Re: To those of you with musical retail knowledge...

Greg,

I don't know details about music retail specifically, but I work for a
sporting goods company. One of our divisions sells to specialty retail
shops and another of our divisions sells to mass retailers (the marts,
big box retailers, etc.).

Just from observation and based on the amount of competition there is
in the music retail industry, I'm guessing that most shops average a
35% to 40% gross margin on guitars - perhaps less on higher end
guitars. Small shops would seem to have a real challenge making a
decent margin on guitars since as you mention, they may only buy one of
these and two of those. Unlike their mega store competitiors, they
cannot afford to buy in volumes which allow them greater discounts. GC
selling a Gibson XYZ guitar for $1,000 probably makes 10% or 15% more
margin than mom & pop at the same retail price. However, usually what
happens is GC will discount the guitar to beat mom & pop's price while
still making the same or more gross margin dollars.

On a $350 retail guitar, I'm guessing wholesale price for the small
retailer is $210 to $225 before shipping. Shipping is probably around
$10 to $20. Even before SG&A, discounts, allowances and other
expenses, that leaves mom & pop with profit of around $115 to $130.

I'm guessing most shops do not actually make much net profit on guitars
unless they are selling mostly high end guitars. Low end guitars take
about the same amount effort/cost to ship, display, maintain, service
and sell, with hardly any margin to help cover these costs. I'm
guessing that most mom & pops that are profitable achieve profitability
by selling a lot of higher margin items - accessories, books, strings,
etc.

In college, I managed a retail store that sold bicycles. Like guitars,
bicycles range from $300 to $3,000 and more. Also, like guitars,
bicycles are a large shipping cube (expensive to ship from distributor
to retailer) and they are the highest profile item in the store. Savvy
consumers know all the models, what the retail price should be (based
on competition) and which stores sell it for what. This means, even if
you want to make more margin on guitars (or bicycles) you have to
achieve this without pricing yourself out of the market - buy in
greater volume from the distributor to get volume discounts, pay your
invoices early (if you get dating) get discounts, take advantage of
co-op advertising and other marketing development funds, etc. Some
shops are able to sell for a higher price based on service and
perceived extras (setup, knowledge, clinics, etc.). At the end of the
day, I think most stores (almost regardless the category) are
profitable because they sell a lot of higher margin items -
accessories, service, etc. I always thought it was funny that bikes
were more a liability than a profit center, and yet you couldn't have a
bike shop without them. I'll bet mom & pop feel the same about
guitars.

Anyway, if the person is serious about selling his store, he should be
willing to show you his books; you should be able to do an audit to
verify gross sales, calculate overhead, etc. He should also have an
inventory valuation (he has to do this anyway for tax purposes)
indicating exactly how much inventory he has. $100K in guitars alone
would mean if his average wholesale guitar is $250, he has around 400
guitars on the floor and in back stock.

Good luck and curious to know how it turns out.

.

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