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Originally Posted by Rocky Mountaineer:
Originally Posted by Scrapiron Scher:

...

If ALL of the BTO steamers have sold out, Lionel has every reason to believe these will, too. ...

Eliot, your point is well-taken.  HOWEVER, by design -- and from Lionel's perspective -- all the BTO items are sell-outs, as Lionel no longer holds any inventory, per se. 

 

I suppose the real question is, "Are these BTO products selling out at dealers who ordered "extra's" beyond their real customer pre-orders?".  At this point, all we have to go on are a couple of catalogs... but I have noticed more "SOLD OUT" banners on certain SKU's when Charlie Ro publishes his email featuring new products received from Lionel.  So some SKU's are sold-out already when stuff hits the streets, and other SKU's may sell out soon thereafter.  That's the real trend worth observing.

 

All that notwithstanding, I think Lionel is approaching the point at which some folks are gonna say, "No thanks."  Will some folks order the FEF-3 at a $1425+ street-price?  Absolutely, yes.  No question about it.  The better question would be, "Can Lionel maximize its profits for a given production run, when they start pushing the price envelope beyond what's "reasonable"?"   It's not win-win scenario if the answer is "no".

 

Then again... we've heard rumors that "300" is the magic, minimum production run number.  So perhaps Lionel is more than happy if they get 300 dealer orders on a given model class.  Their costs are covered, and they make some profit too.  All I'm saying is... are they leaving (profit) money on the table, when they could have sold 500 or 750 if they weren't so greedy on the price-point?  And only they know the answer to that question.

 

 

David

 

I agree with some of what you've stated - I think Lionel is really pressing their luck on the upper limits with their pricing - perhaps they've finally reached the point where sales will taper off.

 

That said - let's take a look at increasing sales by lowering prices.  Imagine Lionel gets enough orders for a previously not made locomotive at the alleged go ahead number of 300 units, and it goes into production.  Deliveries are made, their dealers sell some at full retail price and most of the rest at a discount - we'll call the engine a success as it's a sell-out.  A few may remain available at stores that overestimated their needs - there always seems to be a few strays on the shelves.

 

Lionel has to order an unknown to us number of completed models to tear down for spare parts, and order some extra parts that are common to other models in their line.  The supply of extra complete locomotives and extra parts ordered has to be projected to cover the time period that Lionel will repair those particular trains through warranty claims (the days of a train sitting on a shelf for 3-4-5 years, then being purchased and getting needed warranty repairs is gone), as well as post warranty repairs that will inevitably come along.  That's quite a bit of money Lionel has to tie up for the inevitable warranty repairs, as well as repairs after the warranty has run out, as well as for dealers who repair trains at their shops.

 

Alternately, Lionel goes a different route as you've proposed - they take your suggestion to sell their trains at a lower price, in the hopes that will cause more people to reach for their wallets and make a purchase.  Let's say the run is bumped up to 600 units.  Dealers are perhaps a little more willing to order an extra engine or two since the price seems more attractive for them to gamble that they'll be able to sell them off in a timely fashion; they also get more preorders from customers.  

 

For the sake of argument, let's say Lionel has lowered the price of the engine to a point that means they have to sell 2 units at the lowered price to equal the profit they make selling one at the higher price (not really knowing what Lionel's per unit profit is on their high end items hampers our exercise in pricing).  If Lionel drops their list price down to the level of a similar locomotive from MTH or Atlas (a dealer/friend has noted the mark-up on items like scale locomotives is approximately 20%), something will have to go for Lionel to sell at that lower price point (say we lose whistle steam, ringing bells, waving engineer/fireman figures, fancy new electronic features which the other manufacturers don't offer, coal piles that lower).  

 

There's really not much left which makes Lionel stand out in a crowd.  One might not believe those features Lionel offers are necessary or needed, but there's always a segment of the population that loves having something that other people don't have or can't get becaue their preferred brand doesn't offer it, and they're willing to pay a premium to get it.

 

Back to the story - the production run is made, the spare engines and spare parts order is doubled (and that goes for all BTO items across the board - we're doubling all premium item production in our "what if" scenario here), and Lionel now has a lot more money tied up in development/production costs, as well as having a much larger parts inventory that needs to kept at their repair facility for all the increased production runs of other items.  More storage space will be needed for parts, more inventory controls will need to go into place, more repair facility space will be needed - ramped up production comes with a price attached.  A few more folks will have to be hired to handle repairs for the doubled up production numbers for all items produced (wage/benefits are pretty healthy these days).  More strays sit on dealers' shelves because of the usual folks who back out on their preorders, or overordering by dealers.  The dealer has more inventory that isn't moving unless they fire sale it because it's sat too long on their shelf.  My hunch is a few too many wrong guesses on ordering a few extra engines will discourage the dealer from making a choice to gamble on some extra big ticket items - they have to keep the cash flowing.  

 

Lionel now has some other situations to consider - if the 600 unit order satisfies their customers' needs for that particular locomotive for now and into the forseeable future, how long will the tooling sit unused because Lionel can't justify making another run of that item so soon after the doubled up production run is completed?  Can Lionel come up with enough creative new features to lure folks into rebuying that particular item?

 

What if MTH or Atlas have an identical model in development, and it gets released at the same time as Lionel's new model (a tangible example of this is the SD-60E that appears in Lionel's new catalog; word has it that MTH has a SD-60E model that's going to be announced in their upcoming catalog).  What happens to Lionel's preorder numbers now that the competition has an identical, previously unmade model appearing at roughly the same time?  Do they lose 20 or 30% or more of their sales now that people have a choice?

 

Nobody here knows for sure what Lionel's break even point is for having dies cut for a new/previously unmade model, and how many models need to be sold to be profitable enough to justify the tremendous expense of producing a new model with new features.  Does anyone here know what Lionel's current owners expect to see as a return on their investment?  They most likely have a lot of money tied up in their ownership stake, and have expectations that they'll be making X amount back on their investment each year.  

 

I think you're right - Lionel is probably pressing their luck with pricing.  If sales drop, the marketing/accounting folks will need to seriously reassess the current pricing structure in place and make adjustments.  If people keep buying Lionel items and Lionel meets their projected sales/profit margin to make their owners happy, the prices will keep inching up.  Nobody knows for sure what the mystical price point is that will cause enough people to say screw it, I don't really need that toy train - Lionel's going to find out one way or the other...

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