Toy Train Has Left the Station

Thursday, February 5th, 2009

Sorry for the unrelenting bad news, but here’s a brand-new victim of the current financial crisis that you might be interested in. Märklin is bankrupt, Hasnain Kazim reports on Germany’s Spiegel Online. As his lede then continues:

. . . and millions of model-railroad friends grieve for the tradition-filled enterprise with cult-status. The majority-owner had announced a [financial] rescue not long ago. But now the firm has become a victim of the financial crisis, of management mistakes and of a societal shift.

I also looked at reports of Märklin’s recent demise from various other German on-line publications, but the Spiegel’s account is the best because of the interesting background information that it provides. Like how about this: the announcement that the firm would have to file for bankruptcy from Märklin’s chief executive Dietmar Mundil came yesterday, just prior to the opening of the annual International Toy Fair convention in Nürnberg. And this was only shortly after the company’s marketing head, already present in Nürnberg for the convention, had issued a statement for the benefit of his fellow convention-goers (i.e. worldwide toy industry professionals) that there was no bankruptcy on the horizon for Märklin. Embarrassing, that, but maybe top management should not be blamed too much here, since it seems the bankruptcy was also a surprise for them, something that suddenly became unavoidable after the recent unexpected refusal by the company’s banks to roll over the €50 million in credit it had outstanding.

Ah, but who was that management? Not the original families who had founded and built up this model-train manufacturing business over the course of 150 years (the Märklin family, yes, but also the Friz and Safft families); they sold out in 2006 to a consortium made up of Goldman Sachs and Kingsbridge Capital, a London-based private-equity firm. The company had been losing money since 2004, you see, and these new owners proceeded to do what such private-equity new owners do, namely make their new acquisition start producing profits again no matter what had to be broken in the process. Four hundred of the total 1,400 jobs were eliminated, along with two factories, toy retailers were instructed to pay their invoices more promptly, etc. But those new owners consortium also invested in developing the company and introduced imaginative new marketing wrinkles, such as model-train “starter sets” sold for €100 at the German low-cost supermarket chain Aldi, as well as the simple insistence that store-owners display the model trains more prominently. And indeed, turnover did rise through 2008, to €128 million by the end of the year, so that Kingsbridge head Matthias Hink could declare then that “Märklin is one of Germany’s best brands and has considerable potential,” and that they certainly never intended to sell it. From Kazim’s account, we probably need to take Hink at his word here; it does seem that the firm ultimately went under solely because it could not achieve a credit roll-over that would have been routine for it in normal times.

Out of Track in the Long Run?

On the other hand . . . maybe Märklin was actually doomed, sooner or later. Let’s face it: who plays with model trains these days? Kazim gets some interesting quotes on this subject from an expert, one Werner Lenzner, a toy-industry market researcher, who asserts that, starting in the 1980s, model trains were not for kids anymore but for adult collectors – typically male and between 40 and 60 years of age. The individual pieces were no longer relatively cheap toys meant to be kicked around; they had became expensive and were meant for display. This older cohort is now, in the first decade of the twenty-first century, to be found according to Lenzner “rather sit[ing] during their leisure time in front of the computer [ed. interjection: reading EuroSavant!] or at the fitness-center.” Lenzner is even willing to say for the record that those who still sit around building elaborate miniature train tableaus are now generally viewed as schräg – which my dictionary defines as “slanting, oblique” but I think we can figure out that term’s slang (and probably not so complimentary) meaning.

Then again, what Matthias Hink from Kingsbridge said about the staying-power of the Märklin brand remains true, I think, and no brand really ever has to die unless for some reason it is explicitly put to death. Someone else will surely buy up that brand and the company’s other assets and carry on. Lenzner again: the main mistake was “to make very costly [train] models, in extreme detail, which only a well-to-do collector could afford.” So the new Märklin probably should go back to manufacturing true trains for the kids. Or maybe expand further the product-line to which it can apply its powerful brand: Märklin “train engineer” sunglasses, anyone?

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