After chugging along for more than a century, Lionel, the venerable maker of model trains, is struggling to stay on track following a nearly $41 million judgment that pushed it...
CHESTERFIELD TOWNSHIP, Mich. — After chugging along for more than a century, Lionel, the venerable maker of model trains, is struggling to stay on track following a nearly $41 million judgment that pushed it into bankruptcy.
The ruling against Lionel, once the world’s biggest toy maker, has exacerbated the company’s existing problems in an industry where there is intense competition for a small and demanding group of customers. Despite the confidence of Lionel’s new management, reviving the company is no easy task in an era of video games and Wal-Mart-style retailing, in which all toy-train makers are struggling to appeal to new generations of hobbyists.
And critics say Lionel has let its younger competitors get an edge by failing to aggressively pursue technological innovations.
But Lionel still has one valuable asset smaller rivals can’t claim: a name steeped in tradition. That goes a long way with the adult train enthusiasts who make up the bulk of the industry’s consumers.
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Neil Besougloff, editor of Classic Toy Trains magazine, estimates there are about 100,000 to 125,000 toy-train hobbyists in the United States and Canada. The more than 60,000 readers of Classic Toy Trains spend an average of $1,400 to $1,500 a year on the hobby, according to the magazine’s surveys.
“The hobbyists today are mostly men in their 50s,” Besougloff said. “When they grew up in the 1950s, they had Lionel trains and American Flyer trains, and that was their prized toy. … They are to some extent reliving the joys of their childhood.”
So intense is the world of toy trains that Lionel Chief Executive Jerry Calabrese held an online chat three days after the company filed for bankruptcy protection to slow the rumor mill and assuage fears that Lionel might go under. Calabrese — who became CEO in October and previously worked for comics heavyweight Marvel, a similar hobby-driven business — said he would hold such sessions regularly.
Lionel’s current troubles date back at least to 2000, when MTH Electric Trains, formerly known as Mike’s Train House, sued Lionel. MTH, a one-time Lionel contractor based in Columbia, Md., accused the company of selling trains based on designs stolen from a South Korean manufacturer working for MTH.
In June, a jury in U.S. District Court in Detroit ruled that Lionel should pay $38.6 million to MTH and Lionel supplier Korea Brass should pay $2.2 million.
Lionel denies the accusations, and Calabrese says he is confident the court decision will be overturned or the award reduced on appeal. In the meantime, Chapter 11 bankruptcy, which Lionel entered last month, protects the company from having to post a bond while the appeal is pending.
Lionel and other toy-train companies enjoyed a boom that peaked in 2000. But business slumped as a result of overproduction and post-Sept. 11 economic uncertainty, Besougloff said.
Lionel and other companies are struggling to expand their customer base. Their primary customers aren’t getting any younger, and if the industry is to survive into the future, they need to bring children back to the hobby.
Today’s generation doesn’t have the same fascination with trains that children used to have. The popularity of train-themed stories and toys for preschoolers, such as Thomas the Tank Engine and wooden railroad sets from Brio, has not carried over into electric trains.
“There are so many more items competing for children’s attention today than there were back when we were kids,” Besougloff said.
One of the marketing difficulties for Lionel and others is that their products are sold mostly in independent hobby shops and not where most people buy toys. Wal-Mart Stores, Toys R Us and other mass retailers don’t carry train sets because they’re too expensive.
But linking a train to a popular children’s character or movie is one way to help revive interest in trains. Lionel won the license for “The Polar Express,” the Christmas movie starring Tom Hanks currently in theaters.
The Polar Express sets, priced at $250, have been a hit, but few have made their way into the hands of kids because established hobbyists snatched them up. The hope is that the movie — and by extension the train — will live on as a perennial favorite.