Hornby is the stuff of nightmares. An iconic brand with the very simplest of business models brought low by persistent management incompetence. No investor in 2003 could have foreseen what came next. I look at Hornby and I think, “that could have been me”.
Just marvel at this 2011 piece from the Torygraph:
“It makes for a curious, and rather fun, office. How many corporate headquarters share their building with toy train sets and day trippers?Mr Martin doesn't seem to revel in this quirk. He's very laid-back for a chief executive, but there's no bounce in his step as we wander around admiring the 1950s corgi models, and German 0-gauge trains. And he clutches the controls of the latest Scalextric set with the enthusiasm of a tea-totaller (sic) in a pub.But then he never had a toy train set as a boy. Nor did he have Scalextric – he had to pop around to his neighbour's house in Manchester if he wanted a play with a slot car.The fact he wasn't a fan as a child gives him "perspective", he reckons. It also helps him smile at the absurdity of some of his customers, the majority of whom are adult collectors, rather than children. He recently received an angry letter from one, who complained that a tiny fire-stocker's shovel, on the model of a historic train, only had one rivet in the handle when it should have had two.I suggest his customers aren't just enthusiasts, they are nerds. He smiles and says: "We don't like to call them that. They are consumers who recognise the true value of this wonderful collectors' range we have created for them."The nerds should have kept Hornby's profits puffing along quite nicely during the recession – not many businesses enjoy such a loyal customer base. But in recent years it has, if not hit the buffers, then certainly got stuck in the sidings. High raw material costs (plastic, zinc for the die-cast), rising labour rates in China and a difficult supplier, who consistently failed to deliver products on time, have hit profits.Martin says the issues with the supplier have been sorted and the outlook is looking far more promising. That is mostly down to Hornby securing a licence to manufacture a range of London 2012 merchandise
A difficult supplier. Can you imagine?
Hornby is yielding 20% on 10 years average operating profit. It’s not cheap at that price.