The RC industry has undergone a fundamental transformation in the last 40 years. Here is a first hand account.
Stan Johnson is a local modeler. He started building model airplanes at age five. His first gas powered model came at age ten. Having flown electrics, gliders, gas, glow, indoor, and helicopters, there’s not much that Stan hasn’t done.
In 1963 he got his first job at a hobby store. He and his wife, Helen, owned and ran a popular hobby store in Albuquerque, Hobbies-n-Stuff, for over 20 years. They sold the store in 2007 and retired, or so he thought.
Today, almost 50 years after his first industry job, Stan is still flying model airplanes and working in hobby stores. He is currently employed part-time by Hobby Proz, Albuquerque’s premier RC retailer. Stan has worked in several fields including full scale aviation. From his years as an airplane mechanic Stan has an Airframe and Powerplant repairman’s certificate. But his love of model aviation and the model aviation business has never faded.
I recently sat down with Stan to learn more about the business side of model airplanes. It was an eye-opening conversation. What follows is based on the notes that I took during the interview. I have flown model airplanes for many years, but there is much that has happened behind the scenes in the industry that I did not know.
Hobby stores in the United States were always independently owned and operated. What we call “mom and pop” businesses. They were started by someone that loved the hobby, be it model cars, model aircraft, or model boats. They are a labor of love, with the owners putting in many long hours to make the business work. Hobbies have always been a niche business, with their fortunes tied to the ability of their customers to engage in discretionary spending.
Today, most hobby stores are still independently owned. But there are some franchised hobby shops around the country today. The best known is probably Hobby Town USA.
Stan told me that in his early days in the hobby business, hobby stores were supplied by a large number of regional distributors. Like the hobby stores that they supplied, the distributors, in most cases, were also small family-owned businesses.
The foundation of their businesses were the close-knit relationships with the hobby store owners that they had spent years nurturing. The distributor’s salesmen traveled from town to town visiting hobby shops. It was not unusual for a salesman to visit a shop, take a look at the inventory, and reorder the missing items on behalf of the store owner. It is unheard-of for something like that to happen nowadays.
The inventory of the distributor was almost all American made goods. A couple of pioneering distributors imported products from Europe and Japan to resell to the stores. In the 1960s, some of these distributors were Polk’s Hobbies, World Engines, and Royal Products.
A single hobby store would routinely purchase products from a dozen or more distributors. Because of the traveling salesmen, the hobby store had to be within the distributor’s service region, hence their name.
Today most of the regional privately owned distributors are gone. They have been replaced by large national/international firms.
Similar to the hobby stores and regional distributors, the makers of model airplane products were also usually small family-owned businesses. In the early 1960s, the model airplane industry in the United States was almost entirely American. Most of these firms were founded by famous old time modelers. Gentleman like Carl Goldberg, Hi Johnson, Duke Fox, Jim Walker, and Glen Sigafoose to name just a few.
Early RC Systems
It took about twenty years for radio-controlled systems to go from expensive single-channel systems to proportional multi-channel systems that today we take for granted. Around 1970 there were a large number of American made RC systems on the market.
Being small businesses, these early RC systems were all handmade in the United States. Given their complexity, quality control was a problem. It was not uncommon for them to be inoperative right out of the box. They did not always work as advertised, either.
In the early 1970s MRC (Model Rectifier Corporation) started selling the F700 RC system, which was actually made by Futaba in Japan. This was the first RC system that Stan ever owned. It was also the first nail in the coffin of American RC companies.
In 1973 Futaba released their first radio system under their own name in the United States. Being involved in the business side of the hobby, Stan was well-aware of the reliability issues with American made RC systems. He told me that the reliability of this first Futaba system was groundbreaking. It just worked. To top it off, during the first few years on the market, they had a no questions asked replacement policy. Even if there was obvious crash damage, they would send you a free replacement (as long as you paid for the return postage).
The key to the Futaba system reliability was having an automated manufacturing facility. Futaba was owned by a large parent company that could afford that type of tooling. Slowly, one by one the American radio manufacturers succumbed to the mounting pressure from the Japanese manufacturers. Futaba, Sanwa (Airtronics), Japan Radio (JR), and KO Propo all contributed to the demise of the American companies. Kraft and Ace R/C were the last to go. Ironically, Kraft’s last products were made by KO Propo.
Traditionally hobby stores bought their products (except radio systems) from a distributor for a standard trade discount. If their bill was paid on time, they would receive an additional 2-3% discount.
Great Planes got started in 1982 as a distributor. They brought two key innovations to the hobby industry that would eventually transform it.
First, they matched the other distributor’s standard trade discounts to the hobby stores. But if they paid their bill on time the store would receive an extra 10% or higher discount. To the typical hobby store with thin margins, this extra 7-8% or higher discount often meant the difference between staying in business and closing up shop for good.
Great Planes managed to make this extra discount work by getting rid of the traveling sales representatives that were the industry standard at the time. This was their second key innovation, and it made them the first truly national distributor. As their business grew and they claimed more and more market share, they could pressure their suppliers for deeper discounts. This allowed them to offer better discounts than their competitors. It goes without saying that traditional regional distributors were now in deep trouble. In fact, by the early 1990s most had gone out of business.
Soon after they had established themselves as a distributor, Great Planes started making their own kits. They were now competing with the American kit manufacturers that depended on them to distribute their kits. Great Planes outsourced kit manufacturing to China, which made it very hard for the American kit manufacturers to compete.
As the American kit makers experienced slowing sales and weakened, many were bought by Great Planes. This conglomerate of familiar brand names eventually became Hobbico.
Horizon Hobby was started by ex-Great Planes employees. Using a similar business model, they have also thrived. Their early crown jewel was JR (Japan Radio), a well-respected radio manufacturer that they bought. They too, like Hobbico, purchased a number of smaller American hobby companies.
The Situation Today
Today the RC hobby industry is fractured. Besides the two 500 pound gorillas, Hobbico and Horizon, there are an increasing number of Chinese manufacturers selling their products directly to the American market. While this might benefit the American consumer, it has made it tougher for the traditional hobby shops and distributors to stay a viable force in the industry.
A small number of American kit manufacturers have managed to find profitable niches in which they are thriving. Some are still manufacturing their products in the US, but many have become importers of Asian and European goods. These include ExtremeFlight, 3D Hobby Shop, Troy Built Models, Balsa USA, Aero-works, and many others. Stan believes that the key to making these businesses work is constant innovation and keeping a close eye on expenses.
A hobby store’s business used to be primarily selling parts and building materials. Today, thanks to inexpensive “Ready to Use” foreign-made products, a hobby store looks more like a toy store than a traditional hobby shop. Many shops today do not carry balsa wood or supplies for glow powered models. The times are changing.
Looking at what is going on in the industry today, you would expect hobby store’s days to be numbered too. It is no secret that we have a lot fewer today than we did in the past.
But, many survive and grow despite pressure from the Internet here and abroad. In fact, Stan remains bullish on the future of hobby stores. He quotes, “The Internet can not provide eyeball to eyeball personal service”. The recipe for success is a friendly knowledgeable sales staff, good customer service, a pleasant retail environment, and a well stocked store with competitive pricing. It worked for Stan and Helen for over 20 years, and it’s working today at Hobby Proz.