How do you open a succesful train shop like Spring Creek Model trains? Is it better to just have a “tent” shop that only travels to large train shows? How do you have a shop that carries a lot of stock from all different roads, have a nice building, and still make a profit? Thanks guys!
Hi!
And a belated “welcome to the Forum”!
To answer your question, the short answer is “you don’t”.
The fixed costs of a brick & mortar shop will drown you in expense. A traveling tent shop has its own kind of expense (travel/lodging) and other than the northeast and upper midwest, train shows are sporadic at best.
Putting together an “online shop” is perhaps easier to start, but the competition with established and well known net sites would be significant.
As a general rule of thumb, a retailer may get his supplies from wholesalers (like Walthers) for perhaps 60 percent of MSRP. A 40 percent spread sounds pretty good, but in order to make your monthly “nut”, you will have to sell a lot of product. And frankly, you will have to sell at less than MSRP in order to sell at all.
Said another way, I (an MR for 60 years) would rather spend my money with a known entity than a newbie - unless there was some real price incentive.
Of course there is another avenue (or competitor) and that is Ebay and related auction sites. Buying on Ebay is easy and somewhat protected, selling on Ebay meets with lots of competition and frankly it is work (I know way too well) to do it right.
I’m a retired business analyst, and I really dislike being “negative”, but it is what it is…
Some advice I read somewhere earlier this year on these forums when someone else asked the same question, started out “Begin with a large fortune” or words to that effect.
It then went on to explain that you would need to have at least $25,000 invested in beginning inventory alone, not counting any other start-up expenses such as rent, utilities, business license fees, etc.
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There’s an old joke.
Q: How do you make a small fortune running a train shop?
A: Start with a large fortune.
That’s unfortunately more truth than humor.
The only advice I might offer if you’re serious about this is to look for a train shop that’s closing because the owner is ready to retire. He already has set up a business that’s at least self-supporting, and he has an established customer base.
Not necessarily.
It is possible and like in any other field, only the best survive and do well. You must be inventive and proficient with current marketing trends. If you do not really love retail hobby/model train sales…RUN…don’t just walk away!! This is a labor of love.
Smart retailers follow trends, Brilliant retailers start trends. I believe that if a really hot fire is lit under your butt, coupled with business sense, a new upstart model train shop could succeed. There is so much more to this topic, but also inaddition to above, proprietor must be a people person and understand how important presentation and what follow up mean.
I owned a rather successful train shop from 1973-1975, and mistakenly sold it to follow an offer which literally paid me several times what I was making from the store. What was incredibly succesful was offering used merchandise. this became almost 50% of the shop, was rather unique which attrated many, and cost were considerably less than basic less 40% from wholesalers. When I got back into hobby retailing in 1982, I co-founded The Great Scale Model Train Show in Maryland…and loving every minute of it until we sold it last year after 32 years.
Good luck, and remember…nothing ventured, gain is impossible!
HZ
Thanks for the laugh.
Seriously, if you have the MR online access, go to a MR from the 60s 70s or 80s. Count the number of LHS in the back of the magazine. Now flash forward to the present day and look in the back of the latest issues.
What does that tell you?
Better to open a ebay store and keep your present job.
There are successful shops out there, though. I keep coming back to the cable TV show Bar Rescue, where an expert in running bars helps guys who are going broke trying to run a bar, which is apparently about as easy to do as going broke trying to run a train store. I think there are similar factors: a lot of guys open bars because they want to party at work. Bad idea. A lot of guys open train stores because they want to mix their hobby with work. Another really bad idea. It sounds to me as if the most successful train stores are run by people who are in business to make money, not as a sideline to their hobby.
A guy published a photocopied book on this subject some years ago, which may have some bearing: for a brick and mortar store, you have to look at market, traffic, the neighborhood, parking, rest room available, and so forth. You absolutely need adequate capital. You may need to look at sidelines for enough business to survive. Mail and web are a whole other issue, and they take even more capital in order to buy in quantity to sell at discount.
But then you have to look at service. It sounds like, in order to get staff who are bright, knowledgeable, and motivated enough, you have to look for retired guys who are willing to work part time and at less than they might earn before retirement. Hiring a jerk in his 30s with the issues that result in him working at a train store for a living is a bad, bad idea. (I quit going to my normal LHS when the owner started hiring young jerks.)
It can be done, but not by a guy who vaguely thinks it might be fun!
Unfortunately, that’s often not far from the truth. At least, though, he’s not losing his shirt every month, or he wouldn’t have lasted until retirement. I’d agree that a lot of shops are run by mature gentlemen who do it more out of love than out of financial need.
I just retired, and was discussing this at my LHS. The owner, to my surprise and dismay, mentioned that he, too, was considering calling it quits. I was shocked. He’s a couple of years younger than me, and seems to greatly enjoy what he does.
This would leave a great empty space, both in the marketplace and in my heart.
Ten million dollars would be about right to open the complete, well stocked comprehensive model train store in all scales/gauges and set up a good web site to go with it.
The northeast or upper midwest would be the only logical location since the southwest already has a good shop or two, and most of the people who buy model trains are in the northeast and midwest.
I managed a train department in a hobby shop years ago, and we looked into the idea of opening a “super store”, with big inventory and low pices - neve rcould find enough investors.
Sheldon
Anyone who has been in the hobby and observed hobby shops over time know that it’s a very diffucult way to have a successul (i.e. profitable or “gainful”). As others have noted, the way to make a small fortune is to open a train hobby shop and invest a large fortune into it. Or at least, the say to go broke or deep in debt, is to borrow enough money to start a train hobby shop and have it close a few years later still in the read.
So at best, it’s a major challenge to open and run profitably a train hobby shop in this day and age. Most go out of business after a period of months or a few years. The ones that do make it successfully know the business very well, and include internet/online sales as the major component to their business model.
So unless you know the ropes really REALLY well, the odds are stacked severly against you and you will probably lose money, likely a lot of money, and close up with in a year or two from opening. It’s a really tough business to get into - long story short.
Another option is to set aside money towards a shop and wait for someone to retire and sell thier shop. Many of the better known ones have changed hands over the years. The client base and stock is mostly there and carried over to the new owner. Allied model trains is a good example. Nobody gets rich selling model trains, most do it out of a love of the hobby, the desire to keep the hobby moving forward as best they can and it can help upgrade your collection if you deal in estates. One of the most sucessfull shops down in Indianapolis survives mostly on used equipment that comes in from estates. From older brass to tyco. It all sells for the right price. Mike
Depending on what kind of standard of living you want to have should be the determining factor as to whether you open a storefront shop or not. If you can be happy with low income, go ahead and open a small shop in a low end retail location. I think the stress of paying the bills every month would not make for an enjoyable experience.
Sheldon is not kidding when he says you need ten million to get started and be successful. I am familiar with the situation of the third largest model train online retailer in the world. I was invited to invest in it when a public offering was made ( buying stock in the company) to really get it up and running. I declined at the time and am kicking myself now. Really the only way you can be successful is to have a lot of start up capital.
The cost of labour is the largest cost to any business and the retailer I am familiar with has a lot of staff and they work hard. They are not standing around waiting for a customer to wander in, they process orders of already sold product that are spit out by their computers. No down time for staff.
The one thing I will disagree with Sheldon on, is where your market will be. If you have a store front your market is xxx miles from your shop. If you run as an online retailer the world is your market place. I have been at the shop I am talking about a few times when Canada Post has sent the truck for pick up at the end of the day. It is a pretty big truck. The funny thing is they send more North American type trains overseas than they do to North America. All you have to do is look at the population distribution of the planet to understand this.
You either need very deep pockets and a lot of knowledge or a lot of knowledge, including knowledge on how to raise startup capital to get started in this day and age no matter what the business.
Also, you must consider that retail itself is getting pounded, as a whole. Niche retail, outside of things like boutique clothiers and ethnic foods (not resturants) in well to do areas, is all but dead.
The hobby shop people I talk to do more than just trains. They have often told me that trains do not support the hobby shop. Most also do internet sales.
Even if you don’t do mail-order, you have to have a website presence. You don’t have to hire a web developer anymore. I set up my website all by myself through wix.com and pay $19.95 a month for a business platform and $5 a month, and about 3.5% of sales to Paypal for their eCommerce shopping cart application. (If you don’t need eCommerce and don’t mind “Wix” displayed on your website, it’s free.) Wix provides templates and it’s just add, drag and drop of photos, apps, buttons and text. It’s cloud based, handled on its server and uses HTML5, so you shouldn’t have any security issues. (All the eCommerce and customer personal information is handled off site on your ecommerce application’s server and is encrypted.)
IMO, Ebay is not what it used to be, possibly partly because the economy never recovered and partly because Ebay keeps raising the fees. (Sure, employment is up and the stock market is soaring, but there are still plenty of unemployed people out there and others just working part-time and/or for much lower wages than they did before. I know, I was there.) IMO, on Ebay, many folks are only looking for deep discounts or product they can resale. (I sell very little product on Ebay, but together with its partner, Paypal, they take about 15% of my sales in fees and commissions.)
My brother has owned his own successful business for a long time, and he says that these days you have to “everything right” and it’s “customer, customer, custom
Seams to me any new hobby shop today should be geared 80-90% to online sales and you have a public storefront only as a sideshow to the main sales. That being said your NOT going to be opening up in a mall or shopping center. Its going to be a warehouse probably in the shabby side of town with good truck and UPS/USPS access. I have seen similar shops at most of the newer places I’ve run across. The traditional neighborhood LHS is becoming a thing of nostalgia. The only ones left are the longtime established ones and when they decide its time to go fishing that’s the end of that business model.
A friend used $25,000 to start a very nice Hobby Shop in 1970 -
He was out of business within 30 months…
Jim
We have a club member here in Arizona who moved from the Chicago area last year.
Practically all the hobby shops he patronized when living in the Chicago area have stopped selling trains and now concentrate only on model planes.
They all tell him the same reason – people are always crashing their planes and looking for repair parts or buying a completely new plane to replace it, but when a model train crashes there is usually minimal damage and nothing needs to be repaired or replaced.
When I first moved to Arizona there were 6 hobby shops in Tucson, 70 miles away, that specialized in model trains. Today there’s only one, within an Ace Hardware store. All the others closed up when the owners wanted to retire and no one was interested or had a good enough bank account to purchase their business.
Several years ago I was chatting with the owner of a local hobby shop, when, during a five minute period, two young people came in asking for donations to some sort of fund raiser for their school or scout troop or whatever. The store owner told me after they had both left that he gets 10 more more people like that coming in every day and if he contributed to every one he would go broke within a week.
The one thing I can tell you about train shops is most are not good buisness people! You can run a successful shop but you need to run it like a buisness. Even here, most people do not understand retail. The little things that people say are not profitable are the things that will make you money in the long run. Example, a company like Home Depot sells a toilet, they make no money on that but instead make all their money on that product by selling you the 1/2 dozen other things that finish the job and by upgrading certain parts (like the seat). Same with alot of the other things they sell and they tell you how to install it too. One very sucessful shop I knew had an install buisness besides the train shop. He had a few partners in this side buisness and of course all most materials came from his shop. Today you can sell on the internet too.