Running a guitar store - return on capital invested - stock turn !!!!

guitars4you

Following on from a recent posting on FB regarding the R8 frenzy I thought I'd keep this separate, but have listed below the original comments to get this post started

guitars4you said:

Strat54 said:

Bridgehouse said:

guitars4you said:

Don't tell everyone - do we need another thread with around 60K viewing figures ?????

If you sell your custom shop Strats off for £1500 Mark the internet would actually explode...

Get saving guys, I reckon that day may soon come. Fender aren't far off Gibsons financial predicament and lets face it there is already a huge surplus of Custom Shop stock in the UK, a quick count up of 'In stock' guitars revealed that 5 dealers had 447 guitars!  
Can't see the recent price increases helping either. £3k plus for an NOS standard spec guitar.

But Fender have almost no stock in the EU warehouse - New policy coming in will be no stock at all in any warehouse be it the UK/EU or USA - Only forward orders from the dealers and approx 6 month delivery schedules - As such any 'discounting or dumping' will be dealer led and I can't see many dealers selling £10 notes for £9 unless they run into cash flow issues - Regarding C/Shop then Fender have no excess stock to dump

@strat 54 replied  Of course the Fender EU warehouse has no stock.....there's now close to 1000 unsold guitars sat on dealers floors and walls here in the UK alone! Add to that the stock in the rest of the EU and we're into serious £numbers! 

guitars4you

So now my posting       Around a 1000 guitars a year sold is about the size of the market place in the UK for Fender Custom Shop, so if you are looking at a return on capital and stock turn then this is a very poor figure - Yet the way the music trade has operated for a number of years the trade can cope with such stock levels - So unless any dealer runs into trading difficulties or cash flow issues, then don't expect to see any R8 style bomb outs on C/Shop models

The Fender Custom Shop business model is a similar size, or was, to that of USA produced PRS Guitars regarding factory units produced 

In our trade, return on capital + stock turn, has always been poor - Certainly compared to the corporate high street - That is one reason why none of the major players have ever really tried to get into our trade - Richer Sounds dabbled with it around 20/25 years ago, with a small store in the Bristol area - Richard Branson looked at it around 20 years ago with a view to opening 10 stores immediately - Some may recall that around 15/18 years ago Sound Control opened a showroom within the Virgin Store on Oxford Street (sure it was that location ?) - But in reality the corporate high street does not like our business model - No Dragons Den style venture capitalist would touch it and many such investors hate high stock levels anyway

Many accountants would question any business model that carries such a high stock level, based on the level of turnover and profits delivered - Granted John at Peach, Doug at Coda etc etc will have different stock levels, different profit levels, expectations etc but a common theme will be a low return on capital, based on many other high street retail operations - For whatever reason that maybe

My way of looking at it is quite simple - I need to earn a living and this is all I know - I currently run the business on around a £200K stock level with very little owed to the trade - This 200K investment provides me with enough turnover, hence profit, to run the business and pay a 'healthy wage' - I've enjoyed the journey for over 40 years now and grateful I'm in a business I enjoy - There is no way that I could invest £200K in the stock market, or other investment options, and make the same level of wage and retain the same level of investment - Better investors might be able to achieve it, but I can't - So a guitar store is my way of earning a required 'healthy wage' and if it requires a sock level of 200K, with a poor stock turn on Custom Shop models then so be it

The good news is we are not selling fruit and veg or soft ware with a 'use by date' - As such I don't have an issue with such a poor stock turn - However I know I could run a small coffee store, a children's shoe shop or indeed other options, with far less stock, but would I enjoy it ??????????????????????

thebreeze

Thanks for this explanation/view and transparency Mark.  It's interesting for me, who often thinks about these kinds of things but knows so little about it.

guitars4you

thebreeze said:

Thanks for this explanation/view and transparency Mark.  It's interesting for me, who often thinks about these kinds of things but knows so little about it.

If I was clever then I'd make more money in another environment and have guitar collecting/GAS as a hobby - In many ways I have my on GAS store and I'm just a bigger gear junky as many other FB members - I'm lucky with what I do, but no  way is it a business model you'd copy, to run other high street corporate stores, that in turn can be rolled out into 50 or 100 other cities

thebreeze

guitars4you said:

thebreeze said:

Thanks for this explanation/view and transparency Mark.  It's interesting for me, who often thinks about these kinds of things but knows so little about it.

If I was clever then I'd make more money in another environment and have guitar collecting/GAS as a hobby - In many ways I have my on GAS store and I'm just a bigger gear junky as many other FB members - I'm lucky with what I do, but no  way is it a business model you'd copy, to run other high street corporate stores, that in turn can be rolled out into 50 or 100 other cities

It's interesting for me in another way too; I'm always considering what I might do (next) and only last night my missus said "why don't you do something with guitars, you spend so much time on it anyway?"  I just can't see it being an easy thing but clearly your passion has paid you your rewards and that's inspiring.

SteveRobinson

guitars4you said:

The good news is we are not selling fruit and veg or soft ware with a 'use by date' -

Isn't (wasn't?) Gibson trying to create this with their model year shenanagins?

PhilKing

@thebreeze, my wife has often suggested it to me too, but I think it is her way of getting me to cull the herd.  I used to run a guitar shop in the 70's and we had a good secondhand stock turnover, but the never stuff could only be sold at a discount and we didn't make anywhere near as much on it. 

I can only imagine that it has got much harder today with the internet and people coming in to check out things and then going away to find the cheapest price.  Our biggest profits came at Christmas time with the full kit specials that we could turnover in the dozens.  I have a friend in the States with a shop and he has the same thing.  He keeps it going with a big lessons operation, with many rooms and teachers for all instruments.

@guitars4you, I'm glad you can make a living at it.  I like to support my local stores and still by my strings through my friend's shop, even though there are many discount outlets.  He gives me a deal and makes money himself, so we are both happy.  Also, I can get my custom gauge sets this way.

guitars4you

PhilKing said:

@thebreeze, my wife has often suggested it to me too, but I think it is her way of getting me to cull the herd.  I used to run a guitar shop in the 70's and we had a good secondhand stock turnover, but the never stuff could only be sold at a discount and we didn't make anywhere near as much on it. 

which store was that and where ? - might recall it

guitars4you

SteveRobinson said:

guitars4you said:

The good news is we are not selling fruit and veg or soft ware with a 'use by date' -

Isn't (wasn't?) Gibson trying to create this with their model year shenanagins?

point taken - the fact that there is no obsolescence in guitars themselves is a big issue for the manufactures - they make the product so well that most/many will last longer than me and you

PhilKing

I used to run JSG in Bingley.  We used to advertise discounted guitars in the back of the Melody Maker and managed to annoy both Gibson and Fender.

jeztone2

Thanks for posting this. It's been really informative. I've recently gone part time and started freelancing. But very lucky my set up costs were absolutely minimal.

Legionreturns

PhilKing said:

I used to run JSG in Bingley.  We used to advertise discounted guitars in the back of the Melody Maker and managed to annoy both Gibson and Fender.

You were doing something right! 

Question for you @guitars4you ...which you are better placed to answer than most. 

Do the big guitar makers now act more like the giant corporations of other sectors? 

Supermarkets seem to be the only retailers that get to largely set their own terms, and often dick on the producers (ie dairy farmers) where most other sectors seem to be manufacturer lead. With RRPs rarely deviated from. My guess is they make a bigger chunk of profit than, say, farmers, steel fabricators or furniture makers relying on outlets.  

heavyrocker

guitars4you said:

SteveRobinson said:

guitars4you said:

The good news is we are not selling fruit and veg or soft ware with a 'use by date' -

Isn't (wasn't?) Gibson trying to create this with their model year shenanagins?

point taken - the fact that there is no obsolescence in guitars themselves is a big issue for the manufactures - they make the product so well that most/many will last longer than me and you

And the exact opposite of more disposable products like mobile phones etc where the obsolescence is purposely (and unethically) built in. That’s why I have no problem spending £3-4k or more on a guitar. Like you said, it will outlast me and the enjoyment it brings on a daily basis is priceless.

guitars4you

PhilKing said:

I used to run JSG in Bingley.  We used to advertise discounted guitars in the back of the Melody Maker and managed to annoy both Gibson and Fender.

went in their a few times - Was John an owner/co-owner - Recall a small jitty or something to go down to get to the entrance - Think my friend Dixie called on you a lot

TA22GT

PhilKing said:

I used to run JSG in Bingley.  We used to advertise discounted guitars in the back of the Melody Maker and managed to annoy both Gibson and Fender.

I bought my first Les Paul from JSG in Bingley in 1977 along with a Peavey 2x12 Classic! It was a hard choice because you had  61 SG in for sale at £500 which is what I paid for guitar and amp. I didn't want a s/h guitar so went new! 
Small world! 

guitars4you

Legionreturns said:

PhilKing said:

I used to run JSG in Bingley.  We used to advertise discounted guitars in the back of the Melody Maker and managed to annoy both Gibson and Fender.

You were doing something right! 

Question for you @guitars4you ...which you are better placed to answer than most. 

Do the big guitar makers now act more like the giant corporations of other sectors? 

Supermarkets seem to be the only retailers that get to largely set their own terms, and often dick on the producers (ie dairy farmers) where most other sectors seem to be manufacturer lead. With RRPs rarely deviated from. My guess is they make a bigger chunk of profit than, say, farmers, steel fabricators or furniture makers relying on outlets.  

There is more of a dictatorial policy now than before from the suppliers - But it differs from company to company - For instance with Fender Custom Shop, they have an expectation of what you need to achieve regarding purchases and a minimum stock investment - But if you want to buy mainly Strats and Teles and no basses, as per me, then they are fine with that - So not so much based on buy product A or B or C but a volume based on turnover - Someone like Mesa Boogie is more buy product A, B and C

It is tougher now for many smaller retailers as they can't meet the requirements of many companies, but less of an issue for say Andertons

Granted I don't know what profit Fender make on a guitar, or indeed Gibson, Ibanez etc

There is still a mutual relationship with many companies, and the fact that you are successful with them helps - My relationship with Gavin/Headline/PRS was excellent and no way could I have built up my level of turnover with them, without their support

Not sure what Marshall are like now but they use to have a stocking policy and a rep walked in to check you carried in stock what they told you to - For example we had to buy the 60 watt bass combo and we thought they were crap - So when you sold it, they made you replace it - Then we got clever - Keep the box, which is now empty in the store room - Sell the amp - And when the rep came round he would see the box, not check it and include it within his 'in stock' listing - So we did not need to replace it - Worked for a while, but then one day he noticed we had one in the store room and not on display so he came to un-pack it - Low and behold it was empty - Bugger - He then use to check the boxes in the store room after that

Gibson do have the worse reputation with many retailers regarding their stocking policies and requirements/targets - Both here in the UK, EU, USA and worldwide

mbe

I used to like JSG, they were keener prices than Leeds stores like Scheerers and Kitchens. 

The last time I went there was in 1980 to buy a brand new Hohner Pianet. That was a really heavy load to carry back to Leeds on the bus.

Sorry for digressing, the memory was so vivid. Then it changed name to Spectre Sound.

Legionreturns

Thanks for that answer Mark. It kind of highlights how difficult it is to carry a profit, when you're squeezed by internet box shifter pricing on the customer side and overbearing suppliers on the other. Kudos to you for building a reputation as a place to go for top service and knowledge. 

In various conversations over the recent R8 blowout, it was intimated that the dealers had been specifically chosen to help rebuild relations between them and Gibson. It would undoubtedly have been easier to shift them on to Amazon and sell them in a day, so I can see something in that,  but Henry's comments about dealers earlier this year don't match up if that's the case. 

PhilKing

@guitars4you, you were right.  John Gothard used to own it.  It was down a really low passageway from the street, then we got the shop on the street as well, but used to have mainly keyboards in there.  John sold out to two brothers, which is when it changed to Spectre Sound.  I stopped working there in 77.  Say hi to Dixie if you still see him.  I last saw him at one of the London Guitar Shows about 10 years ago.  I was working on the Bare Knuckle stand.

richardhomer

Just in relation to your ‘socks’ Mark - probably best not to do your dirty laundry in public....

guitars4you

richardhomer said:

Just in relation to your ‘socks’ Mark - probably best not to do your dirty laundry in public....

yep - I've just noticed and changed - thanks