EcommerceBytes-Update, Number 156 - December 04, 2005 - ISSN 1528-6703     5 of 6

Collector's Corner: SmartCollector Looks at Model Trains on eBay

By Chris Cameron

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The fascination with model railroads goes back to the advent of railroad transportation in the 19th century. Early models of the late 1800's and early 1900's were made from metal and often powered by steam or clockwork mechanisms, as few homes in that era had electricity. By 1880, model railroad trains were becoming more desirable toys, but much of the production was done in Europe.

In 1901, Joshua Lionel Cowan founded the Lionel Mfg. Company in Manhattan, and just six years later, Edmunds & Metzel began making the first O gauge American Flyer trains in Chicago. These trains were still too expensive to find mass acceptance, and it wasn't until the 1920's that mass production brought prices down to a level that made model trains an accessible toy for all.

Today's model railroader has a variety of different scales (relating to the relative size of the cars and gauge of the track) from which to choose, and with the modeling of realistic environments, hobbyists find endless creative outlets. The most popular gauges of commercially produced model trains today are N (the smallest), HO, S, O and G (the largest). If you want to start collecting, enhance your collection, or perhaps start a business selling these popular items, you may be wondering what you can do to collect smart.

By The Numbers
First, let's look at the business trends. Online marketplaces, particularly eBay, have created more pricing volatility in collectibles than ever before. Ask a collectible expert what an item is worth and they will likely say - what did it sell for on eBay yesterday? Thus, collectible markets today are not unlike the stock market. And fortunately, we can analyze those markets in similar way.

Looking at the numbers, we're going to zero in on O gauge model trains for our analysis as it is one of the most popular gauges, and the category provides a good indicator of overall model train activity. Just like a stock market, we can look at key metrics, such as these six key data points:

Gross Merchandise Value Sold (GMVS): aggregate value of every item sold in the period.

Bids: Total number of bids on items listed, a good predictor of category activity. We also look at the ratio of bids to items sold.

Sellers: Total number of individual sellers in the market, the more sellers the more listings, and probably the "hotter" the category. More sellers can also keep a market more stable, by providing more independent supply.

Items Sold: How many items were successfully sold; related metrics include the sell through ratio, or the percentage of listed items that sold, and the average sales price (ASP).

ASP or Average Sales Price: The ASP in a category can be relatively stable, like in this model train category yet still see upward growth with increased volume. Model trains have a high ASP relative to most other collectible toy categories, a good opportunity for sellers to yield more money against shipping and storage costs (it costs just as much to store and ship a $5.00 train as it does a $75.00 one)

Max Price: The highest priced item that sold, because sometimes it's just fun to see how much someone paid for a collectible.

The following chart summarizes market activity for the third quarter (July through September) for a five-year period beginning in 2001:

Q3 2001 Q3 2002 Q3 2003 Q3 2004 Q3 2005
GMVS $4,788,576 $5,446,308 $6,585,442 $6,536,867 $7,463,370
Bids 367,782 478,161 553,171 548,705 652,697
Sellers 13,797 19,381 22,620 23,503 25,089
Items Sold 66,924 87,462 103,665 110,621 118,083
Bids/Sold 5.50 5.47 5.34 4.96 5.53
ASP $71.55 $62.27 $63.53 $59.09 $63.20
Max Price $8,200 $16,610 $8,100 $16,370 $23,600

Source: SmartCollector.com

But other than learning that someone paid $23,600 for a model train in the third quarter of 2005, what can we learn from this?

For one thing, this is a pretty stable, but growing, category. We measure a 14 percent increase in GMVS from 2004 to 2005, thanks to both a 7 percent increase in items sold and a higher ASP. That rebound in ASP is very encouraging, and is one of the most attractive aspects of the model railroad category.

Stack model trains against most of the other collectible toy categories and you'll find that trains are in the top quartile at over $60 per item average price. The vastly popular diecast car category, by comparison, only maintains an average sales price around $24. When you think about the similar costs of storing and shipping other collectible toys, it's no wonder that the high ASP of model trains lures many "would be" sellers.

Another key insight from these numbers relates to the bid totals and averages. It's worth noting that this includes single "bid" counts for Buy It Now items and bids on reserve items that might not have sold, but the bids-per-items-sold remains a strong predictor of the level of action you can expect on an auction. At an average of five total bids to total items sold, it's obvious that model trains generate a good amount of activity. That's clear from the higher-than-average sell through rate of approximately 62 percent, much higher than many other collectible toy categories.

Seller Insights
If you're a model railroad seller, you may already know that American Flyer and Lionel remain the magic names on the secondary model railroad market, but the market for pre-1940 material is declining. Even prices for 1950's material are starting to decline. Contemporary trains from Mike's Train House and other companies are not holding their value on the secondary Internet market. Do not overlook the value in accessories ranging from track switches to buildings.

Buyer Insights
As a model railroad buyer, only buy examples in fine or better condition, as the model train survival rate is high. There are plenty of examples from which to select. At the very minimum, insist that the period box be present. There are plenty of model railroading societies around, so there is little difficulty having a piece repaired. Price guide prices are set by toy train aficionados, and do not reflect Internet values.

Editor's note: If you enjoyed Chris Cameron's article about model trains, you may also enjoy reading Charles Conley's articles (http://digbig.com/4ffjt).


About the author:

Chris Cameron is co-founder and CEO of eBay research service SmartCollector (http://www.smartcollector.com) and collects limited-edition Lionel O gauge toy trains. Chris is also a partner with Sloan Ventures, an early-stage venture development company. In 1995, Chris co-founded Paramount Technologies, Inc., a highly successful software company selected as an Inc. 500 fastest growing company.


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