Pendraken Future Plans - Please Read!
As most of us will be aware (especially those in the UK!), the world has been a crazy place over the past few years and all of our lives have been impacted in various ways. Whether it's pandemics, wars, politics or economics, things haven't been easy for quite some time.
Sadly, businesses don't escape these factors either and Pendraken has also been facing its fair share of issues for some time now. Sales peaked for us during the initial months of the Covid pandemic (as they did for many hobby businesses) and have reduced since then as you'd expect. But when you combine that turnover drop with the huge increases in costs that we've seen in the past 2-3 years, it doesn't make for good reading. As a result, for the first time in our history, Pendraken ran at a loss during the 22-23 tax year, by a considerable margin.
To quickly summarise everything that follows, we're going to be fine but we need to make some changes to our pricing and future plans. If you're interested in the details, read on...
Some of you will remember that we last put the prices up in January 2021 due to the exceptional cost increases that we'd seen due to the pandemic. We took a bit of a gamble there and only raised our prices by 9%, generating somewhere around £18,000 extra income per year, even though we'd seen costs go up by £35,000. We'd hoped that we'd see some of the materials costs come back down to somewhere sensible and things would balance back out again but unfortunately things haven't worked out that way.
So what's happened?
The metal prices came back down late last year but are now increasing again. Both metal and MDF are now approximately 50% higher than the pre-pandemic levels, adding somewhere around £15k-£18k to the annual materials bill. Things like acrylic have more than doubled, and mould rubbers are up 30%-40%.
Without getting into a political debate on this, Brexit and the UK's withdrawal from the EU single market has been a big hit. The fees and handling charges that now apply for our European customers are very high, especially on a regular sized order. Nobody wants to order £40 worth of wargames figures and then have to pay another £25-£30 in fees just to receive your package, so it's completely understandable why those customers are going elsewhere for their goodies.
Prior to the July '21 deadline, our EU sales were around 19%-20% of our turnover. Now we're at 8%-9%, so we've lost over half of our EU customers, which in monetary terms is something like £30,000 per year of lost sales. The only way to get this back is to try and access the EU's IOSS VAT system but this comes with an annual cost of £2000-£3000 to the business. We'll come back to this below.
Firstly with this, the move to the new building is a real positive for our business and will prove a sensible move in the long-term. Unfortunately the short-term is a bumpy road and there's been a lot of unexpected extra bills as a result of our new home.
Many of you will remember the saga of our storm-damaged roof, which resulted in the insurance company refusing to pay for all of it and we had to find £13,000 ourselves to get the roof fixed. We've also had to put £1000's into other repair work on the heating system, a new roller shutter motor, etc, that would usually be the responsibility of the landlord in a rental unit.
We also didn't expect our business insurance to double overnight (circa £2000 increase), due to there now being a 'rebuild' cost in the event the building falls down. A £400,000 rebuild valuation on a £150,000 building doesn't make sense to me, but that's insurance companies I guess.
And my favourite random increase was our water bills. As the owners of the building we now have to pay a drainage charge for water that simply lands on our property, so there's an extra £600 per year for the privilege of being rained on.
Business Rates (Property Tax in the US I think?)
You probably won't have seen this mentioned in the news but the UK government decided to revalue all commercial property earlier this year, pushing 1000s of businesses into new taxes. For those unfamiliar with commercial rates, your business premises are rated by footprint and usage and then a Rateable Value is assigned to it. Businesses below a 12000 rating can get rate-relief from the government, businesses over 15000 can't get support, and everything in-between is pro-rata'd.
One of the reasons we chose this building was that its Rateable Value was 11750, meaning that it was exempt from business rates. The new valuation this year jumped us up to 14750 which we felt was incorrect, so the Valuation Office came out and measured everything for us... and decided that we should be 16000 instead. Furthermore, they backdated this to when we moved into the building and sent us a bill for £5000.
Long story short, we believe that a mistake has been made and we need to appeal it. Until then though, we're on the hook for the full payment and it's likely going to cost us more money to challenge the valuation.
Before the pandemic I'd be surprised if we lost more than 5 or 6 packages per year. Things would get delayed here and there but your orders would almost always turn up eventually. Over the past 6-9 months though, it feels like the various postal systems have crumbled and just since the start of the year we've had almost 30 packages confirmed as lost, totalling over £2000 of goods. We've had to replace all of those missing packages at our own expense, and as anyone who's used the Royal Mail claims system will tell you, we're not getting that money back. I'll be surprised if they reimburse us more than £300 for the whole lot.
With the increases to UK minimum wages adding another £10k+ to the wage bill, it's a tricky time right now and we need to tread carefully to make sure that we get through it OK. We've not spent 30+ years building our business just to get scuppered at this point, especially when we've got so many plans for the future.
So the question now is what are we going to do about it?
New ranges / Design work
The most immediate change we'll need to make is to pause all new design work for the rest of this year. In reality this won't make much difference from a customer perspective as we've got piles of things that have been sitting at Pendraken HQ for months (and years in some cases!) so we'll be able to prioritise getting those released. Once we've cleared the decks and the finances have improved, we can then get the sculptors back to work and make some progress on our plans.
This change won't affect the first batch of six Sci-Fi ranges, as those are already in-hand and almost sculpted. It also won't affect things like the Dungeon relaunch or upcoming British modern vehicles, as those have already been designed too.
It'll just mean that things like our Crimean range revamp, ACW additions, or a potential Nap Russian range, will need to wait until next year before we can start scheduling them.
The second priority is going to be moving to a new website, with full IOSS functionality, so that we can start to win back some of those EU customers. Our current website platform (EKM) promised us an IOSS feature in order to get us onboard, which was 2 years ago. They've broken every promise since then and are now telling us that it'll be another 2-3 years for it, which is frankly ludicrous. We've actually explored our legal options on this, but they've been too careful in their wording to us and we don't have enough for a case.
So we'll need to get a new website online and ready for the autumn hopefully. We're going to do everything we can to minimise the impact to our customers but there will be some things that we're not able to do seamlessly. The major pain is that we're not sure if we'll be able to bring your order history over to the new website accounts, so we need to look into that. You'll probably have to create new passwords to activate your website accounts, as those are encrypted and we can't export/import them into the new site.
The new website is going to be a ton of work and another £2k-£3k of costs, so we'll do our best to get it up and running as soon as possible. The new platform should allow us access to a lot of new features though, so we've got some plans for that.
Sadly there will have to be a price increase across the majority of our products, but we're not going to do this until January 1st 2024, so you've got 5 months advance warning! The changes above should steady things enough for the next few months and then we can prepare the price increase ready for the new year. As a rough estimate on the new pricing, standard packs will go from £6.00 to £6.50, army packs from £36 to £40, MDF bases from £1.30 to £1.40, that sort of level.
We'll let people know more info on this as we get closer to the time.
All of the books that are in our physical shop have now been added to the website for you to browse the selection: https://www.pendraken.co.uk/books-1114-c.asp There are a couple missing images but we'll get those sorted asap. Shipping will only be available within the UK as standard, but we can get quotes for anyone overseas. The books are very reasonably priced so this should make it a lot easier for folks to have a look and grab some reading material.
We've always tried our best to keep as much as possible in stock at all times, but we might have to run down some of the less popular lines rather than restocking as soon as a couple of items go out of stock. We'll monitor this one though and make sure to minimise the impact on availability.
New Product Lines
We've got some plans for new product lines that don't require much buy-in so we're going to explore those and we'll have more news for you soon.
Our last option but something I'm reluctant to do is to cut our staff hours. Many of our employees are reliant on their Pendraken wages for their households, so it's not a preferred option. There may be areas where we can save a few hours though, such as quiet times when there's no orders to cast up, or by removing Friday's post collection and only doing Mon-Thurs post. We'll monitor this and see what can be done.
And that's everything I think! Apologies for the long post here but we've always tried to be as open and honest as we can, especially when it comes to having to raise our prices. As mentioned above, the long-term viability of the business looks fine but there's some short-term hurdles that we need to get over first. We've always had the most incredible group of supportive and loyal customers, so I want to thank you for that on behalf of everyone at Pendraken HQ.