Starting a New Hobby Shop

[Anonymous]

I am contemplating opening a hobby shop focusing on Model RR's. Does anyone have any recent experiences with newer hobby shops in this economy? What profit margin is reasonable to expect? Any feedback would be helpful. Thx

[Anonymous]

You can make a small fortune from a hobby shop, if you start with a large one. (Actually, I have nothing meaningful to contribute.)

[BRAKIE]

Frist,are their any hobby shops near you? Second,you have better plan on a good discount for your customers if you wish for them to return.Can you afford to buy by the case(s)?
You better carry all brands and not just the brands you may like.Build a solid customer base.

I recommend the following brands Athearn,Atlas,Kato,Walthers,Stewart,P1k,P2K and like brands.NO Junkers.
If you have another job,hang on to it.You will not get rich overnight.
This may seem harsh,but there has been alot of older and newer hobby shops to close.You can make it,but you must be price competive to do so.

[Anonymous]

I don't have any experience but I will point out that many who post here talk about the discounts they are getting on the internet and what poor service they get from their local hobby shop. I am considering a similar thing except that I plan to buy kits and build them for a profit (I'll probably make less than a dollar an hour) as a sideline. If things go well, I would look at expanding. Sorry I can't be any more helpful than that. - Ed

[BNSFNUT]

I will give you some things that I learned while I was a dealer from 1990 to 1996.
First have enough money to stock the store and pay all the operating cost for a few mounths and some of the cost for a few more mounths. It will take a while to get the customer base you need to support you and you will need to put most of you first profits back in to increasing your stock.
Second advertize advertize!!!!!!!!!! you will need customers before you get any from word of mouth.
Third be prepared to work long hours up to 12 a day 16 if you do shows.
forth be prepared to meet some of the greatest peaple.
If you can do the above things and the long hours and stress of running a shop dose not wreck your health like it did mine go for it.

A retired hobby shop dealer

[Anonymous]

You may have to carry more than one gauge and a revenue back-up product when the train business is dead.
Can you compete with the Standards & Trainworlds that give 25% plus discounts and still put wheaties on the table? See the post" A Trainworld Return and Surprise".
A diversified inventory is manatory and a horrendous up front expense.

[dknelson]

I remember an article on this very topic years ago in Model Railroader. I no longer recall any specifics but this: the owners were themselves excellent modelers and purists and they swore the one product they would never carry are those horrid old "grass mats" that some of us old timers remember as the classic "scenery" for the under the Christmas tree type layout. Horrid stuff. So they opened their shop and soon learned that people were asking for the stuff and once they reluctantly swallowed their pride and carried it, they couldn't keep it stocked! I guess the lesson might be that there is a world of model railroading that we real about in MR and RMC and the NMRA Bulletin and on this and other websites and there is an entirely OTHER world of model railroders who want brass track and scenery mats and exploding boxcars and horn hook couplers and it might well be that OTHER world of model railroaders who keep a hobby shop in business. In short prepare to be disillusioned.

[rogerhensley]

I owned the Train Shop (hobby shop) in Anderson Indiana in the 80s. I found that the average retail store (non hobby) required a 'turn' of inventory of 10 times a year to be really successful. Hobby shops don't get that. Most are lucky to get 2 turns a year. I was getting 4 and was making money, but not bunches. I financed my startup with the proceeds from selling another business that I had owned. You gotta have financing to last a year or more.

I carried ready to run starter sets and, yes, grass mats. I also carried Athearn, MDC, Con-Cor, Atlas, Model Power, Bachman, Life-Like, AHM, Walthers and more in locos and rolling stock. I had both plastic and craftsman structure kits and a heavy line of wood and plastic scratch-building supplies and Herald King, Champ and Walthers Decals. In paint, I had Floquil and Model Master. Details West, Details Associates parts, Kadee couplers, Atlas and Shinohara track and turnouts and core than I can remember. All of this in N and HO with a touch of O gauge.

Magazines and how-to books were very important to my customers as were the clinics that I sponsored and the monthly newsletter that I sent out. I advertised in MR and RMC and used the radio locally. I quickly found that the Newspaper was worthless to me, but that advertising in the local NMRA newsletter was good.

My clientele was 35 year old male with $35,000 income and up back then. Those are the exact people who left the area when the auto plants began to cut back.

Why did I close? The economy was failing here and then I had an emergency surgery which put me out of work for 3 months. The business was being operated by one of my employees and she was doing a good job, but when I came back she was telling me that
the inventory record was no longer matching the shelves. We spent the weekend doing an inventory to find that we had picked up more than 1 thief. They took advantage of the fact that she was the only one there, probably distracted her and waltzed out
the door with the latest and greatest. My merchandise was being sold at a local club by several people, good modelers all. Yeah, right.

With the fading economy, increasing inflation, my health problems, and the thieves (you gotta replace what they took), I decided to close.

Would I reopen? Sure, with someone else's money. :-)

Roger

[rogerhensley]

Oh, By The Way, I discounted 20% on almost everything but magazines and special buy merchandise. Special buys were generally sold at 40 off. I was told later after I closed and sold my inventory to another dealer out of town, that all store owners could afford a little theft. After all, they were getting rich off of the little guy. Well, this 'little guy' went broke. It was MY family that didn't have food on the table.

It can be done, but put it most of it under lock and key.

Roger

[Anonymous]

I was thinking about the same thing 15 years ago. What I did was visit a number of shops that only specialized in trains. That way I got to see the "good ones" versus the not so good ones. You can tell by the traffic, location, inventory, etc. I was spoiled by "Caboose Hobbies" in Denver (where I lived at the time). They had over $1 million in inventory (back in 1987). They have since expanded and are even bigger.

Also, I think it would be beneficial to have a large completed layout in your store. That really sparks interest in your potential customers. You would be surprised by how many stores do NOT have a working or completed layout.

Good Luck!

[Anonymous]

Not a hobby shop owner or operator, but I am a small businessman in a family business, and ehre is some advice:

1.) Rent. This is major overhead. Location is important but can you afford that location? This will probably be the most important decision you make, because the rent may be dirt cheap, but if the locale is bad, you're toast. Likewise the reverse -- good location, high rent, you are toast again. Your best bet is somewhere with good road connections, near tracks, low cost rent, and in a bedroom community, so you are near home and the layouts of your customer base.

2. Advertisement. Be careful. I always look at the ads in MR but not for hobby shops as much as either mail order or mfg products and specialty items. THE BEST ADS are the yellow pages!!! I cannot stress this enough! Don't go overboard at first, but be willing to put out $100+ for yellow pages. Best deal is usu an in-column box of 3/4" to 2". Be firm and don't let the salesman sell you on too large an ad, remember you still have to pay it even in your bad months! And be careful if there is more than one YP in your area. Research, and only advert in the reputable, used books.

3.) Inventory. If you don't have enough, no one will believe you are serious. If you have too much it sinks you. The big ticket items may give you great satisfaction when you sell one, but money actually is in mid-price point items and in acessories. Average retail purchases are of those items under $20, and average big ticket items are under $100. You will have exceptions but your best bet is to get someone to buy an "extra" that they didn't expect to purchase when they came in. You'll also have a series of products that are below $10 which will be frequent and profitable sellers. My bet is these will be scenery items, but that probably just speaks to my own weaknesses!

BTW I would agree with whoever said you ought to have a working layout... and you might offer to host operating sessions there, or otherwise find ways of getting the gang to hang out there. And I'd advise stick to what you know. If you don't know RC planes, don't go there. Probably someone else allready does it better than you. Only do what you can do well.

You will starve for a while, don't quit your dayjob, and you won't eat steaks for a while. Stick with it, don't stick your neck too far out with loans and such, keep your overhead low, be patient.

Hope that is of some use to you!

Alexander C.
3rd generation small businessman

[Anonymous]

Thanks to everyone who has responded so far. There were some great tips here and some sobering thoughts. I have more thinking to do but still believe in and love this hobby, and you know they always say do what you love. PS I am not giving up my day job!

[Anonymous]

Well just a few observations that I've had in my area is that the little stores seem to go out of business. Only the bigger stores are surviving. I don't know if that's because the bigger stores have been around longer and so more people know about them or if it's due to the bigger stores having more selection.

Also just as general retail advice. You'll have to draw people in away from other stores and the internet which means you're items like locomotives are going to have to be at reduced prices possibly even at a loss to get people in. While they're there however you have to sell them the little things at increased prices. Things they know they can maybe get cheaper elsewhere but buy because they're already there or because it's more convenient. The best things to up the price on are items that are required for something else. for example the track nails tht go with track or the glue for the structures. Most people won't even look at the price first.

Do some research. Especially on the location. Find someplace that is starved for hobby shops. People in the area will then come to you instead of the other place(s) because you're closer and more conveinient. Another good place may be on the route to another hobby shop from a major part of town. That way business going their way is likely to notice you and at least come in to see what you have. The other hobby shop however may not be so happy with you cutting into his business.

[Anonymous]

I did a writing project on opening a model railroad store this past summer for a college project. There's a lot of info on the internet. Turns out that modelers are better educated and paid than the general public. On a personal note, there's probably 10 hobby shops here in Houston, and I buy 90% of my trains from one of them. Customer service, customer service, customer service. When I walk in, they greet me by name. I really like that.

[Anonymous]

Paul wrote:

"Only the bigger stores are surviving. I don't know if that's because the bigger stores have been around longer and so more people know about them or if it's due to the bigger stores having more selection. "

This is a general retail phenomanon that ought to be remembered. Big stores buy in larger quantity with higher discounts. This is a major obsticle to buying. You will probably be expected to order in 4 digit increments as an opening order, or garauntee to stock certain items, etc....

[krump]

A few thoughts on starting a business... (I have formerly owned / operated a business, though it was not a hobby shop)
- have you selected a city / town location, ie: particular city or are you considering a move to another area in order to pursue this goal?
- if you can get into an industrial / warehouse part of town, chances are that the rent / lease is signif cheaper (business restrictions may apply however - it may be that straight retail isn't permitted, but with a hobby shop there is a large element of production / supplies/ crafts existing in the business - who knows? check locally) Hobby shops (my opinion) are a destination store - customers will seek you out moreso than be walk in traffic that happened to notice you - so if you can lower costs by avoiding large malls why not. ample parking in industrial areas is a plus also.
- strip malls would also be worth a look - individual entrance to your store, means that you can perhaps set your own hrs etc ( for example being closed on Sun and holidays may not be YOUR option in a large retail mall)
- do you know the competition? what is available at other stores in the community (not only hobby shops) - some electronics stores have similar hobby type products, ... is their product line duplicating yours? do your suppliers also sell to other businesses in the same area - which ones, check them out first.
- a bonus for any parent of young children is to make sure that you have a kid friendly area in the store for young children (brio, thomas the train, puzzles to play with, videos to watch etc.) In my bookstore, this was always in use, allowing customers to shop or ask questions about products....
- make the most of marketing ( a basic model RR circling the front window area, a plane in the window, a TV with a train or toy product, electric sign etc... any movement, draws visual attention to your business - that helps to get them to, or in the door, the rest is up to you...)
- have a 3-5 yr plan to establi***he business (major expenses initially)
- can you purchase / partner up with an existing hobby shop
- use business card ads in the newspaper regularly (once seen people will expect to see, look for your ad) small ads weekly are probably better than a major ad campaign annually - get some marketing research here
- business card size ads can also be used as a "clip and save" coupon
- if need be take a business course for ideas, planning (many communities have programs)
- can you offer a free promo / bonus/ freebie gimmic to large sales or regular customers when a certain (cumulative) level is spent??? (perhaps a cheap boxcar, when $250 is reached... etc - puts a smile on their face.)
- suppliers might have offers that could assist here also
- what are other Hobby shops doing in their businesses? - the local shop here gives 10% discount for model RR club members for instance.
- when I was in business it was impressed upon me that you could only reasonably expect to offer 2 of 3 basic needs in any business - selecting 2 of the following - 1) customer service, 2) product selection, 3) sale pricing / comparative to large stores. unlikely to excel in all 3 areas, so owners make choices ( eg ANY BIG STORE usually has good selection and pricing, but they fall short in service to customer... for my money SERVICE gets the sale.

all the best with your plans, exciting times

[krump]

further thought:
when starting a business, go for a short term lease if you can - 6 months (even 1- 2 yrs) is better than a 5 yr lock-in. you'll have more financial opportunity after you are established... and in the event that the location turns out to be a poor choice you can relocate sooner.

[cacole]

I don't own, and never have owned, a hobby shop, but let me offer some tips based on personal observations of what has been going on in south-east Arizona. First, find out if there is a market in your area for model railroad items. How many clubs are in the area? How many home modelers? Contact the clubs and find out how many members they have and what scales they model. What are the backgrounds and incomes of the members? What other hobby shops are in the area? How far away? Where do these members currently shop? What items do they purchase -- cheap shake-the-box Athearn kits, or higher quality ready-to-run Atlas, etc. When I first joined the local club, there were only four members; currently we have 17. Being near an Army base, the membership changes practically every month, and very few of us are full-time residents. We have one local hobby shop, that survives only because it also carries radio control airplanes and the owner's wife operates a knitting/weaving/sewing business in the same building, and that is what pays the bills. Several years ago there were at least six hobby shops in Tucson, which is 70 miles away -- today there are two and one of them is on the verge of bankruptcy and the shelve are so bare that no one from here bothers to stop there anymore. Our next available choice is Phoenix, 250 miles away, or the Internet, where prices are 10 to 20 percent cheaper than any hobby shop and there is (usually) no sales tax. In short, carefully evaluate your market before you take the plunge.

[Wdlgln005]

Would it make just as much sense to check out and help an older hobby shop, with the idea of forming a partnership or buying half? Most companies are expecting a huge turnover in the next 10 years as us boomers retire. Somebody may take our old jobs! That may be true of small business & hobby shops too. Ought to be a way to clean up & improve an older business. New tile carpet + new lighting makes better appearance for the customer. New computer programs (bar codes) to make inventory & pricing cheaper. A database for your customers so you have an idea who comes in & how much stuff to get. The best shops always have a good selection of common items: paint, glue, magazines & books. And somebody that knows how to fix problems. I'd like to see somebody that does some painting & detail work & would do conversions for a fee.

[Jacktal]

I don't believe there's a lot to make out of the hobby business anymore and for one major reason.Your own suppliers will gladly sell directly to your customers through mail order for pennies more than what they charge you for the same material.

This results in the local hobby shop having a dim profit margin at best if he wants the customer to come back.Even worse,the local hobby shop becomes the expert who will often lose his time and efforts to explain "how it works" to end up selling a small item or two,to then find out that the same customer has purchased all his important goodies through a mail order house.

I've seen this in R/C a few years ago.The modelers expected the local hobby shop to stock in case they needed a spare part,a stick of balsa or a gallon of fuel but invariably went the mail order route for big purchases.This particular hobby shop has closed since............

You want to open your own shop..........well I wish you good luck.I wanted to do that a few years back but with all the competition from big suppliers,I felt that I didn't have a fair chance,at least in my town.It may be a whole different situation in your area,but think it over,at least twice.You may have a good chance,since Wal-Mart doesn't sell mlodel trains........yet.

[Anonymous]

I'm not sure if the same things apply in the USA as we have in Britain, but I've visited at least a hundred model shops while on family trips, and I think I can now say what makes a good store:

1) Friendly and knowledgable owner(s) - thankfully it's rare to find a grumpy guy with a "don't waste my time" attitude, but it does happen - I've encountered just the one store with this problem and they were bought out fairly quickly - at least, all their adverts had "under new management" on them within a few months! Knowing the subject (model and prototype) is also important as it allows you to build a rapport with your customers and to establish a good reputation in your area.

2) Decent range of products. This has been mentioned before, but you should probably be stocking more Athearn locos and stock than LGB G-scale locos. Always aim to have a good number of reasonably-priced locos to encourage new customers to start modelling. Also make sure you have good stocks of containers, trailers, etc for use as wagon loads, along with structures. Last but not least, try to have a good range of Kadee products on sale - the number of times I've been unable to obtain the coupler I need is amazing. Also try to stock a good range of track and electrical stuff (transformers, switch machines, etc.).

3) This may be a slightly risky strategy from a commercial viewpoint, but you could try stocking some items that few other stores do - such as British OO Gauge stock by Hornby and Bachmann - this will run on HO track but is built to 4mm/1ft scale, most is excellent.

The idea of having a working layout in the store is a good one, the two big stores in my area both do this, one of them uses the layout as a test track for checking locos before the customer buys them, which is a very good idea!

[AltonFan]

The hobby shops I like most put as much of their stock out where the customer can look at it and think about it. (My local hobby shop has almost all their parts out on pegboards.) I recognize that this takes courage, vigilance, and a financial situation that allows for a level of loss.

Another thing is make sure you give your customers as many payment options as possible. There's one dealer here who only accepts one credit card, and only takes checks from people he knows. Since I don't like to carry cash, and tend to visit hobby shops without knowing what I want to buy, I avoid this fellow's shop, unless I suspect he has something I am looking for. Surprisingly, this man is still in business.

Give your customers some breathing space. Don't feel the need to hover over a customer from the moment he enters the store to the time he leaves. This gives the impression of high pressure salesmanship and also distrust.

Finally, if you employ teenagers as sales clerks and stock persons, make sure that they are well-behaved.

[jsanchez]

I'd say if your going to make a living at it consider , building a decent website and doing mail order along wth your brick and mortar store. Most of the folks I know who run trainshops full time will tell you the same thing. If you plan on just selling localy, you probaly need to be in a metro area of 1,000,000 or more with several hundred thousand dollars or more to invest. Watch the rents , I would say this is a number one shop killer along with stagnant inventory, you really have to keep the stuff moving. Usually just depending on local business will lead to starvation, or a low income part time job. The other thing you will find by being on the net is it will bring customers from all over to your shop. I get many visitors, that are vacationing or visiting on business trips. Definately advertise in the yellow pages and try doing trainshows every once in awhile, they are a great way to build your local customer base. Also don't just buy what you like, if people want grass mats and lower priced Model Power cars, you need to stock them. They will probably sell more often than an expensive proto 2000 loco or brass piece. You really have to have a balance of low-middle and high end merchandise. A lot of folks say they would just carry Intermountain, pricey Atlas cars, or Kato stuff, they wouldn't stay in business long if they did. The old HO Athearn shake the box kit is still the best selling thing out there, no matter how much they pu***he more expensive Genesis stuff. You'll be surprised sometimes at what sells and doesn't.

[Puckdropper]

The hours you keep may be part of your undoing. There was one shop in Peoria that was nice, but he was only open until 6:00. There's another one that was open until 8:00. The first shop closed, but the second one moved to a bigger building. (That may not be the whole story! That's why I said "may".)

I only went to the first shop 2-3 times, but this summer alone have been in the second one 4-5 times.

[Anonymous]

I'd like to echo some of the previous comments. If you have the resources (including the time required) to keep your stock available for sale through a website and mail order operation, this will certainly help you build a customer base. Regarding discounts, one of my favorite shops offers discounts on a sliding scale, based on each item's cost and on the total value of the order. Having a few "special sale" items available will also encourage customers to stop by the shop. Finally, the importance of location cannot be overemphasized. I think that it is obvious that you won't wi***o pay the high rents to be located in a mall, but a strip mall storefront located on an approach to a major shopping destination might allow you to capture a few customers who are out to do other shopping. Heck, it might even make more sense to locate a shop relatively near a Home Depot, Lowes, or other building supply warehouse, since many modellers may also be doing home improvement projects on weekends and would stop by during excursions to buy their building supplies (assuming they have any money left over).

[Puckdropper]

Or even a Walmart... If you don't need anything, let your mom/sister/signifant other (you get the point) go shopping there, and meet her in 3-4 hours...

[Anonymous]

I dont own a business but I know people who do. Overhhead is a killer. It takes money to make money and because of this most small businesses fail within a few months. The mistake they make is sinking every dime they have into their dream store and having nothing to fall back on. The go for broke attitude,the kamikazi aproach to business, "I have enough fuel to fly out to the fleet but not enough to get back and fly another day".Start small , get a dedicated phone line,work out of your own home let the business be your hobby. If you dont want peole in your home have a small shop on your property if that is practicle in your area.Go mobile a small stand at a railroad event or tourist railroad might be an idea. Festivals and fairs may be another. If youre skilled offer a service such as layout building.Offer a gimmick like stowable self contained layouts for children or people with limited space.My childhood trains died because they were strowed all over the place, got stepped on and lost. I wish I still had that Chattnooga Choo Choo set but I tore it up simply becase I had no place for it . This is a common probem You as a business person must offer a solution for this and other problems for modlers or entry level folk. Bigger is not always better. A local Mechanic made money hand over fist when he was opperating out of his own back yard. He did great work at a great price . Now he runs a five bay shop, pays 5 employees and his prices are high. He was more sucessfull out of his back yard. He's stuck if he goes back to the home shop those 5 families lose their income. Sorry for the length .

[krump]

some books that relate generally to business (in addition to any business courses or programs you may have knowledge of...)

- the E Myth
- Guerilla Marketing (and others in the series)
- the Magic of THINKING BIG

they are all pretty good reads. also, most business run through annual cycles of brisk / slow sales. if you plan to open a store - find out when the hobby stores are slow and avoid that. Plan to open AFTER a slow time (perhaps summer is slow - I've been too busy with other things and have bought next to nothing this summer from a hobby store) and a couple of months PRIOR to the busy season (the Chrismas rush, for example). I guess if I was considering it --- opening in the months of Sept or October might be best (next yr ?), a Grand Opening would be suitable after perhaps 6-8 weeks of business (early Nov? ) so that people have already "noticed" your store. I'd avoid a Grand Opening event during the busiest retail times -- Christmas takes care of itself for most retail businesses.

[Anonymous]

Kalmbach once put out a loose leaf notebook of articles from trade magazines on how to run a hobby shop. It may still be available if you call their 800 number. I bought one for grins, and it killed any desire I may have had to open one.

Without giving out actual numbers, it seemed (and this goes back about 10 years) I inferred the average hobby shop averaged about $700 a day in revenue, maybe $1000 on weekends, and maybe $2000 for a few days around Christmas. If a shop is open 300 days a year, they may gross $300,000. If they buy at 50-60% of retail, their product cost is at least $150,000, leaving $150,000 for rent, heat, lights, phones, etc. plus any employee cost and of course, owner's salary and profit.

That's about $13,000 a month. I suspect monthly overhead would run at least $5000 per month, and employes another $1000, at least. I don't know if their is enough money left to justify investing any money in that as a business but I could be wrong.

[Anonymous]

I have been fortunate to have been able to visit a number of stores over the years, sadly, most are not in business anymore. But they all have common points from a customer's point of view. They were greet everyone who came in, knows the regulars and keeps a good inventory. They also need to be ready to assist the family or person who wants to get into the hobby.

As with any business, upfront funds to survive 6 months to a year until you get a established customer base is needed. I dont think there is a pot of gold to be made, but with careful attention to security, customers, and ensure availibilty of needed items such as a 1.00 caboose window set to a 700 dollar Locomotive that will be never made again.

Some items will sit on shelf for a long time. Others are needed reguarly such as paints. And there are those that will be put on the discount shelf because perhaps no one wants them and there are new inventory that needs the room.

I find that some will offer a small discount on very "Pricey" items it has enabled me to acquire some inventory on a very small budget that otherwise I may not be able to afford. I keep the Owner busy with a ceaseless stream of emails sometimes with questions that I may have forgotten to ask on my last visit. But more importantly emails with orders. Decals, Paints supplies and occasionaly a freight car kit or two. For the really big purchases such as engines, I go down in person.

In return I see updates on new arrivals several times a week and can keep watch for certian items that I may want. The internet is a good tool for communication.

I posted this from a customer's point of view, at one time I was prepared to open my own operation in a unrelated field and backed off due to lack of operating captial. The bottom line is, if you enjoy something of this magnitude and have the resources, go for it!!

Lee