Becoming a Dealer

[Anonymous]

Does anyone have any advice regarding starting a train dealership such as Lionel, MTH, K-line. What kind of setup criteria do these manufactures look for and is it worthwhile to do so. Any advice or direction would be greatly appreciated. Thanks!!

Dave

[Roger Bielen]

Talking to the Lionel dealer I go to I understand the financial requirements to be a factory direct dealer are quite dear. They require a certain min. size facility, inventory, method of disply, sometimes a display layout, etc.. He admits that if he wasn't grandfathered in there is no way he could do it now.

Again this is second hand info. for what its worth.

[brianel027]

Roger, your info isn't too far off. Many of the older long time Lionel dealers don't have the restrictions placed upon new dealers.

I wouldn't want to discourage you too much Dave. This topic has been approached before and this is a very rough time to become a train dealer, especially a small local one. You would be much better off (financially: both initial startup and inventory costs, time-wise, headache-wise) to buy used stuff and to go to shows and sell. Even this is a labor of love these days since the free wheeling easy money collectible frenzy high prices for anything days of the 1980's / early 1990's are gone. You really need to understand this hobby, the product, and what collectors are interested in. Not to mention the old adage, something is only worth what someone is willing to give you to own that item.

The wholesale margins on today's product are not all that great... around 25-28% off list. MTH give a little more off on certain products. Plus dealers pay for shipping from wholesalers. Plus you need to order in quantity inorder to earn any kind of real margin, and you need to pay the wholesaler upfront too. Then you need to move high volumes of product, and move it out quickly inorder to turn a profit. The competition from the varying train companies is very intense and buyers have become very discount savy. We train buyers have become accustomed to the frequent "blowouts" on products. These blowouts are not offered to everyone on the wholesale level. Which means you sit on inventory that you need to sell at a certain price to make money or even break even, while others are selling the same products for much less.

Plus the companies themselves are now increasingly selling product direct. Adding insult to injury when the companies are selling products at equal or lower prices than their very own dealers are able to do. There have been instances where dealers have gotten very angry at companies for doing this, but business is business.

And despite words from the companies saying they favor small dealers, they really want to move product in volume themselves. Which means bigger dealers. Meaning you are located in a big metro area with a large local train buying market and/or you use national advertising and/or the internet (and eBay) to move product out your door. MTH seems to favor smaller dealers over big ones, but their changeover from PS1 to PS2 hurt many dealers - so one could argue with that thought too, especially if you still have a large inventory of PS1 locos that you are clearly going to lose substantial money on in order to sell today.

It's not impossible to do this Dave, but it is hard to do this today. Many of the current big mailorder, national dealers started off as small local dealers. But back then there was only one real big company and a few smaller ones. People had no other real choice than Lionel. This has changed and while it is good for the consumer, it does make it harder for the dealer to carry complete large product lines from several companies, as the ones you mentioned. Plus another thought to consider, that some of the more successful products of recent years were not made by Lionel, MTH or K-Line... they were/are made by Industrial Rail and Ready Made Toys.

And even with Industrial Rail, many dealers got stuck when the company stopped production. Last product runs were substantial reissues of previously released items with no new roads or number changes (IR changed car numbers on differing runs - a brilliant idea). Prices dropped pretty substantially on IR products... good for the consumer, but not for the dealer.

[Big_Boy_4005]

How do you make a small fortune in the hobby business? Start with a large fortune.

Don't do it Dave.

[Anonymous]

I looked into this idea several years ago. I thought that I could become a dealer, sell a few trains and buy my own trains wholesale. The major companies do require a lot of commitment (minimum order quantities). The profit margins are not great as well. You may sit on a lot of stock for years and you must be able to sustain your business. I buy many older items that sell for 40% of list. I personally wouldn't do it unless you weren't worried about losing money.

[3railguy]

It takes experience more than brains to run a buisiness right and the only way to get that experience is to start without any experience and learn from your acomplishments and mistakes. The buisiness world is full of surprises and you will make mistakes. Keep that in the back of your mind but don't dwell on it like some do.

First you need to find out how big the potential market is in your area and there are a number of ways to do this such as looking into club membership status, how many bookstores carry train magazines and what magazines they carry. If there are any pre-existing shops you may want to loiter them and study traffic. Distributors often offer advice on how to get started and they are who I would talk to first. A good organization to hook up with to get more info is http://www.mria.org/. If it appears doable, is something you really want to do, love trains, and working with customers, Start small, ignore the naysayers, and go for it. It will be bumpy for awhile but just keep going. To get ahead in life, you have to do something you’ve never done anyway.

There is no standard policy amongst manufacturers and distributors nor is there a standard cost of doing buisiness. So take what I'm saying here loosely.
Average size train stores don't normally go through manufacturers to get merchandise. They go through distributors who have case lots as a minimum order. With exception of cottage industries, manufactures often sell to distributors and require a minimum order of a few hundred thousand depending who they are. A franchise such as Hobbytown is another alternative. Their requirements, however, are much stiffer than if you are on your own. Some of the agents who tell you how to run your store, don’t know anything about the stuff that sells well in your area and that can really screw things up.

When buying small volume through a distributor, you are competing with mail order and the net. That is tough. Many dealers start out buying used collections or blow out inventories and sell them for a fair mark up in their shops. To do this, you'll need at least $25,000 to $50,000 cash capital and do some heavy advertising to get the collections or inventories. You also need to be very inclined at determining values and have the ability to service the trains to retail sales condition.

You need to apply with manufacturers to get authorized dealer status. Manufacturers often have details in their website. But, you don't always need dealer authorization to get trains from a distributor. Some only require a tax number. To be authorized, manufacturers often require a clean, well stocked, up to date store with service capabilities and an operating display layout. An up to date store alone can cost $75,000 to $200,000 depending on area. Figure another $50,000 to $100,000 in merchandise depending on how well stocked you want to be.

Unless you have around $300,000 in ca***o start with, you aren't going to make any money for a couple years. If it were me, I would start by selling at train shows. This involves minimal risk and gives you experience in dealing with customers. If I were to move on to a shop, I would definitely keep a full time job and have wife, kid, or train buddy operate the store for you while you are at your regular job. You're going to be putting some of your income in to this for awhile. I would lease a low budget building, paint it up, and forget the authorized dealer status for awhile. That will cost you.

[Anonymous]

I also have a feeling that some customers may not afford that deadline order you might be asking for to get product from the distributor.

later they might have the ability to get the product having saved the pennies and hear you say "Sorry, that limited run is sold out now."

There is probably going to be some product in the store that will sell well while others seem to create a home for themselves on the shelf for a year.

I suggest train shows instead. Usually people arrive with a little money in hand ready to buy. If your prices are not too high, your table might actually cover your costs within a few hours.

[trigtrax]

Don't do it. If you want to know why get a list of wholesale distributors from Lionel. Call them for pricing then compare your cost to what the big mailorder places are selling retail.. It shouldn't take you long to figure out how quickly you'll go broke.

[3railguy]

QUOTE: Don't do it. If you want to know why get a list of wholesale distributors from Lionel. Call them for pricing then compare your cost to what the big mailorder places are selling retail.. It shouldn't take you long to figure out how quickly you'll go broke.

What he's saying is true. Like I said in my post, buying in small volume and competing with mail order is tough. There several options to buying wholesale. Plus you have to give people a reason to come to your store and pay a little more. Buisiness does not fall in your lap. It takes savy and strong people skills to run a trainstore.

[brianel027]

John Long had some good things to say in his second paragraph, beginning with figuring out your potential market.

Retailing has never been easy to start. But obviously there are folks who do some homework, have a good idea to fill some kind of consumer need and then figure out a profitable way to meet that need. Almost any successful business you see in your community today probably did not start off that way.

Service can be a big factor in a small business. There are folks who prefer to buy local or like smaller shops because they like the conversation, the knowledge, being greeted with a smile and treated like they are the most important person in the world, for at least a few minutes. In any business, from at least a customer good will standpoint, the guy spending $5 is just as important as the guy who spends $100.

Bear in mind, this isn't easy, but if you do your homework as John suggested and feel it in your heart to do this, I would still say go for it! This is one hobby (especially for beginners) where they need to see and feel what they are buying... you don't get that from mailorder. The numbers show that the hobby is losing some dealers. I think if the hobby is to grow though and reach new young hobbiests, having more dealers will help.

Work is work. Many folks do not do something they love doing for a living. Running a train shop is probaby not as easy as one might think, but then again, a lot of things in life are not easy. I'm sure a lot of train guys go through this thinking of "Wow, it might be fun to run a train shop and sell this stuff since I already love it so much."

Though what I said above in the previous post might be construed as negative - it's important to know what you are up against. It's hard to compete with the big places on price - but it's completely with in your reach to compete with them on customer service. Folks may want good prices, but no wants to be treated rudely or poorly even for a discount.

Because if you are aware of the difficulties and can still see solutions and a way to succeed - you may very well be on to something! I'm sure every successful business today heard how impossible it would be when they started - and yet they heard another voice... the one inside that said "I know the facts, and this won't be easy, but I can STILL do it!"

[Anonymous]

I'm with others in the "don't do it" club. Unless you have a whole lot of money put aside that you don't mind seeing disappear in a relatively brief time, it's probably not a wise venture--especially at this point in time.

[Anonymous]

Thanks everyone for the great input. I didn't realize that some of the various companies had such stringent guidelines. I have more thinking and planning to do before I take such an endevor on. Thanks so much!!!

Dave