Cost of opening a HiFi shop?

My shop had a reputation for discounting. As our sales volume increased, competitors starting complaining to the maufacturers. The manufacturers started sending in mystery shoppers. We did lose a few lines due to this.

We got replacement lines, and then trans shipped the lost lines from a dealer in Miami. The mystery shopper visits increased from the manufacturers that pulled their lines. They never believed we had the items in stock, so we'd take them into the stock room and prove it. Boy, were they pissed! They never bought anything.

Fun times!

 

I forgot about this. My shop was a Sunfire Dealer when Bob Carver launched the line. My boss would sell Bob's amplifiers and subwoofers to dealers out of our geographical region.

 

I do understand the fake discounts and all of that and a manufacturer can outline anything they want in their dealer agreements, enforcing them is an entirely different matter. There are many legal ways (most all of them), to terminate a dealer agreement, if they simply do not want you as a dealer.

There is a reason the they use the term Minimum Advertised Price and not Minimum Selling Price (MSP), one is legal and the other is not (in the good old USA). What is legal is to place restrictions on publically advertising anything below a certain price point. In other words, the manufacturer does not want their products prostituted by greedy dealers who ruin the preceived value of their products and end up with their dealers engaging in price wars and ruining retail margins that will keep their dealers in business. They cannot force you to sell a product at retail price or any other price.

Another acceptable term is MSRP = Manufacturer's Suggested Retail Price.

Thing is, if a company like Macintosh wanted a dealer to not discount their products, then it would be prudent to follow their advice and retain the dealership. This is not an unreasonable request as they are providing that dealer protected territory, that has extreme value. I agree with your methodology concerning "packaging" a whole system together, using other components.

 

I saw the exact same pattern at a store here in the '70s/'80s, it seems that's the way things went for dealers who rocked the boat.

 

Not trying to derail the topic here, but does anyone know the margin or points stores work with when selling new vinyl? Do most of them work with a distributor of some sort? How are returns for defective merchandise handled? I've often wondered about this...and with the recent increased interest in music on vinyl, it seems like this type of business may be worth investigating.

 

I have a friend that runs an online vinyl shop. His overhead is very low, and after everything is said and done his net profit on each new record is only a few dollars. He deals with a variety of distros, and buys direct from labels for certain records that are bigger sellers. Re: defects, it depends what distro or label it came from as each one has different terms. On some stuff, he has to eat the cost of defects. On others, the label/distro will replace the defective item, but require him to return the defective items to the distro/label. One time he received a batch of records that were clearly warped without even needing to unwrap them. He had to pay out of pocket to return those to the distro, even though the distro screwed up by shipping such obviously defective LPs in the first place.

Without going into more detail, if you are looking to make money, look into some other business.

 

One of my best friends owned a regional chain of record stores. We'd talk business and his and my margins, costs and profit were almost identical. If anything, his margins were a bit lower than mine but then I had labor dollars to throw into the pot. Offsetting that were somewhat lower costs of labor for him but I had to pay good talent to do my home and car installs. His four store business is closed now, too, although what killed his company was downloads.

 

I would think selling music from a regional location would be tough these days. If I were to do it, it would definitely be online.

 

Gotta love America in the 21st century! I visit my wife's small hometown a couple times a year and love to listen to all the griping about small town America dying today. The guy that runs the local grocery is mad because the locals are supporting the new Food Lion, or worse driving 25 miles to the Walmart in the next sizable town. The Hardware store owner has the same gripe about the Lowes 25 miles down the road as well. Yet the grocery store owner shops at Lowes and the Hardware store guy buys his groceries at the Walmart. Then they are upset that the locals come in with Internet pricing they want matched at the B&M.

Stereo is no different (even worse as it's discretionary spending).

I am an independent manufacturer's rep. I have to do design assist work, provide samples, provide training to distributors, contractors, engineers and architects, assist with installation questions, provide owner training, etc, etc. All against competitors that sit in the office and wait for jobs to come out to cross stuff to similar but cheaper products and cut the price. Loyalty hard earned has become maybe the toughest commodity of all these days. Yes Americans love to talk the talk, but getting them to walk the walk is very tough indeed!

 

Seems to me that the safer option is to become a distributor. What are the economics there?

 

This should help in regards to what the retailer pays the distributor: Cobraside - Catalog »

 

Not good. The problem is there aren't many customers for a distributor. There aren't a lot of independent stereo and appliance stores any more, which are a distributor's bread and butter. If you are Capitol Sales in Minneapolis, which specializes in home and commercial installation lines, yes, there are enough trunk slammers out there doing home installs to have a thriving distributorship. In general, though, the distributor business is in the tank, too.

Compounding the situation in the audio business is maybe 15 years ago, a lot of the lines made their manufacturer's reps become distributors. Smaller orders were handled by the reps out of inventory in their back room. What business there was for distributors became even less because of competition from the reps.

 

The problem with hifi is it is too niche and return business is few and far between. Those two factors are enough of a hurdle on their own, so to battle both as a norm is futile.

 

A friend of mine in the music business as a distributor/rep answers the following question the same way, each time it is raised.

Q - I want to make a small fortune in the music business, how do I do it?

A - Start out with a large fortune.

Enough said!

 

Today, it is a lot different for reps. Years back, there were distributors and independant reps, not so much any more.

Manufacturer's are considering independant rep firms and independant distributors as middle men, to whom they are loosing profit on.

Solution: Simply get rid of them and hire your own factory reps, which mainly handle the larger chains, where the bread and butter is. They are on salary and receive small comissions from their accounts. As such, they do not have any incentive to work with smaller accounts, their job is to move boxes.

In the old days, a rep could get in his car and travel from town to town, in his territory and go from audio store to the next store and earn a decent living.

Try and do that today. Even if there were still independant distributors and rep firms (noting that there are some that are still around), imagine being one of those reps and attempting to make a living, from the remaining small botique stores. Hang out at one store for a day or two and get an order for a couple of pair of speakers, dirve 200-miles to the next store, repeat the process, this time getting an order for an amp or two...

As a former traveling salesman, you just can't do it today, not with the cost of maintaining a vehicle, gas, food, lodging... the list goes on. There are simply not enough opportunities avaiable to earn an income for your efforts.

The bottom line is: Whatever business you are engaged in, my suggestion is that you avoid any business that is "Brick and Mortar" at any cost. Dealing in hardware is financial death. As others in this thread have suggested, deal in software (value added services, programming remotes, whatever), do not invest in merchandise unless you have a home for it prior to making a purchasing decision.

 

You are speaking of the real world, yes these are the youth who are "re-discovering vinyl", and you have accurately described the majority of them.

Are they really interested in vinyl? Doubtful.

But, there will be handfuls here and there that ask the questions in their own minds, is there better sound? How do I get it? hopefully, they discover forums, such as ours and take the next step, then the next and so on. Soon, there are discussing the merits of interconnects. They have come full circle.

 

I agree that many of these people will lose interest in records, stereo equipment, and music when the current vinyl trend dies. That said, there will be some that become interested in hi-fi or become lifelong music fans.

 

It's a total shame the rep business is so bad now. I learned so much from my reps: sales techniques, product knowledge, advertising and promotions, even hiring and firing. I earned an advanced degree in retail hi-fi sales from my reps. As @GoldprintAudio said in this thread, a great rep could be your guru when opening a store. They'd buck you up when business was bad, be the first to congratulate you when sales were great, help you through rough patches, be the only people you could get ahold of on the weekends, and teach you to always, always, ask for the sale.

The great reps had sales tips that worked (Selling is an active verb///Close and then shut up///If you're going to make big sales, you're going to take big returns). They bought your staff pizza and beer and maybe took you out for a nice dinner once a year. When you had a question about a product, you'd call the rep (How many reps does it take to screw in a lightbulb? I don't know. Nobody has asked that question before. I'll call the manufacturer and find out.).

My best reps were a conscience and a guide. I could not have run my store without them. In many ways, just like it's the nurses which make a hospital work, for decades the reps were the backbone of the consumer electronics industry. They kept the ship steering straight.

 

To paraphrase Sacha Gervasi, director of Anvil! The Story Of Anvil it would probably be cheaper to develop a serious heroin addiction than to open a HiFi shop.

More seriously, I don't think you can possibly have a "HiFi shop." All those outlets seem to actually be doing a lot of custom home install business, which turns out to be how they actually make the money.

Or, some kind of cross-pollinated business, like a record shop also selling Hi-Fi. I started thinking the other day that actually IKEA could probably sell a fair amount of Hi-Fi equipment if they just had it in their showrooms.

 

Nice to hear nice you had good relationship with your reps. We actually take a good deal of abuse as many think of us as "middlemen". In reality, we are just the commissioned salesmen that the factory would otherwise have to hire. We actually save amnufacturers over an in house sales force. I am in the lighting business and rep about 100 manufacturers, most of which would never have a presence in most markets without reps.

 

I have always found it to be a good idea to have a close relationship with the reps, no matter what business I was in at the time. Extreamly useful, why would anyone not take advantage to a free asset, when it was available.

I have also been a rep myself and have helped others.

 

Prohibitive. Figure a few million $s for demo gear & add in the usual retail costs. There is no upside.

 

May I suggest a stereo REPAIR shop instead of retail store.
With the correct skills and the right place, you would be better off.
Good technicians have months of work in process.
Good luck.

 

A lot of good stuff in this thread. Three of my local dealers are located in Central Phoenix. Only one of them has a huge shop, while the other two are either small to mid-sized. I think location has to do with a lot of it. They all get a lot of foot traffic because of their location. So if anything, if you decide on a shop, consider a good location. Reservations are a good thing, but I think leaving a walk-in shop can be a bit better for potential customers.

Also, consider the products you'd want to carry, and how much money they would cost.

Overall as most have said, it's a business that needs a lot of time and money put in, but I'm sure even with decline in hifi stores, you could be the one that stands out.

 

I disagree with this. I think you could get millennials to spend money on "great hi-fi". The problem is, the audiophile manufacturers simply don't many many products that millennials are remotely interested in. The product design is typically stuck in the '80s (and not even in a "delightfully-retro" way), the user interfaces are unmitigated garbage, and the products address esoteric needs that only old rich dudes in their '60s (who are half deaf anyhow) could possibly give a flip about.

You would think that Beats - a company that took the staid, unloved headphone and turned it into a multi-zillion dollar business - would have been a model the other electronics manufacturers would have emulated in their own business. But you'd be wrong. Or Crosley and their junk, for that matter. But nope. The rest of the industry is humming along apparently utterly oblivious. "Why aren't you interested in our ugly/boring black box with 200 fiddly nobs?" "What do you mean you won't spend $300 on cables?" "No, it won't work with an Android phone - why do you ask?"

To some degree the death of the hifi store - heck, the electronics store in general - is tied up with the death of the middle class, but the decline of this industry is out-of-scale with that decline and is largely self-inflicted. I honestly think the biggest problem with the industry is that too much of the design and marketing decisions are being made in Asia when that should be coming mostly out of the US. If we'd waited around for Japan, Inc. to design the iPhone, we'd still be waiting. However, I don't know if any bank would fund a big American electronics startup, or if any American company theoretically capable of doing it themselves (GE?) would kick in the cash or hire the kind of talent necessary and let them do their thing.

We unfortunately got rid of all of our big electronics manufacturers in the '80s. Maybe Apple will have its Beats division re-enter the market at some point - there would certainly be demand for American designed hifi goods with an eye toward the 21st century.