prrhorseshoe, I cannot make any definite conclusions other than what has been made public information. Lionel and MTH are privately held companies, but during the lawsuit between them, there was a lot of information that came out.
Before the lawsuit, MTH's annual sales were approaching Lionel's figures. According to Mike Wolf, MTH profits went from $9.6 million in 1997, $7.8 million in 1998, $6.2 million in 1999, less than $1 million in 2000 to a loss of $815,000 in 2001. Mike Wolf has said his tooling was engineered for lengthy production runs, which means more cost. This also explains why much of the former Premiere tooling was moved to the Railking line. It also illustrates savy business sense.
Before the Lionel versus K-Line legal action, K-Line was in debt $3.8 million to Sanda Kan and another $1.5 to Merrill Lynch for financing of their debt. So obviously their expenditures exceeded their profits. Which might explain why now product has to be paid for in full before it ships to the US.
The bottom line is new product development and tooling is expensive. Even the HO company owners have said the same thing, and that they have to be cautious bringing new product to market. But the HO market is much larger with far more sales. And it's more unified: It's always been scale oriented. There's no traditional or semi-scale in HO. Lionel has meant toy trains for most of its' history. The scale side of 3-rail is a relatively new thing, so the scale 3-rail product is not competing with decades of prior product. And if the HO companies are cautious and put a lot of consideration into new product development, how much more so with the much smaller 3-rail market.
Lionel has always been the 3-rail industry leader, and I believe they want to keep it that way. Which I think helps explain some of the new scale product. There's obviously some market for product like the 86 foot box cars. But I think the resources required to bring this new product to market helps explain why Lionel traditional cars are priced at $50-$85.. and the high prices for everything else in the catalog from older existing tooling. Lionel has even recently said as a way to control costs, they are designing some new tooling to be modular, so they can more easily adapt one product type into another.
Like any company, Lionel looks at the expenses for a given year versus anticipated revenue, and adjusts prices accordingly to what they feel the market will bear. This has been a point of contention lately with the debates and complaints about Lionel's list prices. Which is why I think Menards products have become so popular. Aside from the structures, their box cars, hoppers, tank cars and flat cars are pretty much like any other product available... save for the PRICE. This is the big attraction. That, and good customer service. Menards does not have an entire product line like MTH or Lionel. BUT, should Menards decide to expand, they have one advantage over Lionel and MTH: Their major source of income is not from trains.
Yet even with Lionel's push on the scale side, the traditionally sized Polar Express set was the best selling train set in the entire history of Lionel according to Jerry Calabrese. And according to Dick Kughn, the NYC Flyer starter set consistently outsold every other every other Lionel set combined. Which probably made it the best selling item in the entire catalog.
Going back to MTH, I don't know how their HO line is doing. But it stands to reason since the HO market is bigger, there is opportunity there. The newer HO trains are far more detailed and advanced than prior years product. Which is why you can go to a show and buy used HO rolling stock for a few dollars. If you see Lionel stuff that cheap, it's because it's broken or for parts only. Same thinking for MTH's European product line: It's a new market that appears to be doing well for MTH. And to be honest, I think Mike Wolf is really struggling to keep his company going. But Mike is proud of his company and he's always been determined.
The 3-rail hobby is changing, and we've seen plenty to back that up. New companies come with new ideas, but many don't make it. Retailers are getting fewer. Things in China are changing: Lionel is having some product made in Romania and also the US. The Weaver tooling they bought was already in the US... which explains why they took the Weaver RS11 tooling... it will be in the US. Tooling that is made in China, tends to stay in China.
And there are times where something looks like a mistake to us modelers, but isn't a mistake for the company. Many have critically commented here on Lionel's large scale trains. But according to Jerry Calabrese, those items are a $5-$6 million dollar yearly source of income for Lionel. Or Lionel's affiliation with NASCAR, which Jerry Calabrese also explained was a good thing because the connection gave them much more financial clout with their Chinese vendors.
And as far as these cancellations (Lionel just cancelled some traditional products too), the trend in manufacturing is to just fulfill orders, not exceed them. So even though Lionel and MTH traditional product lines may not be advertised as built to order, the companies closely monitor distributor order figures. BTO products are based upon actual consumer pre-orders, but the other products are based upon dealer/distributor orders. Which I think helps explain why normal yearly cataloged items like FasTrack or smoke fluid can temporarily become unavailable from distributors. Smaller production runs aren't as profitable as larger runs, but it is less advance outlay of financial resources. Borrowing money isn't cheap either.
I agree that the train companies have to be innovative and bring out new product because they are in business to please consumers. Though this has become a challenge as consumers (especially on the scale side) have become more discriminating and demanding. But there's a fine balancing act here because of the large sums of money it takes to produce new product. If the 3-rail train hobby was so easy and lucrative, then all the companies that have started up in the past 20 years would probably still be in business today. And if the retailing end was so easy, there would be more train dealers today, not fewer.
We consumers might not like product cancellations - especially if it was your favorite road name - but if it helps to keep the train makers solvent, then I would expect it to continue. The train companies may be in business to please consumers, but they don't stay in business by spending more than they make in profit.
Bottom line... it pretty much "levels the geographic playing field" a bit. Just ask most successful LHS's and large dealers nowadays what percent of their business comes from online purchases vs. local in-store purchases.
They win points by making their customers "feel good" about parting with their hard-earned dollars when consumers purchase their products.... whether the price tag is large or small.
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