Hornby’s prices are chugging higher as Brexit obstructs the tracks
The toymaker is a unique company but its business model is not and it won’t be alone in having to hike prices as a result of the pound’s tumble
Hornby isn’t an obvious microcosm for what is going on in Britain’s post-Brexit economy. The maker of everything from model trains to Airfix kits looks, on the face of it, to be a unique and niche business.
However, look at little closer and you’ll probably find its story being played out at quite a few companies up and down the country.
As with many manufacturers, Hornby’s products are designed here but made in China. They are then shipped over to a distribution centre in Kent where they are packaged and sent off to shops around the UK and Europe.
The issue for the company is that its raw materials – in Hornby’s case the model trains, kits, and Scalextrix sets that make up its range – are paid for in dollars but sold in sterling when they hit the UK market. Sterling is now worth a lot less than it was prior to the EU referendum and that creates a problem for a company that has held its prices steady for two-and-a-half years.
To deal with it, those prices are going to rise by an average of 10 per cent. Hornby will also eat some margin, but it doesn’t have limitless funds with which to do that. Its corporate engines have only recently started approaching full speed again after a long term turnaround plan was nearly derailed by a dreadful start to the year.
The shares had been chugging along happily enough, only to hit the buffers hard in February, halving in value as the toymaker endured its worst day on the stock market in its long history.
That came on the back of an admission that losses for the year to March would be treble the guidance that had been given the previous November.
Christmas had been ok but promotions failed to shift excess stock in January, pushing the business into the slow lane. International sales were picking up but not by as much as the company had hoped.
The company's lenders were, fortunately, understanding and an £8m share placing helped get the trains more or less back on track. Hornby took steps to reduce its vast product range (it’ll still have 1,500 lines even after a 40 per cent cut) and sought to mend strained relationships with the independent retailers that sell a lot of its products.
Then the wreckers of the Conservative Party and UKIP got to work and the pound slumped.
Model trains don’t appear in the basket of products the Office for National Statistics uses to calculate inflation, so what’s happened to Hornby won’t affect the figures.
But there will be a lot of products affected in a similar way to its toy trains, racing cars and aeroplanes that do appear in those baskets. Clothes, for example, and a whole lot more besides.
Hornby is the sort of company that even a hardened business hack might feel they have to root for. I’ve spent many hours fooling around with the Moore family’s small Scalextric set with my son. Toys like that are still quite popular, even in an age dominated by screens. Perhaps parents will be willing to weather the extra cost of them as Christmas approaches.
Just as important to Hornby is its dedicated adult following, people who are willing to pay eye popping prices for its wares. The Sir Nigel Gresley Collection in limited edition gloss finish sells at a staggering £550. Even an Inter-City 125 will set you back £200. Perhaps grown up collectors will prove willing to pay £220 for the latter and £650 for the former.
A real Hornby hobbyist will doubtless grumble about rising prices, but they might still feel they just have to have that limited edition. They’ll surely wear the extra cost for at least as long as the post-Brexit economy holds up. Oops.