I understand it's like a car dealer where they pay a lower price for items and then sell them at MSRP or something to that tune, but how does a hobby store get lower prices on items from manufacturers such as Walthers, Athearn, MTH, etc and is there any way for a typical consumer to get these lower prices? If anyone has an example of how much a hobby shop makes per item please let me know. I'm really curious....
Volume.
Rich
If you ever fall over in public, pick yourself up and say “sorry it’s been a while since I inhabited a body.” And just walk away.
Hobby shops do get a "wholesale" discount that varies depending on the $ amount ordered, but they still have to add in their overhead (property costs, utilities, shipping, wages). After paying their costs, they're lucky if they make 5% profit, not very many people get rich in the hobby business, but many can make a living especially if they have other income, or can do a lot of volume, most do it because they like it.
A state business license and federal tax number are required and most distibutors/manufacturers require that you show proof that you have a "brick and mortar" place of business with a display window. I'm not sure what the rules for internet & mail order businesses are.
Jay
C-415 Build: https://imageshack.com/a/tShC/1
Other builds: https://imageshack.com/my/albums
Hi!
I'm a retired business analyst and these days often try and figure out how some of the businesses I deal with keep afloat. Its amazing how many small stores open up here in the north Houston area that (in my eyes) just don't have a chance of being a profitable and lasting more than a year.
To the best of my knowledge, most of the LHS buy from Walthers and Horizon (Athearn) and a few other smaller distributors. I have reason to believe that a typical price for them is about 60% retail (msrp). So that starts you off - assuming you sell at retail - with a 40% profit. Of course the freight to get the items to you comes off the top, so that eats right into your 40%.
And of course you do have expenses - both variable and fixed. Fixed would be building rent, utilities, fixtures, taxes, insurance and other items that would be there whether you sell one loco or 1000 locos. Variable expenses (in the case of retail stores) are primarily wage/salary and related items, and all the other incidentals that tend to vary with the volume of sales.
What's left isn't much, and that's where volume kicks in to make the difference. And while some of the small businesses survive, I seriously doubt anyone ever got rich from a LHS.
Now there is a caveat to all this, and that is the proprietor that operates out of his home, and/or doesn't pay him/herself a set salary or wage. They should almost always show a profit, but their time was certainly not compensated very well.
Frankly, the smaller individual and family owned businesses tend to be a 24/7 job for the operators. The hours can be grueling, and getting time off almost impossible. It just ain't easy!
Oh, one really good piece of advice for those looking to go into business for themselves. To give your business a fighting chance, you need three types of "experts" involved. The first is the technical person, who knows the product and business. The second is a people person, who deals with buyers and sellers and third parties. And third - the one most often missing - is the money person, who understands all the financial (esp. accounting) implications of doing business. Oh yes, all of these folks must be honest too.
It is often the case that one individual can successfully fill out two of those rolls, but it is extremely rare that one person can fill all three.
Hey folks, sorry to go on here, but this subject is near and dear to my heart. I've got friends and family that did not adhere with the above in many situations over many years. I have seen a whole lot of money, time, and effort wasted - just because someone wanted to get rich quick with no real preparation or forthought.
ENJOY,
Mobilman44
ENJOY !
Living in southeast Texas, formerly modeling the "postwar" Santa Fe and Illinois Central
richg1998Volume.
That right...they're losing money, but making it up in volume!
Mobilmann44 has offered a very good explaination to which I will add a few facts and a few thoughts:
Having worked in the hobby business, and still knowing a few shop owners, I have some knowledge of the inner working of the business.
The "old" distributor discount to retailers was the 40% metioned, but this has grown somewhat. While I won't quote exact numbers, Horizon sells Athearn at a bigger discount than that traditional one, and that does not matter who you are, the local mom and pop shop, or a big mail order/retailer like Trainworld.
Big volume dealers do sometimes get extra volume discounts, but they are not huge, usually just a few percent. The notion that volume continues to lower the price drasticly is simply false. When products are new and in demand, there is a bottom price. Unless a manufacturer is in trouble, or thinks it wise to get rid of a particular item, the price will never go below the cost of production plus a reasonable profit.
This is an area in which I feel BLI/PCM has hurt its self and the hobby. They seem to always "dump" the "leftovers" after a while at very low prices. This drives down the price expectation of the consumer and makes it harder for retailers of any kind to sell the next run of product even at a nice discount.
Bachmann simply has really low wholesale prices compaired to their retail prices, so some dealers who buy direct (stores or mail order), are always willing to sell Bachmann at low prices, others try to make a little extra.
Many big retailers buy product lines like Bachmann and Atlas direct. To do this they must be willing and able to buy case lots and distributor quantities. But it allows them to discount this items to mail order prices and still make a good profit. By buying direct, at the distributors price, mail order and large retail shops can lower prices and still make a reasonable profit.
Because of changes in the market, increased discounting (which was almost unheard of 40 years ago) and a decline in the number of full line distributors, many small/medium sized manufacturers have begun only selling directly to retailers. This has allowed prices to be held down at both ends. Still other have gone directly to the customer.
Walthers, both a manufacturer and a distributor, has always been one of the highest priced sources for local hobby shops. Traditionaly they only gave that basic 40% even when others sources for the same products offered dealers much lower prices. This may have changed some now that they have shifted to more manufacturing (or distributing their own exclusive products made for them) and less distributing of products offered through other sources.
Before being bought by Walthers, Life Like also offered lower than standard pricing to its direct buyers.
I agree few if any have gotten rich in this business, but many shop owners have made good livings, some for many decades.
To get in the club, you generally need a retail sales tax licence, business licence, actual retail or mailorder business location other than your basement, and enough money to buy a reasonable stock for inventory. There have been and are exceptions, but manufacturers and distributors are not going to deliberately hurt their existing customers by selling directly to "fake" dealers. There actually seems to be less "basement" dealers now than there where a few years back. Personally I think thats good for the hobby.
This is a great time in this hobby in terms of both prices and a product, I hope they all make a lot of money to continue delivering all this to us.
Sheldon
One more thought:
Mobileman44 mentioned the need for a "money man" and that is true - BUT too often those trained with MBA's think all businesses should fit into a set "return on investment" senerio and that one is foolish to be in business if that cannot be acheived.
The thing they forget is that personal satisfaction and happiness cannot be bought or traded on the NYSE and even if a shop owner might have made "more" with his investment somewhere else, a good living doing something you love is priceless.
So maybe the owners of Trainworld, Caboose Hobbies or MB Klein, or others could have made more with the money they have tied up in their businesses, but their longevity suggests they do well and they apparently like what they do, and their customers are happy.
Many places, such as Walthers sell Manufacturers retail. That is the retail price the manufacturer suggest (MSRP). Not knowing exactly what that is per company, let's assume 60% as Mobileman44 suggested. It works as he described. Some of us are blessed with "discount prices" shops. These usually, as do both of them near me, sell 20%discount off MSRP(or whatever they choose but 20% seems to be the most common from what I‘ve seen). They only make $20 off the same $60 item. So Walthers makes more, generally, per item than my LHS. (not taking consideration Walthers is th manufacturer and they are also making a profit at wholesale, sooo.)
When two businesses buy from each other, they usually always get a discount from the supplying store. This varies but most times the selling shop will split the difference with the buying shop so they both make a profit. When I say spit the difference I mean they usually sell at say 40% of MSRP to discounts and say 30% off to full retail. Some will actually sell at wholesale to another shop and that is what I assume Walthers would do at least for their holding brands. My LHS is extremely well equipped and I have not ordered anything from Walthers through them. They usually have in stock what I want. So I cannot tell you if my LHS would sell a non-stocked item from Walthers at Walthers price or their discount. I can tell you I recently purchased Aunt Lucy's House for $27.98 not on sale at my LHS. Walthers regular price is $35.98 and through the end of this month is on sale for $24.98. I did not ask nor did I receive the sale price of Walthers. Frankly I didn't know so I didn't ask if they honor Walthers sale prices or not. I'm curious now so I'll probably ask next time. My FLHS of the two is not listed as shops that honor the sale flyer but the other one is. Maybe they won't but I‘m not complaining, any difference is more than made up in shipping from Walthers. Anyway, since Walthers is the "manufacturer", and using 60% as a guess, that means, well, you can do the math. Rest assured everyone is getting a cut and making a profit on most all items sold. Many, especially the small ones are not getting rich, roughly $6 on a $28 model and I don't know about you guys but at that price I can't buy too awful much at a time so yes......Volume is what it takes. A mail order catalog or an internet shop has the whole country or even world as a customer base but the LHS only has the acceptable driving distance to draw from. How many MRR's are in that distance is their customers. At six to 10 bucks profit per visit from someone like me it's gotta be tough, so......
Support those local Hobby Shops the best you can. Use 'em if you got 'em or lose ‘em. Enough of me, I'm sure someone else can refine this and polish anything that maybe different in their experiences or correct anything I have gotten mixed up in my ramblings..
Disclaimer: This I know from experiences of my own in other areas. I'm not saying this is the way everyone or even Walthers does it. Walthers is just an example company and is not meant to be taken as this is the way Walthers does it.
Todd
Central Illinoyz
In order to keep my position as Master and Supreme Ruler of the House, I don't argue with my wife.
I'm a small town boy. A product of two people from even smaller towns. I don’t talk on topic….. I just talk.
One catch that seems to be fairly important is that Horizon for sure and probably Walthers requires there hobby retail outlets to have an actual store and require photos and other proof that you do.
One "local"shop ,its a hundred twenty miles away sell a lot of Walthers, woodland scenics etc. The new and in demand runs sell at full retail, then are unloaded at discount within a few months after the initial rush. You might think "well I just might wait til the sale comes" BUT you probably won't get you intended purchase.
He also has good sales about 3 times a year. When the big swap meet is on and after christmas. Theses are his equivalent of black fridays I think. Generally, though,he's a good guy,backs up his merchandise and is always pleasant and open 6 days a week. So I wind up spending a hunnert bucks when I get to town. BILL
Ah yes. I see Atlantic Central has dispelled the myth that the purchase volume discounts are huge and the answer to all. Many times in order for the "volume discount" to even matter the volume is too large for your normal LHS to sell in an acceptable amount of time. Remember, they pay when they recieve just like us. So the longer it sets on a shelf taking up room actually costs money. Money they can't recoup. In a business sense.
I think where the original poster may be confused is that the MSRP on Walthers website or a manufacturers notice, etc. is the suggested price for the retail customers (us) for that product. There is an entirely separate process for Walthers or Horizon to sell to retailers. Retailers don't pay the retail price, they pay the wholesale price, which as someone noted may be around 40% less than the suggested retail price. (Also, the wholesale buyer wouldn't be charged sales tax if their state charges sales tax, that is charged to the retail purchaser at the time of sale in the hobby shop.)
It's up to the retailer to determine if he wants to use the suggested retail price as his selling price, or an amount somewhere between the MSRP and the wholesale price. Online and mail order stores can often charge less because they are selling in greater numbers and have less overhead compared to a "regular" hobby shop.
For years guys used to register as "retailers" with Walthers so they could get discounted products for themselves and their friends. Walthers of late has been doing more to be sure they really are retailers, though in some cases the "hobby shop" is just a part of someone's house that they sell out of a few hours a week.
wjstixI think where the original poster may be confused is that the MSRP on Walthers website or a manufacturers notice, etc. is the suggested price for the retail customers (us) for that product
As I reread the OP I do believe you are correct. My misread, sorry about that.
johngriffey18ca1I understand it's like a car dealer where they pay a lower price for items and then sell them at MSRP or something to that tune, but how does a hobby store get lower prices on items from manufacturers such as Walthers, Athearn, MTH, etc and is there any way for a typical consumer to get these lower prices? If anyone has an example of how much a hobby shop makes per item please let me know. I'm really curious....
TMarshwjstixI think where the original poster may be confused is that the MSRP on Walthers website or a manufacturers notice, etc. is the suggested price for the retail customers (us) for that product As I reread the OP I do believe you are correct. My misread, sorry about that.
I read it different: The OP wants to know if a consumer can get MR items at the cost that a LHS pays to the supplier/wholesaler, bypassing the LHS and his markup. Cut out the middle man. Personally I prefer to support the few LHS's that are around in this area as long as they have good customer service and resonable prices as comapred to MSRP.
I have been wrong before, and may be wrong here, I am sure he will let us know.
Pathfinder I read it different: The OP wants to know if a consumer can get MR items at the cost that a LHS pays to the supplier/wholesaler, bypassing the LHS and his markup. Cut out the middle man. Personally I prefer to support the few LHS's that are around in this area as long as they have good customer service and resonable prices as comapred to MSRP.
I think thats exactly what he meant, that's why I explained and commented about basement dealers and business/tax licences, and the like.
PROFIT? PROFIT? WHERE, PRAY TELL, DID YOU EVER COME UP WITH A COCKAMAMY IDEA THAT HOBBY SHOPS MAKE A PROFIT?
Hobby shops exist for one purpose and one purpose only: they serve as showcases for observing the merchandise which we will order from an online merchant who offers a significant discount. Should that merchandise be defective we expect a hobby shop to be a convenient place to return it for either repair or replacement.
To wit:
Some years ago I was in my local when an individual came in with one of Bachmann's non-Spectrum steam locomotives. <Note: I am not trying to raise a brouhaha against Bachmann in this posting; it just happens that that was the manufacturer of the particular item involved> This individual stated that the locomotive was almost new and had stopped running; it was still under warranty and he would like it repaired. The owner, who happened to be working the floor--it was lunch hour I believe--and who did not remember having had one of these particular models in a long time, inquired as to where this particular individual had purchased this item.
"I got it from XYZ Models," was the response.
"Then you need to take it back to XYZ Models," the store owner responded.
"They're in Florida. I contacted them and they don't want it back," was the response. "They tell me that it has a lifetime warranty and I need to send it directly to Bachmann for repair."
"Okay, send it directly to Bachmann."
"But that's likely to take months! Couldn't you replace it and you send it to Bachmann?"
"No!"
"But it's under warranty!"
"Then you need to send it to Bachmann. They will either fix it or they will replace it!"
"But it's under warranty! Why can't you either fix it or replace it."
"Because you didn't purchase it here. If you had purchased it here I would either try to fix it or I would exchange it or I would send it to Bachmann."
"That's pretty cheap if you ask me!"
"Well, you are the one who saved twenty percent or more by ordering it from a discounter. You're either going to have to live with it or you're going to have to send it to Bachmann yourself"
With that the individual headed for the door, tossing a "You won't see me in here again," taunt over his shoulder as he departed.
Just as he went out the door he brushed past the regular sales person returning from lunch. "Have you ever seen that guy?" the owner ask.
"He's been in here before. To the best of my knowledge he's never done anything more than look around and maybe he bought a magazine or two at one time or another."
What right would anyone have to make a profit when they're having so much fun?
From the far, far reaches of the wild, wild west I am: rtpoteet
I would think the best thing to do to get things at cost is to know know somebody in the business. I have a friend who deals with suppliers and got things anywhere from 25% to 40% off MSRP (average seemed to be MSRP minus 30%). Occasionally when this particular supplier was clearing stuff out you could get up to 60% off. It looks like Western Star is out of business for good, so it may be a while before I will be getting those deals again, but it was good while it lasted!!
Hi again!
My original comments related to your "typical" hobby shop - that being a "mom & pop" or single proprietorship. There are a number of them that have been in business for many years, but I would wager they have a loyal clientele, they love the business, and they have not gotten rich over it. Trust me on this one - if they paid themselves a decent hourly wage for all the time they put into the business, they would have closed the doors years ago.
IMO, you can compare many of today's LHS with the mom & pop groceries, "dime stores", confectioners and other neighborhood businesses of many years ago. For the most part, they could not compete with the super markets or Kmarts, Walmarts, and other conglomerates that took over. Of course the difference today is that they are competing with mail order, internet, and of course Ebay.
One more thing to mention........ If any business truly sells anything at "cost" too many times, they will soon find themselves out of business. After all, having a business really comes down to one thing - to make a profit.
ENJOY !!!!!
To the original poster:
In general (not speaking specifically with hobby shop experience) there is: the cost to the store, the wholesale price, and the retail price. This is often more complicated when dealing with middlemen such as distributors, importers, etc. but that's basically the price structure.
Yes, the hobby shop is making money when they sell to you the end user, as is the distributor when they sell to the hobby shop, as is the manufacturer when they sell to the distributor. Then there's duty, taxes, importing/brokerage fees, handling charges, shipping, in addition to the already mentioned overhead of renting or owning, insuring and operating the store itself, and paying employees.
That is why they are in business! TO MAKE MONEY! It's a hobby store, not a charity give away centre.
Whether they enjoy the particular business is immaterial to the government when it's time to collect taxes, fees, import duties, etc. or the building owners when rent is due. The stock on the shelves costs money when it is bought, not when it is sold, which is very often much later.
Be glad that they are in business, for it helps keep the hobby alive. I feel good about supporting the local hobby shop (200 km away to be precise) and will continue to do so, even if it's cheaper to buy elsewhere. The owner and his wife are very pleasant to talk to, and hobbyists themselves.
Don't begrudge them a living doing something they enjoy because you know that they're making money from you, someone is profiting whenever you buy anything anywhere. Do YOU want to work for free? Not very likely, I know I don't.
That's why there are such rules governing who can get wholesale pricing from distributors, they are protecting their customers, because if they don't, then they are out of business as well. That's no good for anyone, sooner or later the whole hobby industry would collapse and we'd have to scratchbuild everything because there would be no more manufacturers, they'd be making something profitable instead. No one runs a business to lose money.
The 'I don'tcare as long as it saves me money right now' attitude is something I think we (as a culture) need to get over soon. Cheaper is not better, in the long run.
...soapbox mode off...
My LHS owner has told me he hasn't turned a profit in the past few years, and that has me nervous. They're something of an institution around here, and I support them as much as I am able. Their prices are remarkably competitive, and I'm always able to save the s&h on small ticket items like detail or NWSL parts, even "exclusive" items in the Micro-Mark catalog.
I'd be lost without 'em.
Nelson
Ex-Southern 385 Being Hoisted
Maybe he needs to increase his prices a little, for everyone's sake.
R.T.
I loved the story! I'm sure they didn't lose any sleep over his idle threat of not coming back!
My wife and I had a small sports store and our problem, along with many mentioned here, was folks coming in and telling us how proud they were for saving a few bucks over our prices. I won't go into my tyrade here but it has to do with folks smiling about not having to pay taxes in my store. But they have no problem paying 7+ dollars in shipping for an item that only cost 3.50 to send! I still run into many of the old customers, both good and bad, most wish the store was still there but when people take their business elsewhere, you can't keep the doors open.
To the OP, before trying to figure out how to get things at wholesale, talk to your LHS, you might be suprised. I find they are extremely open to discounts for preorders, especially to established customers and many times, those same established customers can get a little extra off in stock items too.
Ricky
believe it or nuts some of what hobbyshops sell might not be the so oh main railroad items but then it might be things like grass or some other off beat item you might not think about for a hobby.
Consider all these big box craft stores, they have some hobby items but then they have craft stuff and a lot of the female gender is going in there buying art stuff, decorating things and so on.