Lionel Corporation

Lionel Corporation

Lionel Corporation logo on a box from the 1950's
Type	Publicly traded
Industry	Toys and hobbies, Retail
Fate	Liquidation,1995
Successor	Lionel, LLC
Founded	1900
Headquarters	New York, New York, [United States
Key people	Joshua Lionel Cowen (Co-founder and owner) Roy Cohn (owner)
Products	Electric trains and accessories

Lionel Corporation products

Lionel Corporation was an American toy manufacturer and retailer that was in business from 1900-1995. Founded as an electrical novelties company, Lionel specialized in various products throughout its existence, but toy trains and model railroads were its main claim to fame.^[1] Lionel trains, produced from 1900 to 1969, drew admiration from model railroaders around the world for the solidity of their construction and the authenticity of their detail. During its peak years in the 1950s, the company sold $25 million worth of trains per year.^[2] In 2006, Lionel's electric train, along with the Easy-Bake Oven, became the first electric toy inducted into the National Toy Hall of Fame.

Lionel remains the most enduring brand name associated with model trains in the United States, its products prized by collectors. Today, Lionel, LLC owns all of the trademarks and most of the product rights associated with the Lionel Corporation; there is, however, no direct connection between the two companies.

History

The original Lionel Corporation was founded in 1900 by Joshua Lionel Cowen and Harry C. Grant in New York City.^[3] The company's devotees disagree over the date of incorporation, as the official paperwork gives a date of September 5, but the paperwork was not filed until September 22, more than two weeks later. Initially, the company specialized in electrical novelties, such as fans and lighting devices.^[4]

Pre-war era (1900–1942)

Lionel's first train, the Electric Express, was not intended for sale to consumers, but rather, as a storefront display. Delivered in December 1900, it operated on a brass track and was powered by a battery and a motor Cowen originally intended to use in an electric fan. Cowen hoped to use the public's fascination with railroads and electricity to capture the public's attention and direct it to the goods for sale. Members of the public started approaching store owners about buying the trains instead, prompting Lionel to begin making toy trains for the general public. Lionel ended up selling 12 examples of the Electric Express.^[5][6]

Lionel's earliest trains were larger than the sizes commonly available today, running on two-rail tracks with the rails 2 ⁷⁄₈ inches apart. In 1906, Lionel began offering a three-rail track that simplified wiring of reverse loops and accessories. Its outer rails were 2 ¹⁄₈ inches apart, which did not match any of the existing standards that other manufacturers had been using since 1891. Whether this was an accidental misreading of Märklin's 2 gauge specifications or an intentional incompatibility is unclear, but Lionel marketed this non-standard track as "The Standard of the World," and soon adopted the name in its catalogs as Standard Gauge and trademarked the name. When other U.S. companies began using Lionel's standard, they usually called it wide gauge. Starting in 1915, Lionel followed most of its U.S. competitors and adopted the smaller O gauge standard for its budget-level trains.^[6]

By the end of World War I, Lionel was one of three major U.S. toy train manufacturers, and it grew rapidly due to shrewd marketing. Cowen began getting department stores to incorporate his toy trains into their Christmas tree displays, linking toy trains to Christmas and making them popular Christmas presents. Lionel made its trains larger than its competitors', making them appear a better value.

Competitors criticized the realism of Lionel's trains—Cowen had been unwilling to invest in the equipment necessary for lithography, so its early offerings were simply painted in solid colors of enamel paint with brass detail parts. Lionel responded by targeting advertising at children, telling them its products were the most realistic toy trains. Additionally, Lionel criticized the durability of competitors' products in ads targeted at parents.^[6]

By 1922, Lionel was competing mainly against American Flyer and Ives. Apparently, also in 1922, Boucher bought out VoltAmp and started making what was known as the "Rolls Royce" of Standard Gauge trains. In 1925, American Flyer jumped into the Standard gauge market; and by 1926, Dorfan started making their own Standard Gauge trains as well.

William Walthers, a large seller of model railroads, asked Cowen in 1929 why Lionel painted its trains in bright and unrealistic colors. Cowen said that the majority of trains were purchased by mothers for their children, and the bright colors attracted women buyers.^[7] In 1929, Lionel opened a factory in Hillside, New Jersey where it produced trains until 1974.^[8]

By the 1920s, Lionel had overcome Ives to become the market leader, selling metal trains with colorful paint schemes. Lionel's fierce ad campaigns took their toll on Ives, which filed bankruptcy in 1928. Lionel and American Flyer bought Ives and operated it jointly until 1930, when Lionel bought Flyer's share, causing Lionel to operate Ives as a subsidiary until 1932.^[6]

The Great Depression badly hurt Lionel. In 1930, Lionel's operating profit dropped to $82,000 — its operating profit in 1927 had been more than $500,000 — and in 1931, it lost $207,000.^[5] The trains were considered a luxury item, and at the height of the Depression, one of Lionel's more extravagant locomotives cost as much as a used Ford Model T. In an effort to compete with companies that were willing to undercut Lionel's prices without diluting its premium Lionel and Ives brands, Lionel introduced a line of inexpensive electric toy trains under the Winner Toys or Winner Toy Corp. brand name, which were sold from 1930 to 1932. The starting price for a set, which included a transformer, was $3.25. These and other efforts to improve its financial standing were unable to keep Lionel from going into receivership in May 1934.^[6]

The product widely credited with saving the company was a wind-up handcar featuring Mickey and Minnie Mouse that operated on O gauge track and sold for $1. Lionel manufactured 250,000 units but was still unable to keep up with demand. At a wholesale price of 55 cents, the handcar's sales would not have provided enough profit to pay off Lionel's debts of $300,000; however, it provided much-needed cash. Lionel avoided bankruptcy and emerged from receivership the next year. By 1939, Lionel had discontinued its standard gauge products, concentrating instead on the more-affordable O gauge and OO gauge, which it had introduced in 1938.^[6]

Lionel ceased toy production in 1942 to produce nautical items for the United States Navy during World War II. The company advertised heavily, however, promising new and exciting products, urging American teenagers to begin planning their post-War layouts. It also introduced the so-called paper train, a detailed set of cut-and-fold models of Lionel trains printed on cardstock that was notoriously difficult to put together.^[6]

Competition

During the pre-war era Lionel had competition with Ives Manufacturing Company, Boucher Manufacturing Company, Dorfan, Louis Marx and Company and American Flyer. During the post-war era Lionel was primarily competing with Louis Marx and Company and American Flyer.

Post-war era (1945–1969)

Post-war Lionel trains and accessories

Lionel resumed producing toy trains in late 1945, replacing their original product line with less-colorful, but more realistic, trains and concentrating exclusively on O-gauge trains. Many of Lionel's steam locomotives had a new feature: smoke—produced by dropping a small tablet or a special oil into the locomotive's smokestack, which contained an electric heating element.^[6] Their most popular toy train ever mass-produced was the Santa Fe F3 released in 1948, which was manufactured for 19 years before being discontinued in 1966.

By 1953 Lionel profits reached its highest peak in the postwar era at over $32 million; but as the 1950s progressed, Lionel sales began to decline in the growing prevalence of space and military toys and slot car racing sets — all coinciding with the decline in rail travel and the launching of Sputnik, which began the space-race between the United States and Soviet Union, along with the associated military build-up as the Cold War progressed after World War II. The remaining interest in toy and model trains that existed was geared towards HO scale, which gradually overtook O gauge in popularity due to its more realistic detailing and smaller size that enabled the enthusiast to do more modelling within the same amount of space. Lionel attempted to keep the pace with the changing trends by offering space and military-themed train sets and coming out with their own HO line of trains. Unfortunately, they were never able to reclaim the market share they once held in the toy industry and by 1958 reported a net loss of $469,057. Company founder Joshua Cowen officially retired that same year. On September 8, 1965, Joshua Cowen died at the age of 88 in Palm Beach, Florida.^[9]

Beginning in the 1960s Lionel attempted to further diversify into other product lines, such as phonographs, science, weather station and plastics engineering kits while toy train sales continued to decline and with the company enduring a series of management turnovers.^[9] In 1967 Lionel purchased American Flyer trains from bankrupt A. C. Gilbert Company, but did not have a new catalog for that year. In December 1968 Ronald Saypol, Joshua Cowen's former grandson-in-law, became President and CEO of the Lionel Corporation, and in the following year, in an attempt to divest the company of what was by then determined to be a cash drain by the board and shareholders, began negotiations to sell their toy train line and lease the Lionel name to Model Products Corporation (MPC), a subsidiary of General Mills, Inc.^[10] 1969 would be the final year the Lionel Corporation published a toy train catalog and manufactured O gauge trains.

Modern era (1970–present)

After the Lionel Corporation sold the rights to manufacture trains to General Mills in 1969, the Modern Era began the following year with train products being reproduced and introduced. The Lionel Corporation itself would continue on as a holding company, investing in various chains of retail stores and electronics companies while receiving royalties on toy train sales made by General Mills (later Lionel Trains, Inc.). In 1991, it sold its trademarks to Lionel Trains, Inc. for $10 million and eventually went out of business in 1993.

Lionel MPC (1970–1986)

In 1970, after tooling purchased from the Lionel Corporation was moved to a new factory in Mt. Clemens, Michigan, limited production of Lionel trains as a new product line under MPC began. Rolling stock debuted with "fast-angle wheels" with needlepoint bearings. This new wheel design, coupled with the use of Delrin plastic trucks, reduced rolling friction that allowed for longer trains to be run and is still in use by Lionel today. Lionel also began to offer trains in a wider variety of roadnames and colors and with improved graphics that were not previously available during the postwar period.

In 1971, Lionel debuted a new electronic sound system in their engines, called "Mighty Sound of Steam," to replace the electro-mechanical air whistles of the pre-war and post-war eras. An internal reorganization in 1973 caused Lionel to become part of General Mills' Fundimensions group, and a new line of scale-sized freight cars, called "Standard O", was introduced that same year. The new line of trains included the Blue Streak, an entry-level O-27 gauge train set produced by Lionel. The set included a blue Jersey Central Lines steam locomotive with a 2-4-2 wheel configuration and attached tender car. Lionel integrated several features into the locomotive, including a working headlight and a smoke unit.^[11] In 1974, Lionel began to offer trains in HO scale for the first time since the postwar period, where they were last cataloged in 1966. In 1975, Lionel introduced a 75th anniversary freight set whose rolling stock included images of train products and logos from Lionel's past.

The brand rose to prominence in 1976 following a series of television commercials featuring Johnny Cash, himself a Lionel collector.^[12]

In 1979, Lionel re-issued the Fairbanks-Morse Train Master diesel locomotive and re-introduced the American Flyer S gauge line of trains, both of which had not been produced since 1966. Starting in the 1980s, Lionel began to issue more postwar-derived operating accessories, such as the Lumber Mill, Ice Depot, and News Stand. In 1983, they released the 783 Hudson locomotive, which descended from the 773 scale-sized Hudson originally made in 1950 and again in the 1960s.

Lionel Trains, Inc. (1986–1995)

In 1985, General Mills spun off its Kenner-Parker division, with Lionel being placed under Kenner-Parker. In 1986, Lionel was sold again, this time to toy-train collector and real estate developer Richard P. Kughn of Detroit, Michigan; and it became Lionel Trains Inc (LTI). In 1989, Lionel phased out the Mighty Sound of Steam and replaced it with what would eventually be called "RailSounds," beginning with their re-issue of the pre-war B6 Pennsylvania switcher.

Lionel, LLC (1995–present)

Lionel, LLC currently owns all trademarks and most of the rights associated with the Lionel Corporation.

Construction set

During the post-war period, Lionel produced a construction set, utilizing a unique component set. While competitive sets used nut and bolt fasteners, the Lionel set employed round-head aircraft rivets retained with rubber grommets, eliminating the need for tools. The structural elements were hollow beams of square cross section made from folded and quite thin sheet aluminum, as a consequence subject to destruction if stepped upon. A more substantial folded aluminum base plate was used to form the foundation of most constructions, and additional circular plates could be used to construct larger wheels or pivots. Pulleys, gussets, and splices were also included. The deluxe kits included an electric AC motor with a worm drive and reduction gearset that was powered from household power. While innovative, the lack of general purpose beam members with lots of holes limited the adaptability of the set to complex constructions. Finished assemblies also lacked the robust durability of its principal competition at the time, the Erector Set.^[6]

Outsells American Flyer

During the 1950s, Lionel outsold its closest competitor, American Flyer, by nearly 2:1, peaking in 1953. Some Lionel company histories say Lionel (more than just trains) was the largest toy company in the world by the early 1950s. Had that been the case, it was a short-lived greatness: Lionel's 1955 sales were some $23 million, while rival Marx's toy (more than just trains) sales were $50 million.^[6]

The 1946–1956 decade was Lionel's Golden Age. The Lionel 2333 Diesel locomotive, an EMD F3 in the colorful Santa Fe "Warbonnet" paint scheme that was introduced in 1948, became the Lionel company icon and the icon of the era, yet Lionel declined rapidly after 1956. Hobbyists preferred the smaller but more realistic HO scale trains, and children's interest shifted from toy trains to toy cars. The shift caught Lionel off guard, and in 1957, they hastily introduced a line of HO-scale trains licensed from Rivarossi and a line of slot car racing sets. Neither product line was as popular as its O-gauge trains. Efforts to increase train set profitability and/or sales by cheaper manufacture (largely by replacing castings and folded sheet metal with unpainted injected-molded colored plastic) were largely unsuccessful; 1957 was Lionel's last profitable post-war year.^[13]

In 1959, Cowen and son sold their interest in the Lionel company and retired. The buyer was Cowen's grandnephew, Roy Cohn (businessman and attorney to Senator Joseph McCarthy) who replaced most of Cowen's management. The business direction of the Lionel company changed: it added subsidiary companies unrelated to toy train sets — among them were Dale Electronics, Sterling Electric Motors, and Telerad Manufacturing.^[14] Cohn's unsuccessful tenure of Lionel lost the company more than US$13 million in his four years of running the company.^[6]

Diversification

As part of this diversification, Lionel formed a relationship with the Porter Chemical Company, whose owner, Harold M. Porter, was a member of the Lionel Board of Directors.^[15] Lionel began making a variety of scientifically oriented, hands-on educational toys, designated "Lionel-Porter." The product line, cataloged from 1961 to 1968, included Chemcraft chemistry sets, Microcraft microscope sets, Biocraft biology sets, and sets teaching about mineralogy, physics, geology, mathematics, and industrial science, along with a junior line of tool sets.^[16]

Decline and bankruptcy

Lionel's efforts to diversify failed to compensate for the public's declining interest in its toy trains. By 1966, Lionel's revenue was $28 million, 40 percent from government contracts.^[2] Meanwhile, Lionel's closest competitor also was fading: in January 1967, the parent company of rival American Flyer, the A. C. Gilbert Company, went bankrupt. Lionel bought the American Flyer brand name and product line in May of that year in a $150,000 deal; however, Lionel lacked the money to exploit them and filed bankruptcy less than four months later, on August 7, 1967. In 1969, Lionel's sales had declined to just over $1 million per year. Lionel sold the product die tooling for its struggling train line and leased the rights to the Lionel brand name to the cereal company General Mills. The Lionel brand name continues today, owned by Lionel, LLC, yet many Lionel train enthusiasts consider 1969 the end of the "true Lionel trains", due to the original Lionel Corporation divesting itself of toy train production and the changes in design and manufacture, sometimes for the worse, under Lionel trains' new owners.^[6]

Lionel Morsan

In the early 1970s Lionel bought Morsan Tents from founder Mort Jarashaw. It was a small chain of sporting goods stores based in New Jersey, which became Lionel Morsan.

Bankruptcy and buyout

After the sale of its train product lines in 1969, Lionel Corporation became a holding company that specialized in toy stores. By the early 1980s, Lionel operated some 150 stores,^[17] under the names Lionel Toy City, Lionel Kiddie City, Lionel Play Town, Lionel Playworld, Lionel Toy Warehouse, and Lionel Toy Town. For a time it was the second-largest toy store chain in the United States. Lionel entered financial troubles during the early 1980s recession and filed for Chapter 11 bankruptcy in February 1982. After reducing to 55 stores, it emerged from bankruptcy in September 1985.

By 1991, the chain had regrown to 100 stores and was the fourth-largest toy retailer in the country, but it once again ran into trouble due to a combination of factors. In 1989, Robert I. Toussie L.P., a partnership of several retail executives, attempted to buy the company. Lionel resisted and the fight drained the company of cash. Meanwhile, non-specialty discount stores expanded their toy sections and undercut the prices of specialty toy chains.^[18] Additionally, Lionel found it difficult to compete on price with the larger Toys "R" Us, and it attempted to expand too rapidly in a weakened economy.^[19] After a string of unprofitable quarters, it filed for Chapter 11 bankruptcy on June 14, 1991. In 1992, Lionel again tried to reverse its fortunes by merging with the bankrupt Child World, the United States' #3 toy retailer, but was unable to secure financing.^[20] By February 1993, Lionel had closed all but 29 stores in six states, concentrating on the markets of Philadelphia, central New Jersey, Baltimore, Washington, D.C., Cleveland, and south Florida.^[21] Unable to reach an agreement for reorganization with its creditors, on June 2, 1993, Lionel announced its intention to liquidate all of its stores and go out of business.^[22]

A Lionel O gauge layout in New York City

The Lionel trademarks were purchased by Richard Kughn, a Detroit real estate magnate who had bought the Lionel product line from General Mills in 1986. See Lionel, LLC.

On April 15, 2004, a fire destroyed the former Lionel train factory located in Irvington, New Jersey. According to a report from the local fire department, it took 100 firefighters to extinguish the blaze. The building had been vacant for ten years and was in a state of disrepair, according to Fire Chief Don Huber.

The old Lionel factory in Hillside, New Jersey, where Lionel Corporation manufactured trains from the early 1920s up to 1969 still stands. Photos of the factory can be seen at the ihorse.com Web site.^[23]

The former Lionel factory at 28 Sager Place, Irvington, New Jersey, and the Hillside, New Jersey factory are the front and back doors of the same building. The building that housed the last Lionel office, located at 26750 23 Mile Road, Chesterfield, Michigan, is currently for sale. The former Lionel assembly factory was located at 50625 Richard W. Blvd, Chesterfield — a short drive from the office building.

See also

• Lionel Trains: On Track

References

External links

• Postwar Lionel trains guide