A Sign of the times…
While making my normal ’rounds’ on the web I noticed that III Rail Trains in Coon Rapids, MN is closing down. Here is an excerpt from their website explaining why III Rail Trains is shutting down:
“After much thought to what is taking place in our economy, the constant rise in operating costs (especially heating this joint), the huge spike in credit card service charges from the banks, the unexpected dropping of all direct dealers ability to purchase direct from Lionel and forcing all ex-dealers to negotiate with and depend on a wholesaler to supply product at a higher cost…”
I’m sure many local train shops are dealing with increased operating costs (and declining sales) and it is very unfortunate that shops such as III Rail Trains, which has been in business for 17 years, have to cease operation. I wish the owners the best of luck.
To me the most intriguing part of the explanation is the blurb about Lionel. Is it true that dealers can no longer buy direct from Lionel? If so, it wouldn’t be a surprise to me because it seems like dealing with a small pool of distributors is less expensive then dealing directly with a large quantity of local hobby shops. Can anyone out there shed some light on how Lionel distributes it product to local dealers? Please do so in the comment section of this post. Thanks!
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7 Responses to “A Sign of the times…”
From what I was told by my local hobby shop, is that only the big 10 or 15 stores still can buy direct. The smaller mom and pop hobby shops will have to depend on distributors and/or buying from the big 10 or 15 stores. Discount rates for the hobby shops will most likely be cut in half, so it’s going to be a struggle for the remaining O gauge hobby shops out there. What Lionel should do, is restructure the discounts for distributors and for the stores buying from them.
When I was looking through the pages of the new Lionel catalog I noticed a few things that came as a shock. The Polar Express set, which I believe started off as a $225 starter set, is now going for $330?!?!? Also, the O-27 cars for $40 each??? This is going to hurt Lionel big time. Their bread and butter is from the lower priced sets and cars, and in these times, they just priced themselves way out of that market and into the mid level. A starter set should be no more than $200, that’s it, plain and simple. The O-27 cars, should be no more than $25.
Posted by: Adam | Mar 14, 2009 at 8:16 AM
The scoop seems to be this:
Lionel will set direct to either the top 8 or top 6 dealers and the rest will have to deal with the wholesaler. Now, what does this do? It evens the playing field for all but the biggest retailers. Lionel saves big bucks by only dealing to a limited amount of dealers and shoves the sale and distribution to the wholesalers. I also understand that the mark up is only 20% and anyone selling below MSRP and that is a Value Added/Vision Dealer will have their VAD cert yanked.
Unless you’ve been hiding under a rock, a stater set can be found (Pennsylvania Flyer) for $229 and most add on cars are $29.99 and if you have a Hobby Lobby they usually have a 40% off coupon which make those cars and sets cheaper.
The Polar Express was NEVER a starter set and could be found for about $250-$270. I just sold a PE set on e-bay for $230 (new) + shipping.
I hate to plug the internet, but with the new way Lionel does business, this might seal the deal. My local train shop is going out of business because the owner has past away. I sought to buy in, but it cannot support its self without a custom layout sub-business. That leaves only one hobby store that sells Lionel and the word is that the owner is getting out of the store and the kids don’t want to do trains.
Posted by: aNJDevil2 | Mar 15, 2009 at 6:03 AM
aNJDevil2 -
Are you referring to Rich Bimmer? I was sad to hear of his passing recently.
What a shame - his was the first train shop my dad took me to as a little kid!
- Mark
Posted by: Mark Mangano | Mar 15, 2009 at 2:41 PM
I cannot comment on Lionel’s distribution policy or any changes they may have made recently. However, based on my over thirty years of working experience, the cost to a retailer of a product obtained from a distributor/ wholesaler is always higher than from the manufacturer direct. The distributor becomes a link in the value chain and has to make a profit also. The value of distributors and why they can exist in the marketplace is local inventory that they finance and quicker turnaround on retailers orders. There is also some benefit to distributors having knowledge of local market trends, but I do not believe that this impacts the O-Gauge market to any degree.
Posted by: Robert H. Walker | Mar 15, 2009 at 8:38 PM
@Mark
Wow, sorry to hear Rich Bimmer of Antique Trains in Turnersville, NJ passed away. That is a great train shop. I hope someone keeps it going.
Dave
Posted by: dhartmann | Mar 16, 2009 at 5:59 AM
A “Sad” sign of the times and not just for toy train hobbiests, but most retailers for higher credit card surcharges. Any chance III Rail Trains could donate their instore setup to a local hospital or nursing home to keep the tradition going? Gary
Posted by: Gary | Mar 16, 2009 at 12:27 PM
I think I can help here, yes Lionel cut off most of the direct accounts and will now only sell direct to the big mail-order houses. This does not effect the majority of the hobby shops, they only had around 60 direct dealers in the first place. So in fact the majority of the stores are happy about this switch, every major city had one direct dealer who could price things lower then everyone else in town. So on the local level it will the playing field a lot.
The fact of the matter here is that if you want your local hobby shop to be around for you you MUST support them or they will not be around when you need them.
Posted by: Mike | Mar 18, 2009 at 4:36 PM