Hobby scale modeling is a sub-vertical segment that cuts across manufacturing, distribution and retail.
As I implied in my introductory story, while there are plenty of well known brands the best known and established of which are Tamiya, Revell and Airfix, distribution is largely concentrated in the hands of specialist online 'retailers' many of which are supplied via local distribution networks.
In the UK for example, Tamiya operates thorough a partnership with The Hobby Company which carries multiple brands. Airfix supplies direct to consumer via online but also has both secondary online and physical retail representation. Even so, this is an industry where the manufacturers may be well known but the distributors remain small. The Hobby Company for instance only has 25 employees and at its last accounting recorded a balance sheet total of less than £8 million.
Looking back over the history of this industry, it's easy to see how changes in available distribution methods combined with changes in economic conditions have impacted the industry. Those of us of an older generation will remember that 50 years ago, it was likely you'd find a hobby store in every reasonable sized town. Today? Not so much and even then, the carrying ranges are often limited. Airfix counts 21 retail partners in the UK, but with a total of 348 stockists. In Europe, it counts 580 while in the US it counts a mere 114. Here's a map of their distribution channel. That's an awful lot of distributors and retailers for a business that in 2019 generated revenue of £32.8 million across all brands under the Hornby umbrella.
Hobby modeling is an area of household spend that falls squarely under the discretionary bucket and it is therefore no surprise that in the wake of the 2008 recession, this industry took a battering. But this was not the first time macro and economic conditions hit the industry. Again in the UK, the intertwined history of Humbrol, Airfix and Hornby provides a useful timeline across which to better understand how changes in taste and the general hobby market have taken their toll.
In the wake of those impacts, a study of Hornby's 2018 accounts provides insights into how the current management is tackling the many problems associated with this industry. In his 2019 annual statement to shareholders, CEO Lyndon Davies was forthright to the point of bluntness. In talking about the ongoing turnaround and long term strategy he said:
I would love to detail the next few years of game changing innovation we have in development and the exciting new models, licenses, marketing plans and routes to market that we are building. However, our competitors would be equally excited to copy them, so it is in the best interests of shareholders for me to discuss the strategic moves ofter we hove made them.
How about this?
We outlined the new staff bonus scheme in the lost interim report. This scheme only pays a bonus if the business reaches profitability. The Boord is now looking to put in place a similar Long Term Incentive Pion ILTIP) for the Executive Management Team. The message will be the some. If the business doesn't make profits, we don't gel paid bonuses. We want lo align all staff al all levels with shareholders' interests. We think the bonus schemes will do this.
Remember those words next time you listen to a financial analyst call.
It's not all bad news. Distributors who often carry multiple brands are doing well. Both H.G. Hannants and The Hobby Company reported steady progress in 2018. How well that continued into 2019 has yet to be seen. If attendance at the 2019 Scale Model World show in Telford is an indicator, then hobby modeling may not be growing especially fast but there are plenty of new entrants to fuel enthusiasts' interest.
Last mile delivery
One thing is certain, flawless distribution out to the consumer is paramount. In this industry, that means retailers have to be on top of customer service every day. In my experience, this element is working better than I expected. In a world of Amazon Prime, retailers have to find ways of competing. That's not easy but I see how small firms both locally and in other countries have risen to that challenge.
I buy locally and from countries like Poland, Spain, Hungary and Serbia. Very, very occasionally, I'll buy from China. In all cases, the online experience is similar with very little friction between selection and checkout. Payment processing solutions like PayPal and SagePay figure large in this context although occasionally other, local solutions are offered. Retailers provide buyers with delivery choices at prices to match. Depending on how much a customer spends, it is possible to get free delivery but that's rarely the best option given the unit prices of many hobby products. In real terms, delivery costs are such that buyers are encouraged to spend more and that's OK. But the choice of provider makes an experience difference.
Right now, my sense is that DPD is winning out as the European 'last mile' service provider over the likes of TNT, FedEx and the various country postal service groups. Its mobile app is one of the best and most reliable. Problem resolution, while initiated by chatbot, is fielded by real people. There is no nonsensical RPA driven messaging although its insistence on returning to the retailer for an update is quirky. The main thing is that 'lost' product is rare and problem resolution is normally inside 48 hours. That's acceptable.
On the retail side, I've found that communication is mostly slick and well mannered. On the rare occasions when a query reply is delayed beyond 24 hours, the retailer is always profusely apologetic. In some ordering situations, the retailer points to the fact I may have recently bought a given product and asks if I really intend to repurchase. No shoving it my face Amazon style.
You can argue that an industry that has a 'cottage industry' feel to it needs to operate at that level of personal service as compared to household name brands with which we are more generally familiar. I'd argue that in any highly competitive market, and especially in an age where so many elements of what we buy are service centered, the notion of customer service as exhibited in the scale model world is one from which others can usefully learn. It's not just table stakes, it's survival too because each retailer requires repeat business. These firms know that unhappy customers have a habit of turning to social media to air their complaints and few have good ways to counter negative feedback.
Search and storefronts need work
Where I see room for improvement is in search. As I said in my first story, Scalemates is my kit database of choice. It is no surprise to me that their listing of possible suppliers for specific kits excludes Hannants, one of the UK's largest online retailers and whose search engine defies logic. Yes, I can find things eventually but Hannants' filtering system is not always (check rarely) good enough to quickly focus on what I am looking for. On the flipside, its recommendation engine for after market parts is comprehensive and acts as an incentive to buy more. Is that recommendation enough of a counterweight against the search issue? Just about but it is borderline.
Other retailers do a competent job but their online storefronts often seem a bit haphazard. I can see how many are formed out of a Shopify legacy and yes, getting additional kit or part details matters. I just think there is room for better presentation. My sense though is that most retailers don't have (quite) enough by way of business to justify the expense of putting in systems like those from epi.
As I said in the first story, communities of interest are legion. Remarkably, they are often far better natured than those I see in the commercial world with forum owners keenly alive to the issue of trolling. My sense is that this is, in large measure, because hobby modeling is very much in individual endeavor and so interpretation of a particular subject is very much down to the individual builder's tastes and desires. Are there parallels in the enterprise world? Sure. Back office ERP systems have traditionally been built according to the needs of individual firms, but there the comparisons stop. When things go wrong, there is almost always a tendency to look outside rather than introspect and evaluate. That doesn't happen in the hobby world where I see plenty of examples of folk saying stuff like: 'This didn't work. I'm not sure if I was responsible but I found a workaround and this is how it worked.' In that sense, I see the hobby modeling world as one of constant learning.
Manufacturing design and build
None of this matters if manufacturers don't delight hobbyists with new models.
Here, there are two distinctive trends. Reboxing and redistribution of older models with fresh packaging and some updated parts or retooled elements is a common feature across the industry. It allows manufacturers to get better tool utilization and widen their own distribution capability at minimal cost. Others are rethinking what its means to build certain classes of model. Dragon for instance is often criticized for rebooting older kits but then Dragon has rethought the topic of tank track construction in an effort to reduce parts count and make the building of this essential sub assembly much easier. It also translates into better price points since the number of parts is reduced. Tamiya has done the same but with less criticism, largely because its kits are (almost) universally loved for their fit.
Slide molding of injection molded parts is not new but more kits include parts manufactured using the slide mold technique. Why? Slide molded parts are esthetically better than 'normal' modeling and save the modeler many hours of sanding to remove unsightly seam lines, especially in gun barrels. Injection pin marks are now mostly relegated to parts which will not be seen - again saving the modeler hours of time. On the design side, the use of CAD systems is universal leading to much better overall quality and the ability to manufacture incredibly detailed parts.
In paint, advances in paint and resin technology has led to an explosion of possibilities with firms like AK Interactive solving the problem of hand balled paint mixing to achieve color authenticity for those who want to accurately depict military examples from past conflicts. Or at least as accurately as historical records and real world examples allow. All this comes at a cost, but then I see such advances as paving the way towards expanding the market out from its 'nerdy' context to a new generation of builders who want to achieve presentable results without the hassle of trying to figure out percentages of this or that paint combination.
The industry is not without other challenges. The introduction of CCPA in California sent shockwaves across the industry as modelers partially dependent on YouTube's channel reach wondered if they would be exposed to potential liability in the wake of how YouTube is tackling CCPA. A fast and concerted effort to express concerns to the FTC regulator quickly brought clarity and a sense of relief. For more on this topic, check out this video.
Elsewhere, copyright issues saw Sword and Steele inadvertently step into the middle of a copyright issue between paint makers Vallejo and Green Stuff World. The short version is that Naomi Steele reviewed some Vallejo product that allegedly infringes Green Stuff World's copyright which in turn earned her a strike from YouTube after Green Stuff World complained but before they approached her about the matter. That spat exposed how some firms don't get service or customer empathy. On the upside, YouTube resolved the matter for Ms Steele inside 48 hours.
As I implied in my first story, the hobby scale modeling world, at least as it relates to military vehicles and aircraft, is alive with innovation and with lessons from which other retail segments can learn. It is a world apart from my childhood experience and all the better for that. Its challenge remains to bring in a fresh generation of modelers. Here, the wargaming market has much to teach in terms of developing a market that integrates model building, gaming and painting such that enthusiasts can participate at whatever level they choose in settings that reflect modern tastes. Modelers will argue that relatively simple build kits help bring a different generation along. I'm not entirely convinced but then I'm not an expert.