How Mandeville and Wenlock derailed Hornby

Games merchandise flop wipes a third off toy company's value

When London 2012 organisers unveiled the mascots they hoped to bring Olympic gold to the pockets of merchandise-makers, many eyebrows were raised – one-eyed, alien-like characters formed from droplets of steel were a slightly off-the-wall choice to symbolise the British capital.

And now it seems those concerns were legitimate, as Wenlock and Mandeville's failure to sell sent a much-loved British toy-maker's shares tumbling by more than a third. Hornby, the maker of childhood favourites from Scalextric and Corgi to Airfix suffered dire sales in their London 2012 merchandise this summer.

A key problem is understood to have been a distinct lack of demand at big retail chains for Hornby's figurines of the two official mascots.

A person familiar with the situation said that big retailers, such as Tesco and Argos, got cold feet after sales of the mascot toys disappointed, which led to them cancelling orders en masse from licensee Hornby early in the summer.

The warning from Hornby further reinforces the view that, while the Olympics delivered a temporary feel-good boost to the UK, they led to a reduction in consumer spending and footfall on the High Street for the duration of the Games.

The lower than expected sales of merchandise hit Hornby's profits by £3m. Andy Wade, an analyst at Numis Securities, said: "Where the group had originally envisaged the Olympics providing a £7m fillip to revenue and £2m of profit, it is now expected to result in a £1m hit to the bottom line."

Amid a warning about "continued depressed consumer spending," Hornby explained that before the Olympics it had initially enjoyed "strong" orders from retailers and "encouraging" consumer purchases.

But the problem was that retailers had also purchased huge quantities of London 2012 merchandise from other licencees and faced with a glut of unsold stock they "resorted to deep discounting".

The toy maker said: "The consequence of this for Hornby was that retailers lost confidence in many categories of London 2012 merchandise, and repeat orders for our products were cancelled."

The company, which produced its first Hornby electric train set in 1925, said it now only expects to "break even" this year, following a profit of £4.5m in 2011-12.

Shares in the group – which also sells through 200 concessions, including Hamleys and Harrods – fell by 30.3p, or 34.2 per cent, to 58.3p yesterday.

However, demand for Hornby's other 2012 merchandise, such as the Corgi London taxis and Scalextric Team GB cycling velodrome set, were more robust. The company's London 2012 train set was also still selling at the full recommended retail price of £99.99 on its website yesterday.

Hornby also blamed its third profit warning of this year, following previous downgrades in January and April, on the plans of one of its big suppliers in China to "rationalise its manufacturing facilities". This is affecting Hornby's shipments of model train sets to the Continent.

Hornby said the "disruption to our supplies for the remainder of the financial year will be substantial".

It added: "We have made solid progress in recent years to diversify our supply base in China and also in India." However, it pulled no punches, describing the realignment of its manufacturing as "part of a painful process".