Cost of opening a HiFi shop?

Hey Folks,

Kind of a weird question. But does anyone know roughly, how much it costs to open a HiFi shop these days? I'm just wondering if it's a feasible endeavor.

Thanks.

 

It's a terrific way to go bankrupt, unfortunately.

 

Interesting. And it's funny because one of the places I was brainstorming about was Denver. Are you saying that the dealers there are just scraping by?

 

by a dispensary

dont do it

 

As a guy who owned a hi-fi store for 21 years and worked in others for 9 years more, I think I can answer this question.

Your number one cost will be labor. Second will be rent or advertising, depending upon your location. A great location will cost you more but you won't need to advertise as much. If you have a cheap location, you'll have to spend money to get people in your front door. Other major expenses are insurance, utilities, bookkeeping and freight.

The biggest problem is the low margins you can make on selling hi-fi. It's really hard to make enough money to cover these costs. The industry looks at profit as a percentage of the selling price, which is called points. Stereo equipment at retail is 35 to 40 points, which means if it sells for $100, you'll make $35 to $40 profit. Your cost of goods is $60 to $65. Occasionally speakers will retail for 50 points but those are often cheaper quality ones. Your major speaker lines will be at the lower margin. And this is as good as it gets. Any video you sell will be much less profitable. I got used to selling Sony TVs for 10 to 15 points. Overall, my store averaged between 36 to 39 points most years but that was only because about a third of our business were car stereos and all of the money we charged customers to install them went to the bottom line. If we relied simply upon sales, our annual margins would have been closer to 30 points.

Let's take that $100 sale and divvy it up. $15 to $20 of your profit will go to payroll and withholding taxes. Even if you are a small operation, you need to pay yourself and a couple of employees. That's about the minimum with which you can get by. Rent and advertising will cost $5 to $8. Insurance, utilities and freight could well be $6. So far we've eaten up $26 to $34 of your profit, and we haven't spent a nickel on store displays, office supplies, bookkeeping/accounting, travel (you do want to go to CES, don't you?), a vehicle for deliveries and installations, and store maintenance.

At the best. Most are out of business. My store typically did over $1,000,000 in sales in a year and peaked at $1,850,000. There were many years I made less than $5,000 net profit at the end of the year after paying myself a mid five figure salary. I remember one year in the mid 1990s had about $1,500,000 in sales and made $600 net profit. I probably paid myself about $45,000 that year. There were years my store manager made more money than me.

The last problem, and the reason you don't find new stereo stores opening up, is low demand. Baby boomers wanted to spend money on a great hi-fi. Millennials don't. Sure, a few are buying nice turntable based systems but the majority are happy downloading mp3 files and playing their music off their phone.

I think a one man operation, open 35 hours a week, might be able to make it but it would be a hobby store. That would be about it.

 

Not sure how profitable that would be either, considering they're all over Denver. And you can only deal in cash and the banks won't take it.

 

Thank you for this post. Very informative. Maybe I should look to open a pizza place next to a dispensary. That has to have "high" profit margin.

 

Great info. I've noticed that some of the more durable shops have a core business, but also do good online business and have relationships with a few great brands. How important is it to be able to expand into trends while minimizing cost? Also, how many years operating expenses should you have covered before you become profitable?

 

Maybe you should just combine the two and do delivery—THCheeses or something like that.

 

Ah, Denver. All the good mid-fi shops are gone. The good high end shops like Cherry Creek Audio are gone. You've got the venerable Listen Up and Gold Sound still plugging along, but they've been doing it for decades. There's so much money moving into Denver you'd think there would be a market for another boutique audio store. You'd probably be wrong IMHO.

Dan c

 

I'm thinking a donut shop next to a dispensary would do well.

I hear the Girl Scouts are having a record year in CO.

 

Online franchises are different than brick and mortar ones. Just because Yamaha will allow you to sell their stuff through your physical store, you can't automatically sell it online. That's a whole separate franchise. I knew the inside gossip of Polk Audio pretty well. They wanted to go into Abt Electronics in Chicago badly but Abt wanted to sell their products online. For a number of years that was a deal breaker for Polk. Now, with the company owned by Directed Electronics (historically a car alarm company run by Darryl Issa but now much bigger and with Mr. Issa a Congressman), that's not an issue.

Regarding brand loyalty, it still does exist but barely. When I see MartinLogan, McIntosh and B&W in Best Buy, I know they don't really care about supporting a mom and pop operation like mine.

Huge. I reinvented my store many times. We started out as a mid-fi store selling home stereo systems. In the mid '80s we threw our lot in with car stereos and that lasted for a good 15 years. As home theater came along, we bit the bullet and sold a lot more TVs at lower margin. Finally, toward the end we were making all of our profit through custom home installations and commercial sound.

As for minimizing costs, that goes without saying. In the words of Mr. Trump, it's even huger.

One. You need to make money right away.

 

My old employer gets a deal on rent because the building was owned by his father in law. When I was there he did well selling retail cash and carry new and used audio and some new installations. I departed in 2001. At that time eBay and Audiotrader were taking off and trade ins were disappearing. AFAIK, his high end sales have dried up and but his custom installation sales have grown while his high overhead competitors like Soundex and HiFi House have closed.

HiFi House closed because the friendly distributor loaded up their warehouse with mountains of stock and the bank that financed said mountain got nervous when monthly interest payments weren't made.

Last but not least are the trunk slammers. They are AV installers without a showroom. They stock nothing, employ no one, and work out of their car or van. Trunk slammers make their profit on labor, not hardware

Not a good business.

If you have a background in IT, carpentry and electrical your an excellent candidate for being a trunk slammer. Learn to program remote controls, run speaker wire, terminate cat-6 and RG-6, setup networks. Post and ad for residential audio visual consulting and installation and go for it. Buy your components mail order and flip them with the install. with maybe a 10% markup.

 

Come to Fort Collins and visit Audio Alternative. Nice owner, nice place.

 

Was thinking of Audio Connection in Jersey. Seems like online sales suplement the brick and mortar, and having a tight deal with Vandersteen, etc. must make a difference.

 

My first hi-fi job was selling stereos at Team Electronics in Ft. Collins in 1976. 107 S. College, above the Catacombs. I applied for a job because they had a display of Yamaha and B&O in their front window. I liked those lines.

I'm not familiar with them but Vandersteen does still believe in exclusive distribution, giving their dealers an protected territory to sell. I'm sure Audio Connection is the only Vandersteen dealer in their vicinity. That kind of loyalty from a manufacturer is rare.

 

I'm not a pro but I would guess that any geographical distribution agreement isn't worth the paper it's printed on. The only thing a vendors local distributor/sales representative is interested in is making his quarterly sales bonus.

 

Lots and lots of questions to ask yourself....

- what brands would you like to carry and what brands are already carried in that area

- b&m location or home based

- focus on solid state or tubes ( or both )

- will you stock inventory or carry mostly demos

- how much $$$ do you have for said demos/inventory.....demo carrying costs alone can cost big bucks

- do you already know any good reps in the industry? (this can tend to be EXTREMELY important)

- if you are going to carry turntables, how comfortable are you with setup

- are you fairly flexible working with potential customers? each and every deal is different and often requires patience and lots of help/input (which I personally like)

- are you ok with LOTS of product competition? the shear amount of lines/brands out currently is pretty mind blowing considering the "small" number of customers involved in hi-fi

- will you be able to be very picky about what lines you carry, and would you be willing to learn about all the products those lines sell?


Just a few of the many things you will want to think about.........

Feel free to PM me with any specific questions.....I'll be more then happy to chat with you about my experiences (both positive and negative) with starting up a store.

 

Skepticism is often deserved. Maybe the productive path is to look to long lived shops that are doing it right.

Finally, a high-end audio dealer who really knows what he's doing »

 

You would be very surprised to find out that there are quite a few brands that have territory restrictions and they are VERY serious about those restrictions (I've seen dealers pulled from brands for not following them).

 

Absolutely. Limited distribution is an attitude, a corporate philosophy, not a contract.

Mercedes Benz believes in it. You don't find a Mercedes dealer in every town. Ford, not as much, although if they have a really good dealer in a town, they are much less likely to open up a smaller car lot in a neighboring community.

The audio industry used to believe in limited distribution. Not much any more and that is a shame. Between the Internet and the few remaining big box stores like Best Buy, having an exclusive line that could only be purchased locally through your brick and mortar store is rare. I can't think of a general purpose turntable line you could carry that isn't also available online. Rega, Pro-ject and VPI are all out. Is there a turntable company that would give you everything from a $400 turntable to a $4,000 one that isn't also online?

 

Sota seems to limit their online to the lower-end models, and keeps the pricing even across the map.

Also, I've heard more B&W speakers than any other brand in the last 40 years. Every store seems to cary them. Not once have I heard them set up properly. Not once have I heard them sound very convincing. I don’t even blame the speakers, but nothing will sound good jammed together thoughtlessly.

 

High end lines, yes, and God bless them for keeping their line clean. That same philosophy used to be held by mid-fi lines like Yamaha and Alpine. That's long gone and is a killer for a smaller store trying to serve a broad market.

 

you might consider starting a cable business instead

 

Thanks for the cool pic.

Catacombs is long gone, replaced by Sonny Lubbock's Steak House. Wife and I plan to celebrate our anniversary there this weekend.
Cheers