What Do You Think the Store Markup Is?

[Anonymous]

My only local Lionel dealer is more a part time operation than a full time store but he has a decent selection at retail pricing. Somehow he and my wife got to talking about mark up and profit and he indicated his cost was only 15% less than retail.

It has been 25 years since I worked in a retail sporting goods store. I remember there were 3 price levels. Retail, Dealer and Jobber depending on quanties ordered and dollar volumn. The store I worked for was large, planning to get larger, and paid jobber pricing and sold at dealer, (until his competitors went under, now he is strictly retail).

The above stories got me to wondering. Is my local guy pulling my wife's leg -- only 15%? What do you think the various mark up levels for the little sideline guys, the average store and the big brick and mortar / internet dealers are?

Hobby stores in general and model / toy train stores strike me as something you do because you enjoy it not for the money. Right or wrong?

After 25 years as a mechanical engineer in chemical plants and refineries I am finally realalizing "enjoying it" does out weigh "the money".

Thanks.
Steven Crawford

[Anonymous]

I don't know Steve. My one and only local Lionel dealer really confuses me as well. When I tried to order the new Lionel Acela, he told me that he could not and that his distributor had to be notified. I don't understand. I thought the dealers bought from the factory at a lower price then sold to us at the catalog price. Maybe you could shed some light on this.

[brianel027]

I'll tell you for a fact the margins are not all that good, which is why many small retailers must sell at close to full list. 15% seems low to me, but who knows. Last I knew the margins hovered in the 25-28% off full list. MTH has a different breakdown with better wholesale prices on some items over others.

Small local dealers have long complained they can't afford to be "visual catalogs" for customers to come see product, then turn around and mail order from a discount place. No doubt this can sour a small dealer's interest to order expensive top-line items. As can the variety and selection of trains being made today: no small local dealer can afford to stock one of everything. It's impossible.

It is very discouraging for small dealers when you study the mailorder ads and see prices that are the same or better than the wholesale price to the small dealer. Some of the big mail order retailers are also wholesalers - meaning they get product for a much better margin. I understand the "importers" have been cutting back on production runs of some items. No doubt premium item production runs may be based heavily on pre-orders. I have also witnessed conversations in the local shop with guys wanting certain items from the dealer - and were told the item couldn't be gotten. Again, this may be a policy to encourage the customer to pre-order an item to be sure they get it, rather than waiting for the blowout price. There have been so many blowouts in recent years that customers may have become accustomed to this. No consumer wants to pay full price only to see the item advertised at a drastic discount months later on. Of course, the manufacturer doesn't want this either as it discourages pre-orders.

The large mailorder places can also use their status to get better margins for themselves. A ficticious phone conversation: "Hey, I'm selling $5 million worth of brand x train product, so I think you can do much better for me."
This angle can work the other way. I've had small dealers tell me they were told "we don't need you... we can let Charlie Ro sell our product."

Lionel trains were once marketed as a product with a "lifetime of happiness." Many of us have fond memories and strong feelings about our trains and this hobby.
BUT this hobby is also a business. And business can sometimes be an ugly thing.
The topic of nostalgia and memories doesn't come up much at business meetings... costs, profits and the bottom line does.

Running a small train shop is a labor of love, as is any small business these days. The old big three - Ford, Chrysler and GM have been replaced by the new big three - Wal-Mart, Target and Home Depot. And big box discounters don't pay the wages America once knew.

I wonder how much longer this trend will go on with $600+ train engines and $60 train cars? I guess til we can no longer afford them.

[Anonymous]

Jack,

The system I was familar with worked something like this --

Unless the local retailer was able to purchase by the 18 wheeler load or more from each manufacturer they carried, dealing directly with the major factories, ie Lionel. MTH, or K-Line was out. The factory just did not want to hear from you.

The local retailer would buy their wares from companies that represented multiple manufactures. Now these companies were able to purchase multiple 18 wheeler loads from multiple manufacturers and they would compete for the local retailers business. I think of these guys as Rep's.

It used to be consumers never heard the company name of the Rep's outfit. The only way to find out who the Rep's were was to open a store and get a copy of retail trade journals or go to an industry trade show. Jobbers did not advertise in consumer magazines like Classic Toy Trains.

Under the three tier pricing structure I mentioned in my original post it went something like this:

The factory makes an 18 wheeler load of an item and sells all of them to a Rep. The Rep pays the factory the jobber price for each item.

The Rep turns around and sells a UPS truck full of items from multiple factories to a local retailer. The local retailer pays the Rep the dealer price for each item.

The local retailer would sell you and me one item at retail.

The percentage of mark up between each price level varied between types of store, ie jewlery would have much higher markups at each level than would fishing tackle.

Toll free telephone numbers, mail order and the internet have changed things. Once UPS deliveries of mail order items started to catch on the Reps started front companies. The front companies would advertise in consumer magazines. This allowed us to go to our local retailer and pay a retail price for an item the retailer had purchased from his Rep at dealer price or we could mail order the same item for the same Rep (calling himself a different name) and pay the same dealer price as our local guy.

Where things stand now I can only guess. It seems like everyone is shaving the percetages and mark ups to the point I loose track of whose doing what to whom. Hence I am looking for y'alls input.

I love this forum. It's friendly. Full of great information. Did I mention it's friendly. I am so glad I left HO and now play with my Lionel's. Just had to blurt that out.

Steven Crawford