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The top 10 stories of 2010

Published: December 28, 2010
1. The tough economy
While Wall Street enjoyed improvement in 2010, the same can’t be said for much of retail America, including the hobby business.

The upside is most dealers “right-sized” their inventories in 2008–09, leaving them better able to weather the money turbulence over the past year. The downside is that with less inventory,
hobbyists continued to go to the Internet to shop.

The forecast is for the economy to slowly improve during 2011; some retailers reported they were already seeing signs this was happening in the latter part of 2010.

2. Märklin insolvency
One of Europe’s most popular brands remained in insolvency in 2010, with trustee Michael Pluta and his team formulating a reorganization plan. The company was scheduled to be out of bankruptcy as of Jan. 1, 2011, but has no serious bidders looking to buy it.

Part of the problem is the company’s 93-million-euro ($122 million) debt. There is a plan to repay approximately a third of that debt when the company exits insolvency, but any prospective buyer will have to come up with 60–70 million euros to get the brand, which also owns LGB. That’s going to be an uphill battle, considering Kingsbridge Capital paid 12 million euros for the company in 2006.

3. China slowdown
Welcome to the 21st century. One of the world’s biggest populations and busiest economies has suffered a labor shortage as of late. The problems have caused issues with production schedules, leading to products being delivered far beyond the expected dates, if at all.

The issue has been especially vexing for the model railroad segment, as shortages of products such as track occurred in the first part of 2010. Adding to the issues has been the slowdown of shipping during the economic downturn. Which leads to…

4. Rising cost of doing business with China
Chinese manufacturers have had to raise wages to get and retain workers. This in turn will lead to a rise in the cost of finished goods — perhaps as much as 30% — much of which will be seen in 2011. Some of the increase will be borne by the importers, but much of it will go to the consumers. How it will affect the latter group depends largely on the rate of improvement of the economy.

5. Shows post steady numbers
Both trade and consumer shows posted numbers similar to 2009, with some consumer shows showing a slight uptick from the previous year and the trade showing fewer dealers and manufacturers attending.

Many trade attendees cite product information readily available via e-mail and on the Internet as the reason they don’t go to shows. On the upside, the public is still interested in hobbies.

6. Fewer consolidations
Consolidations are a fact in the business world, but they appear to have accelerated in recent years, as larger corporations gobble up smaller ones. The same has been true in the hobby industry.

However, on the consolidation front this year, it seems that what hasn’t happened is the bigger news than what has happened. About the only big purchase deal was Hobbico buying Estes-Cox and garnering the most recognized brand in model rockets.

7. Social media explodes
Business, including the hobby industry, adopted social media in a big way in 2010. Many companies got on Twitter and Facebook, and established their own YouTube channels to showcase their products and businesses.

However, the jury is still out on the effectiveness of all the tweeting and time spent writing blog entries. While there have been some wildly successful campaigns with social media, they are rare. Most retailers report only mild successes. Proponents say this is due to a fundamental misunderstanding of social media and its use, but only time will tell if social media is really the helpful tool many say it is.

8. Gray market products

Gray market products are affecting businesses in many industries. In hobbies, radio control looks to be the hardest hit.

With its reliance on high-tech electronics, expensive research and development, a troubled three-tiered distribution chain and Internet discounters willing to slice to the bone on prices, established R/C companies have seen their market share eroded by knockoff brands and outright forgeries.

In an effort to maintain margins and customers, independent retailers have turned to selling gray market items. The trend does not look like it will stop anytime soon, and just how damaging it will be to the market and industry as a whole remains to be seen.

9. Micro R/C continues to be hot
Once just a niche of the radio-control hobby frequently associated with the toy market, micro R/C has turned into big business.

Since 2007, the number of micro R/C aircraft and vehicles to choose from has grown enormous, with robust airframes and chassis like their larger cousins, and interactive elements like guns that fire infrared beams at targets.

In scales from 1:36 to 1:18, these little planes, helis and trucks have expanded the market by keeping prices low and reducing the barrier to entry, while still attracting experienced hobbyists.

In R/C, as with computers, if smaller is better, what’s next? A scale R/C butterfly?

10. Plastic models are still moving
Despite fluctuating oil prices, labor woes in China and inevitable price hikes, plastic models are still selling well.

During a time when hobbyists, like all consumers, are watching their wallets, modelers are still finding subjects that interest them and buying kits, whether they are 1:32 jets or 1:4105 starships.

Tooling has continued to get better, but companies have also started to pull back from the all-inclusive package that offers lots of photo-etched parts, sometimes resin upgrades, and an overabundance of decal choices all in one box. Limiting the extras helps keep kit costs down while still getting new products to market.

Despite some grumbling about increased prices, it looks as if modelers still haven’t reached their cost threshold.

On the other hand, a trend is emerging with model companies in Europe and along the Pacific Rim selling high-quality kits direct to consumers via the Internet or exclusively through Internet dealers, bypassing the traditional three-tiered distribution apparatus. While good for consumers, it poses another challenge for the hobby industry in 2011 and beyond.