Two words - inventory management and business cycle
Ok, ok that’s really four words, but you get my point.
As mentioned, thanks to changes in the tax code, large inventory can be deadly. For small businesses, there (usually) is an inverse relationship between large inventories and liquidity. Banks like to see cash flow and liquidity in a business - especially now. Most LHS I know don’t have a steady cash flow. Sales are average (maybe even mediocre) till a major holiday than wham. Banks don’t like that kind of unpredicability (ie. risk). So in order to manage risk, they tell the LHS not to tie up significant capital in inventory.
The same dynamic is true for the catalogue and on-line retailer, only the dollar figures for sales are larger, so the inventory one can keep is larger. Still when you break down the business on a per capita customer basis the ratios are similar and the same financial principles apply.
Manufacturers aren’t really any different than LHS with respect to inventory. High inventory has siginficant implications for the books. The value of the inventory is supposed to be written down appropriately over time, so there is an incentive to keep it low - this is irrespective of the age of the molds used in the production run.
However, as most of us know, most of the big production firms are in Asia, and in Asia, businesses don’t always follow US accounting rules. That’s where the business cycle comes in.
The fact is, because the market for modeling has grown, and the demand within that market for more accurate, newer, improved, etc models has grown, businesses have had to respond by increasing their “turn” times for development and production of new product. The cost of that increased inovation has two consequences. First, the profitablity of any given “run” has to have more certainity (ie. the price/cost of failure is high). In order to hedge against possible “misses” you limit the production run. While the downside is you might not maximize the profit potential if you produce a “hit,” if successful you still will make the profit projection for the product run (and for managers, when you hit your target it means bonuses all around). Second, increased spending on R & D and new production means there is a strong incentive within the business to continue to develop and bring out new product. It’s a little like feeding the beast. Once the research and production beigns to speed up, you have to at least continue the pace of inovation if not try to speed it up (in order to catch your competiton flat-footed) or you you will be branded as an industry laggared. Usually there is a negative cost assoiciated with being in a bottom position in any given industry - perhaps the costs aren’t as high in the modeling world, but there still is a cost.
Lastly, as was pointed out earlier, there are more suppliers than say 20 or 30 years ago. And while numerically there may not be many more companies producing plastic kits than 20 years ago, the resin and aftermarket sector has exploded. In the end, they are all competing for the same set of dollars. A dollar spent with Accurate Armour or Resicast, is a dollaryou cannot spend on Dragon or Tamiya. So, if you want to capture a piece of that dollar, you have to have product that captures the customers attention, which takes you back to the paragraph above.
If I was in b-school, I suppose you could do a neat little paper on the specialty/after market industry being responsible for the current pace of inovation in the overall modeling sector today. The question to ask is how long can it last and is it indepent of the business cycle (ie. if the overall pool of customers decreased, and thus the overall profit potential decreased, would the pace of inovation decrease).