished. What would I do with them? I'm not a collector. My philosophy has been to buy it and put it on the layout. So I'm not going to pre-order much stuff.

 

Here are two quotes from that Tony's article that caught my eye:

"Prior to the last several years the locomotive manufacturers were producing substantial lots, 5,000 to 40,000 units depending on the popularity of the model and road names. They produced these volumes in anticipation of future sales, confident that they would sell out their runs. Starting about 4 years ago, as the market began to saturate, the manufacturers' stocks started accumulating and were not flying off the shelves as in the past. This of course tied up capital and affected their bottom lines."

"Now some of the manufacturers are announcing new runs but not publishing a release date or pre-investing in the tooling. Instead they are looking at the pre-order numbers for the green light to go forward, and holding development until the volume typically around 2000 units can support it."

Wow, I always have trouble believing how small the MRR market it - and those numbers are for HO scale. I presume N, with about half the modelers would have about half the sales, although we do tend to collect more and may be the growingest scale.

I suspect 2-3K may still be the minimum run, and perhaps 20K the max per loco model over several runs in N. Think about that, though - If the mfg sells to wholesalers at 50% or retail - or about $45-50 per loco and only 5000 are made in the first run, then we are talking about a gross of about $250K.

As I understand it, tooling costs about half that, if not more. I have read on various forums that once tooled, production costs just pennies, and ocean shipping costs just pennies as well per unit. But the motor, jewel cases, painting, ads, trade shows, office space, etc. all come out of what's left.

Of course, the second runs become hugely profitable, with tooling costs not allocated to them but wow, if they break even on run one, they have to wait a year or so to make that profit on their money.

Short version - I don't think we have any cause to say the mfgs are ripping us off with high prices. I doubt they do anything other than buy themselves model railroad related jobs. I guess the numbers look a little better in HO if double the sales volume is true. But, its not hard to see why they don't do as much rare stuff in N.

 

Good analysis, Jeff.

From what I've seen, tooling costs are coming down, under relentless market pressures. Even in low-cost countries, the "last-generation" machine tools and computer technology are being employed--not the newest, to be sure, but adequate to produce model trains. Because it's coming down, the limited runs can get smaller and smaller.

Even in low-tech manufacturing, there's a huge push for re-usuable parts and designs. I think the Life-Like series of diesels exemplifies this. Much of the mechanisms are identical, albeit stretched, shrunk or modified a bit. Computer-driven milling machines can make dies for things like body slugs pretty quickly.

I'm not as sure about plastic shells. Injection molding dies are still expensive, especially as details get finer and finer. I presume that costs are coming down while capabilities increase.

 

Limited runs allow manufacturers to keep their costs low, and dealers to hype the limited availability to increase their sales.

I have never had a problem getting a model in the secondary market, or from my favorite dealer (Chuck @ FRTS).

 

N Scale modeling may be the best bargain in the world today as far as enjoyment derived and the last-ability of the product with ordinary care. I have never balked at the price of anything N Scale as long as it is something that fits my modeling scheme and I still enjoy products bought 40 years ago. I can't say that about many things.

My advice to model producers who have to be assured of a market before producing the first rivet is limit the feeler to a more reasonable period. If it is not popular and the reservations do not come, drop it. Propose something else. Otherwise you create a Mexican-standoff situation of you won't build unless we come and we won't budge because you won't build anything.

Ben

 

In a Mexican standoff situation, not only do we both lose, but the manufacturers are out of business. Buyers don't have to buy anything. Sellers HAVE to sell stuff. If they want to play this game, they won't play it for long. Someone else with some risk tolerance and capital will come in and produce something they THINK the market will want and fill the void. Guess what? Thats the new producer who you will now have confidence in.

Why is it that there are some manufacturers who keep trying to play the marketplace, and then there are others who just bring new products, they do well, and they bring the next one? Thats the model that works. Think Kato, Atlas...

 

I think "limited" quantities is a function of the hobby, at least for serious modelers. If you go into Hobby Lobby you can pick up virtually any cheap nscale box set at any time. These are marketed to those entering the hobby or kids. I imaging that is a pretty steady market. However, if you look at the higher end stuff the market is probably limited mostly to pure hobbyist and collectors. My assumption is this market pretty much snaps up what they want or need once it is available. Collectors grab one of each and model railroaders grab what their roster needs and wallets can afford. By pre-announcing manufactures can ship what is needed and hobby shops aren't forced to carry a lot of overhead. I can't imaging there are many units manufactured (releative to other items) every run. Over time a manufacture can re-relase a scheme in another number to catch those that missed the first run or want to roster some new engines. I agree it does seem like forever for some units to get out there. The challengers and the Intermountain units seem to take a long time. I myself can generally wait since I have enought stuff on the want list and in the project box to keep me happy. Once a unit is out there I know that BN will be done within one or two runs and a manufacture like Atlas generally runs two or even three "runs" in a year. I waited about a year for BN MP15s once they were announced. Not a big deal to me. The new Kato marketing system is interesting. They must be heavily using historical data and probably running a little less so hobby shops don't have to soak up a big inventory. I myself do not like it since I generally pre-order and commit my budget months ahead. I buy a set amount every month and if Kato did GP50s in BN next month I would have to dip into the wallet for extra train money since my Intermountain SD45-2 should be out by July and soak up that money.

 

some additions :

- it costs about $250k-300k before the first model leaves the molds. this is for an average 6-axle diesel
- after that production costs are roughly $20 per loco

assume a msrp of $80. minus production costs gives $60 to pay off for the molds. this means you must sell (not produce) 5000 locos to cover your initial costs.



the reasons for limited runs are simple :
the factory which produces atlas, intermountain and others is very good booked. means there are little chances to do a quick run within months. if you want to produce a loco you have to reserve/buy a production time slot more than one year in advance. currently it's 18 months lead-in time before your models will be produced.

therefore having another 500 locos done, maybe 4 months later, to cover unexpected demand is not possible.

this is a bit different with companies running their own manufacturing plant. but i bet even kato is not able to do quick and unplanned (in the meaning of 1-2 years in advance) reruns.

 

Sandro,

Thanks for filling in some additional info.

But the mfgs. don't get all of the MSRP. Most locos MSRP at $100-105 now, and the wholesaler buys it for about $50 and sells it to the shops for perhaps $60-61.

I have heard that shipping the tooling overseas has also reduced that cost to below $200K. It would have to, if runs are about 5000 now. I presume the mfgs would like to at least break even on the first run!

If the mfg gets $50 per loco, and $20 is actual production/shipping/ads/overhead cost, and run is 5000, then the per unit tooling cost to break even is $30 at most, so total tooling costs can't exceed $150K.

According to that same Tony's post, BLI uses 2000 pre-orders to produce a loco, although it seems they produced about 20,000 based on those 2000 orders! (Well, maybe only 5000 or so, perhaps to fill one container?)

 

News Flash:
EVERYTHING in the Hobby of Model Railroading is and always has been "Limited Run"....with the possible exception of track items.
The only difference is that, largely thanks to N Scale and Micro-Trains,
customers started demanding and manufacturers figured out that they could sell more if they didn't repeat the same roadnames and roadnumbers with each production.
I can guarantee you that no manufacturer plans on making less than they can sell in a production just to make the item scarce.... it is counter to any business model I know of other than "Surefire Bankruptcy". Guessing the demand on Model Railroad Products isn't easy.... I've been constantly surprised every time something comes out one way or another (too many, too few). Kato's new model is smart...
build a reasonable number more frequently and go back to the well for a particular item for more if demand warrants.....but with a different roadnumber so you can pick up some second time customers.
BTW, the estimates of production quantities are a lot lower for the industry than you would think.... the market is very broad but very shallow (lots of different items divided up by many roadnames and roadnumbers) because of the growing sophistication of the customer and the competitiveness of the marketplace.
Charlie Vlk

 

Why don't they ask what we want? The average model railroad is in the planning and building stage for over a decade, and the desire for cars and engines to support it is pretty constant per modeler over that time.

If Kato had asked if we wanted a tunnel motor... :teeth:

 

My sentiments exactly. Where they get their ideas is very puzzling to me. And sometimes we are not amused by the choices made by the manufacturers.

Ben

 

Charlie,

Would there ever be a situation where techical limitation might cause a shortage. For example, if a shipping container holds 10,000 locos and they have orders for 11,000 they just don't want to pay for the second, mostly empty container to be shipped, or if a paint machine needs to be cleaned every 1000 units and they have 1200 orders, etc.?

I assume its rare, but it happens.

I agree that ordering systems that allow tailor made runs make sense, and if in doubt, making a bit less than you might, knowing that the second run can make up the difference. As to second time customers, new road numbers AND the ability to buy over time both probably figure in, and while I wouldn't specifically under produce to what I knew I could sell, lets face it - there is more incentive to buy a "new" run than something that has been on a dealers shelf for a while.

Ben,

I am sure the mfgs aren't amused by their bad choices either! They can't possibly have the resources to overcome too many bad choices. For that matter, they probably don't have the resources to do the kind of market research that a, say, Coca Cola might do for a new product launch. I think they do cheap but good research by reading the net!

I think the mfgs are pretty smart and the limited run model, while not perfect, is the best solution for just about every one - except a modeler who wants a model that is no longer produced.

 

When I was at Kato I considered the Tunnel Motor... but under the "rules" in force at the time it was passed over because the anticpated market was not sufficient.
Yes, InterMountain has done the engine and done well with it. But IM's production requirements are different than Kato's. Some mergers and resales since have expanded the possible roadnames (this was before the SP was swallowed by the UP!!) but even so, the unit is less marketable than some that Kato could do. Same for Atlas. Which is why InterMountain did it and not Kato, Atlas or LifeLike.
I haven't done the calculations but N Scale locomotive production is limited by a lot of factors, but the size or cost of a shippiing container ain't one of them!!!
There are plenty of customers with plenty of ideas and most of the manufacturers hear and note what they have to say.... the internet, mail, shows, and most important....sales of product!!
BUt I'll have to disagree slightly.... sometimes a manufacturer brings out a model that I didn't know I wanted until I saw it..... manufacturers
can follow the market, ride it, or lead it.... a good balance of all three is probably the best.
Charlie Vlk
Railroad Model Resources

 

Originally posted by Charlie Vlk

“I can guarantee you that no manufacturer plans on making less than they can sell in a production just to make the item scarce...”

Obviously you were not one of those left hanging by Life Like with un-filled pre-orders of Spokane Portland & Seattle Alco C-425s.