Hi once again!
This thread reminds me of the grocery store we owned when I was a kid in Chicago. Mom and Dad went in with my Aunt and bought a 3 aisle Mom and Pop grocery (with living quarters behind it) in 1948. We were going to get rich! Thankfully Dad kept his job at the icecream factory, and my Mom soon went to work for a brokerage firm. My Aunt did almost all of the store tending.
Well, early on it did OK, but soon we noticed the customers were just buying the milk and bread and "pop" and candy and the like. Rarely did anyone come in for large purchases or big dollar items. Soon it became obvious........ all the customers "big" shopping was done at the IGA or Jewel supermarket, and we were used only for last minute or Sunday purchases. Thankfully, they sold it in 1958..............
Change out our grocery for the LHS, and "IGA & Jewel" for the big Internet hobby suppliers and its the same story...........
ENJOY !
Mobilman44
Living in southeast Texas, formerly modeling the "postwar" Santa Fe and Illinois Central
mobilman44 Well, early on it did OK, but soon we noticed the customers were just buying the milk and bread and "pop" and candy and the like. Rarely did anyone come in for large purchases or big dollar items. Soon it became obvious........ all the customers "big" shopping was done at the IGA or Jewel supermarket, and we were used only for last minute or Sunday purchases.
Well, early on it did OK, but soon we noticed the customers were just buying the milk and bread and "pop" and candy and the like. Rarely did anyone come in for large purchases or big dollar items. Soon it became obvious........ all the customers "big" shopping was done at the IGA or Jewel supermarket, and we were used only for last minute or Sunday purchases.
If you had added gas pumps and coffee machines, you would have had what we have many of around here: 7-11's and Wawa's.
mobilman44 Hi once again! This thread reminds me of the grocery store we owned when I was a kid in Chicago. Mom and Dad went in with my Aunt and bought a 3 aisle Mom and Pop grocery (with living quarters behind it) in 1948. We were going to get rich! Thankfully Dad kept his job at the icecream factory, and my Mom soon went to work for a brokerage firm. My Aunt did almost all of the store tending. Well, early on it did OK, but soon we noticed the customers were just buying the milk and bread and "pop" and candy and the like. Rarely did anyone come in for large purchases or big dollar items. Soon it became obvious........ all the customers "big" shopping was done at the IGA or Jewel supermarket, and we were used only for last minute or Sunday purchases. Thankfully, they sold it in 1958.............. Change out our grocery for the LHS, and "IGA & Jewel" for the big Internet hobby suppliers and its the same story...........
And even then, why did they go the IGA - price and selection.
Those are the amin two things I want from any retailer I buy ANYTHING from.
Sheldon
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Agree..I want basically the same things.
As I mention several times I'm willing to pay full MRSP for one or two cars since there isn't much of a savings after shipping.
However..
For me to do that I want a wide selection of cars from the big three.
Larry
Conductor.
Summerset Ry.
"Stay Alert, Don't get hurt Safety First!"
How does a LHS Owner make money?
Easy answer: they don't.
That is why so many are closing up shop.
-G .
Just my thoughts, ideas, opinions and experiences. Others may vary.
HO and N Scale.
After long and careful thought, they have convinced me. I have come to the conclusion that they are right. The aliens did it.
A previous post looked at some of the specific balance sheet items, specifically employee cost. The resumption was $1000/month. That could be true based on minimum wage of $7.65 and something less than 30 hours a week. Many shops consider their part-timers as 1099 contractors to further constrain costs. Some pay less than minimum wage in the form of cash.
Depending on fixed costs (including the debt load), many smaller and privately owned shops require $1000 to $1200 in daily sales to be ongoing. This is a number based on a 40% GPM. Since the first of the year, some distributors have cut their discount to stocking dealers by as much as 12%. Further, terms have been reduced from historic 30 days to as few as 10 to 12. And if you are late, orders in the pipeline are on hold.
It is a unfriendly environment for the brick and mortar hobby shops.
galaxy How does a LHS Owner make money? Easy answer: they don't. That is why so many are closing up shop.
Fewer words were never spoken.
Alton Junction
Another factor that is making it rough for those on the retail end is inflation, prices have really escalated the last 2 years thanks to wage increases and shortages of workers in China also raw material and energy price increases. Most U.S.A workers are still not getting raises and have limited disposable income. Some manufactures have tried cutting margins to keep retail prices lower, however this works to make things worse for Brick and Mortars who usually need a 30 to 40% GPM to survive.
James Sanchez
TA462 I've noticed lately that the shops close to me are carrying more basic loco's, buildings etc then the higher end stuff. I've also noticed that their inventory is months old and stale. I was on holidays this week and visited 5 shops, 3 of them I didn't buy anything in, one I bought a couple craftsman buildings and the last I bought a couple loco's I've been looking for and a few more craftsman type buildings. I think hobby shops need to look at their customer base better before they order stuff. Some shops have had the same stuff sitting on shelves for over a year. And they wonder why nobody is buying stuff from them.
I've noticed lately that the shops close to me are carrying more basic loco's, buildings etc then the higher end stuff. I've also noticed that their inventory is months old and stale. I was on holidays this week and visited 5 shops, 3 of them I didn't buy anything in, one I bought a couple craftsman buildings and the last I bought a couple loco's I've been looking for and a few more craftsman type buildings. I think hobby shops need to look at their customer base better before they order stuff. Some shops have had the same stuff sitting on shelves for over a year. And they wonder why nobody is buying stuff from them.
That item that has been sitting there over one year might be exactly the item the next guy through the door wants.
Shops do need to have what is new, but they also need a solid inventory of basics - by basics I don't just mean track or Kadee couplers, but basic rolling stock, basic locos, etc.
You may have all that stuff, but just because it has been on the market a while, does not mean others who want it already have it.
And how do you know it has been sitting that long? They may have sold 6 of them over the past year and always replaced it if it was available from their source.
I actually expect to walk into a train store and see the "basics" that new people in the hobby are likely to buy. That is actually the sign of a GOOD store. Would Home Depot not reorder DeWalt power drills when they sell out, or would they assume everybody who wants one bought one already?
I have nine Spectrum Heavy Mountains, I did not buy all of them at once as soon as they came out - so I'm glad some shop owners think it is important to have DEPTH and BREATH of inventory and try to have the biggest possible selection - not just what was released last week.
You had me rolling on the floor with "I've also noticed that their inventory is months old and stale." .
When I worked in, and later managed a train department in a hobby shop, we had stuff that had been there for years - we also had stuff that turned over every two weeks - one supports the other so that when that one customer comes in, and asks for that item that has sat a while, you can say "yes sir I have that right here". That builds customer loyalty that brings him back every week for glue, paint, detail parts, AND that next big loco purchase.
But today that only happens if your prices are low enough - a math problem I have explained repeatedly.
Again, they need to get the new stuff, but they also need to stock the staples - look at Bachmann Consolidations, selling strong for over a decade - every shop needs a few.
Modelers who are actaully building a layout with a set theme or era don't give a rats butt about what is new if it does not fit their theme.
To sell stuff you have to HAVE stuff, the wider your selection and the deeper you inventory the more likely you are to sell at good pace all the time - not just when the preorders arrive.
But what would I know about this business or any business, I just worked in hobby shops, repaired trains, managed a train department, and have been successfully self employed for most of my life.
Sheldon:
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I agree..Around 8- 9 years ago when I worked part time in a hobby shop we had a Atlas Amtrak AEM-7 that was in stock for several years and finally a fella from Portsmouth(Oh) called and ask if we had a Atlas AEM-7 in stock and he was advised we did..He drove from Portsmouth to purchase it..My boss sold that AEM-7 (IIRC) at cost or just below costs since he drove so far to buy it and needless to say the boss was thankful that AEM-7t finally sold..We had a happy customer..
I think it is th inventory part of the business which breaks the back of the LHS. The vast amount of different materials available requires the LHS to stock an enormous value of merchandise, at a time, when the credit crunch keeps the banks from financing such venues and margins do not sustain the interest payable on the inventory.
It´s like squaring the circle ...
Sir Madog I think it is th inventory part of the business which breaks the back of the LHS. The vast amount of different materials available requires the LHS to stock an enormous value of merchandise, at a time, when the credit crunch keeps the banks from financing such venues and margins do not sustain the interest payable on the inventory. It´s like squaring the circle ...
The dramatic difference in my business experiance and your view is that I believe from the outset that a business such as a hobby shop or model train store can not be started, or operated with borrowed money - at any interest rate or in any economy - at any market tollerated markup - let alone in this current market.
The whole idea of such a business is to a take a given amount of money and make a larger return on investment than one could get in the bank or in the investment market - with of course the extra effort and risk of running the operation.
The notion that someone could or should borrow the whole amount, or even a large percentage of the amount necessary to open and run such a business is foolish at best. For every such venture there is a competitor who does not have that interest to pay and who will beat you into the ground in terms of price, or service, or inventory or all three.
It can be done with private investors who understand and except the long range profit plan, but I have seen very few ever do it on bank borrowed money. And I don't know any banks that will lend money on that sort of business without hard collateral like real estate.
Short answer is, this type of retailer NEEDS to own his inventory, at least to an 80% degree or better.
When I worked in that business our goal was to turn our inventory value 4 times a year. As long as that happened, we did not concern our selves with every little odd item that did not sell right away.
AND we did not have "clearance sales" on stuff unless it was truely not moving - that meant it had been there WAY longer than one year.
Why give it awy if its paid for? I still contend that what draws people to places like Trainworld or Caboose Hobbies is the large product selection - at a resonable price.
I don't want to walk into a shop and only see this months new releases, I want to see 80% or 90% of what is currently available. I want to be able to walk in with a list freight cars from brand X or Y and walk out with most of them.
I don't "settle" for what's "available" or what the shop has in stock, I want what I want. I don't go into a hobby shop with money burning a hole in my pocket - I go there to get the specific items I want for my layout.
Back in the day, the shop I ran had a big inventory of Athearn, we sold tons of it. And we worked hard to have as much of that line in stock, all the time as we could. Limited only by what was available from the distributors and our space and budget. We had hundreds of Athearn locos and freight/passenger cars kits ALL THE TIME, no matter the season or roadname, or type of car.
Sure we knew we needed more B&O than ATSF here in Maryland, but even ATSF sold pretty well.
Regular customers and new customers alike came in looking for specific items - if you had it you sold it - if not they went elsewhere and bought it.
The very fact that so much old stuff sells so well on Ebay, often at high prices, shows that the wham bam thank you, limited run, high turnover business model is missing a large part of the dollars spent of this stuff.
If retailers would hang onto stuff, and hold the line on prices (not full retail, but not closeout prices either) they would find that many older items would sell eventually at a good markup - rather than just turning over money at small or no profit - which is wasted work.
One more thought, an example of what I mean about not using borrowed money.
One of todays very well known retail shops that is also a big internet seller, often talked about on here for their great service, real time web inventory, great selection and low prices, got their start many decades ago like this:
The gentlemans father owned a hardware store, he also owned the building free and clear - no rent, no mortgage.
The young gentleman started selling trains in one corner of the store - at discount prices.
A major hobby distributor of that day was right around the corner making it easly for him to deliver items quickly and at a good price.
His low overhead allowed him to expand his train inventory to point where it replaced the hardware inventory not long after his father retired.
By then he was big enough to buy most or all the product direct from the manufacturers, increasing his margin and lowering his prices even more.
No rent, no borrowed money, buy the product direct, that's how you make money in this business.
Sheldon,
I have to agree with you.
From my conversations with the owner of my LHS before he closed his store, the use of bank financed inventory would be fatal. That said, even when economic conditions were better than they are today, most banks wouldn't consider financing inventory for a model railroading shop. And, the owner of the shop was renting, not owning, the shop, so he had no collateral to pledge against a loan. And, there was no way he had the personal funds to support a full inventory of model railroading related items. So, when rents went up, he could no longer afford to stay in business.
The story you relate about turning inventory over so often was only possible in the pre-Internet days when the LHS was the only feasible way of shopping for model railroad supplies. Nowadays, you shop on line first to get what you specifically need. The LHS becomes one's last resort.
Rich
If that´s correct (and I don´t see a reason why it should not), anyone investing into LHS inventory would be ill-advised. He should rather put the money into a savings account.
If we look at the figures again, they seem to be prohibitive for anyone still in command of all his senses to enter the business:
Certainly not an attractive business to be in, given the fierce competition from Internet shops, eating away margins and business.
Ulrich: No outside financing available.
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At one time you could get a small business loan or apply for small business loan under the Veteran program-I'm not sure what's its called..There's a Federal Goverment loan as well.
The reason the hobby shops are disappearing is they, like a lot of small businesses, are run poorly. I see businesses close every day because they don't plan. It takes a lot of planning if you want a successful business and a lot of work. Have been asked many times how I became successful (another business though), I told them anyone could do it and started to explain how in the beginning you worked a lot of hours, at that point most decided it was not for them!!!!! You can make a good business at most things, including hobby shops but you first have to be willing to work long hours, have a business plan and a long term outlook. Another thing of note is that half of the hobby shops I have shopped at in my lifetime had an attitude that drove away business, you can not do that if you plan to remain in business!!!!!! By the way the business I am in, you lose money the first three years and hope to make a little after 7 years so you need a real job too, after 20 years though, you make a lot!!!!!!!!!!!!
rrebell Another thing of note is that half of the hobby shops I have shopped at in my lifetime had an attitude that drove away business, you can not do that if you plan to remain in business!!!!!!
Another thing of note is that half of the hobby shops I have shopped at in my lifetime had an attitude that drove away business, you can not do that if you plan to remain in business!!!!!!
Why is that?
I have heard it before many times. I have seen it before on occasion.
Store owners that are rude, condescending, ignoring, etc.
Is that typical of LHS owners?
Is it limited to the model railroading hobby?
richhotrain rrebell: Another thing of note is that half of the hobby shops I have shopped at in my lifetime had an attitude that drove away business, you can not do that if you plan to remain in business!!!!!! Why is that? I have heard it before many times. I have seen it before on occasion. Store owners that are rude, condescending, ignoring, etc. Is that typical of LHS owners? Is it limited to the model railroading hobby? Rich
rrebell: Another thing of note is that half of the hobby shops I have shopped at in my lifetime had an attitude that drove away business, you can not do that if you plan to remain in business!!!!!!
I ran into that attitude when I was a teenager - 17 years old. I never went back to that hobby shop. His shop was a little hole-in-the-wall place on a tiny side street. It never grew.
A couple of blocks away was another shop much larger and friendlier. I went there many times over the years until a downtown rebuilding forced him out.
These days of the internet and train shows, you can't afford to drive away customers, especially the young ones that may be your future repeat customers.
Paul
Rich: Is that typical of LHS owners?
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Rich,No..I knew several good hobby shop owners that was friendly,courteous and knew how to provide the best service possible to their customers.Such were jewels in the trade.
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Rich:Is it limited to the model railroading hobby?
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No..I notice a lot of the younger and middle age shop owners are-well,let's just say they need to brush upon their people skills and come to realize they need us more then we do them since there are other places to shop..
A lot of shop owners appears to be indifferent to their customers..I can't really say what the problem is..
richhotrainStore owners that are rude, condescending, ignoring, etc. Is that typical of LHS owners? Is it limited to the model railroading hobby? Rich
I'm guessing that none of these people have ever purchased an automobile.
In retail business there are usually things you need to have but you usually don't sell, why, because it brings in people! I will give you an example. Out here we have a hardware chain called OSH. They did great and were bought out by Sears and then slowly went into the toilet. Why? They used to have a lot of things that nobody would buy but they were very successful because all the contractors shopped there when in the area because no matter what weird pipe fitting etc. you needed, they had it and so they came, even if they didn't need anything weird. They were a place that had what you needed as a business projection. Sears came in and promptly started getting rid of the weird stuff and the contractors started drifting away (saw this personally in a plumber we hired and I also have ties to the trades). Five or six years after takeover the chain was not doing so well and it was decided to let them go independent again, this took some time and has just happened so we will see if they can resurrect the company. Sears did the same with K-mart!!!!!!! Personally I rarely shop there anymore do to the product changes. Prime example is shoes. You could always count on K-mart for cheap family shoes which they got mainly from one company. After Sears bought them they were able to buy the shoe company for cheap as they could now go elsewhere for product. They promptly discontinued the best sellers for higher profit ones and people like me didn't go there for shoes anymore. Now the people like me who didn't go for shoes didn't matter but remember, when one goes shopping one unusually buys other stuff, sometimes lots of other stuff!!!!!!! Now there are companies like Target that have made changes but soon realised their mistake and fixed it. Targets mistake was they stopped having clearance stuff in the stores, bottom feeders like me stopped going, they brought it back, why as I was not making them money? I usually had family in tow and they were sale shopping but not bottom feeding and if I really needed something, I just might pick it up there like a dress shirt I needed once. As you can see, business can be very complex and all businesses make missteps but the enduring ones correct their mistakes. The detail parts that don't sell bring in the people for the other stuff that dose!!!!
rrebell The reason the hobby shops are disappearing is they, like a lot of small businesses, are run poorly. I see businesses close every day because they don't plan...........
The reason the hobby shops are disappearing is they, like a lot of small businesses, are run poorly. I see businesses close every day because they don't plan...........
One of thier downfalls is that they have to mark up items to stay in bussines. Exanple I was looking at a locomotive at my (not so)LHS, it's msrp: $179.99. They had it for $149.99. I looked it up on the internet and bought it for $89.99.
Samuel A. Kelly
I can draw pictures with my keyboard!
-------- ( It's a worm)
Slowly, this thread is eligible for this:
Time to move on, ain´t it?
Ahhh, Ulrich, you party pooper you !
But, seriously, though, it has been a good and informative thread and thanks all for keeping it both civil and interesting. Personally, I have learned a lot.
Rich,
yes, it has been quite informative, but now is the time to ....