I am contemplating opening a hobby shop focusing on Model RR’s. Does anyone have any recent experiences with newer hobby shops in this economy? What profit margin is reasonable to expect? Any feedback would be helpful. Thx
Not a hobby shop owner or operator, but I am a small businessman in a family business, and ehre is some advice:
1.) Rent. This is major overhead. Location is important but can you afford that location? This will probably be the most important decision you make, because the rent may be dirt cheap, but if the locale is bad, you’re toast. Likewise the reverse – good location, high rent, you are toast again. Your best bet is somewhere with good road connections, near tracks, low cost rent, and in a bedroom community, so you are near home and the layouts of your customer base.
- Advertisement. Be careful. I always look at the ads in MR but not for hobby shops as much as either mail order or mfg products and specialty items. THE BEST ADS are the yellow pages!!! I cannot stress this enough! Don’t go overboard at first, but be willing to put out $100+ for yellow pages. Best deal is usu an in-column box of 3/4" to 2". Be firm and don’t let the salesman sell you on too large an ad, remember you still have to pay it even in your bad months! And be careful if there is more than one YP in your area. Research, and only advert in the reputable, used books.
3.) Inventory. If you don’t have enough, no one will believe you are serious. If you have too much it sinks you. The big ticket items may give you great satisfaction when you sell one, but money actually is in mid-price point items and in acessories. Average retail purchases are of those items under $20, and average big ticket items are under $100. You will have exceptions but your best bet is to get someone to buy an “extra” that they didn’t expect to purchase when they came in. You’ll also have a series of products that are below $10 which will be frequent and profitable sellers. My bet is these will be scenery items, but that probably just speaks to my own weaknesses!
BTW I would agree with whoever said you ought to have a working layout… and you might offer to host operating sessions there, or otherwise find ways o
Thanks to everyone who has responded so far. There were some great tips here and some sobering thoughts. I have more thinking to do but still believe in and love this hobby, and you know they always say do what you love. PS I am not giving up my day job!
You can make a small fortune from a hobby shop, if you start with a large one. (Actually, I have nothing meaningful to contribute.)
Frist,are their any hobby shops near you? Second,you have better plan on a good discount for your customers if you wish for them to return.Can you afford to buy by the case(s)?
You better carry all brands and not just the brands you may like.Build a solid customer base.
I recommend the following brands Athearn,Atlas,Kato,Walthers,Stewart,P1k,P2K and like brands.NO Junkers.
If you have another job,hang on to it.You will not get rich overnight.
This may seem harsh,but there has been alot of older and newer hobby shops to close.You can make it,but you must be price competive to do so.
I don’t have any experience but I will point out that many who post here talk about the discounts they are getting on the internet and what poor service they get from their local hobby shop. I am considering a similar thing except that I plan to buy kits and build them for a profit (I’ll probably make less than a dollar an hour) as a sideline. If things go well, I would look at expanding. Sorry I can’t be any more helpful than that. - Ed
I will give you some things that I learned while I was a dealer from 1990 to 1996.
First have enough money to stock the store and pay all the operating cost for a few mounths and some of the cost for a few more mounths. It will take a while to get the customer base you need to support you and you will need to put most of you first profits back in to increasing your stock.
Second advertize advertize!!! you will need customers before you get any from word of mouth.
Third be prepared to work long hours up to 12 a day 16 if you do shows.
forth be prepared to meet some of the greatest peaple.
If you can do the above things and the long hours and stress of running a shop dose not wreck your health like it did mine go for it.
A retired hobby shop dealer
You may have to carry more than one gauge and a revenue back-up product when the train business is dead.
Can you compete with the Standards & Trainworlds that give 25% plus discounts and still put wheaties on the table? See the post" A Trainworld Return and Surprise".
A diversified inventory is manatory and a horrendous up front expense.
I remember an article on this very topic years ago in Model Railroader. I no longer recall any specifics but this: the owners were themselves excellent modelers and purists and they swore the one product they would never carry are those horrid old “grass mats” that some of us old timers remember as the classic “scenery” for the under the Christmas tree type layout. Horrid stuff. So they opened their shop and soon learned that people were asking for the stuff and once they reluctantly swallowed their pride and carried it, they couldn’t keep it stocked! I guess the lesson might be that there is a world of model railroading that we real about in MR and RMC and the NMRA Bulletin and on this and other websites and there is an entirely OTHER world of model railroders who want brass track and scenery mats and exploding boxcars and horn hook couplers and it might well be that OTHER world of model railroaders who keep a hobby shop in business. In short prepare to be disillusioned.
I owned the Train Shop (hobby shop) in Anderson Indiana in the 80s. I found that the average retail store (non hobby) required a ‘turn’ of inventory of 10 times a year to be really successful. Hobby shops don’t get that. Most are lucky to get 2 turns a year. I was getting 4 and was making money, but not bunches. I financed my startup with the proceeds from selling another business that I had owned. You gotta have financing to last a year or more.
I carried ready to run starter sets and, yes, grass mats. I also carried Athearn, MDC, Con-Cor, Atlas, Model Power, Bachman, Life-Like, AHM, Walthers and more in locos and rolling stock. I had both plastic and craftsman structure kits and a heavy line of wood and plastic scratch-building supplies and Herald King, Champ and Walthers Decals. In paint, I had Floquil and Model Master. Details West, Details Associates parts, Kadee couplers, Atlas and Shinohara track and turnouts and core than I can remember. All of this in N and HO with a touch of O gauge.
Magazines and how-to books were very important to my customers as were the clinics that I sponsored and the monthly newsletter that I sent out. I advertised in MR and RMC and used the radio locally. I quickly found that the Newspaper was worthless to me, but that advertising in the local NMRA newsletter was good.
My clientele was 35 year old male with $35,000 income and up back then. Those are the exact people who left the area when the auto plants began to cut back.
Why did I close? The economy was failing here and then I had an emergency surgery which put me out of work for 3 months. The business was being operated by one of my employees and she was doing a good job, but when I came back she was telling me that
the inventory record was no longer matching the shelves. We spent the weekend doing an inventory to find that we had picked up more than 1 thief. They took advantage of the fact that she was the only one there, probably distracted her and waltzed out
Oh, By The Way, I discounted 20% on almost everything but magazines and special buy merchandise. Special buys were generally sold at 40 off. I was told later after I closed and sold my inventory to another dealer out of town, that all store owners could afford a little theft. After all, they were getting rich off of the little guy. Well, this ‘little guy’ went broke. It was MY family that didn’t have food on the table.
It can be done, but put it most of it under lock and key.
Roger
I was thinking about the same thing 15 years ago. What I did was visit a number of shops that only specialized in trains. That way I got to see the “good ones” versus the not so good ones. You can tell by the traffic, location, inventory, etc. I was spoiled by “Caboose Hobbies” in Denver (where I lived at the time). They had over $1 million in inventory (back in 1987). They have since expanded and are even bigger.
Also, I think it would be beneficial to have a large completed layout in your store. That really sparks interest in your potential customers. You would be surprised by how many stores do NOT have a working or completed layout.
Good Luck!
Well just a few observations that I’ve had in my area is that the little stores seem to go out of business. Only the bigger stores are surviving. I don’t know if that’s because the bigger stores have been around longer and so more people know about them or if it’s due to the bigger stores having more selection.
Also just as general retail advice. You’ll have to draw people in away from other stores and the internet which means you’re items like locomotives are going to have to be at reduced prices possibly even at a loss to get people in. While they’re there however you have to sell them the little things at increased prices. Things they know they can maybe get cheaper elsewhere but buy because they’re already there or because it’s more convenient. The best things to up the price on are items that are required for something else. for example the track nails tht go with track or the glue for the structures. Most people won’t even look at the price first.
Do some research. Especially on the location. Find someplace that is starved for hobby shops. People in the area will then come to you instead of the other place(s) because you’re closer and more conveinient. Another good place may be on the route to another hobby shop from a major part of town. That way business going their way is likely to notice you and at least come in to see what you have. The other hobby shop however may not be so happy with you cutting into his business.
I did a writing project on opening a model railroad store this past summer for a college project. There’s a lot of info on the internet. Turns out that modelers are better educated and paid than the general public. On a personal note, there’s probably 10 hobby shops here in Houston, and I buy 90% of my trains from one of them. Customer service, customer service, customer service. When I walk in, they greet me by name. I really like that.
Paul wrote:
"Only the bigger stores are surviving. I don’t know if that’s because the bigger stores have been around longer and so more people know about them or if it’s due to the bigger stores having more selection. "
This is a general retail phenomanon that ought to be remembered. Big stores buy in larger quantity with higher discounts. This is a major obsticle to buying. You will probably be expected to order in 4 digit increments as an opening order, or garauntee to stock certain items, etc…
A few thoughts on starting a business… (I have formerly owned / operated a business, though it was not a hobby shop)
- have you selected a city / town location, ie: particular city or are you considering a move to another area in order to pursue this goal?
- if you can get into an industrial / warehouse part of town, chances are that the rent / lease is signif cheaper (business restrictions may apply however - it may be that straight retail isn’t permitted, but with a hobby shop there is a large element of production / supplies/ crafts existing in the business - who knows? check locally) Hobby shops (my opinion) are a destination store - customers will seek you out moreso than be walk in traffic that happened to notice you - so if you can lower costs by avoiding large malls why not. ample parking in industrial areas is a plus also.
- strip malls would also be worth a look - individual entrance to your store, means that you can perhaps set your own hrs etc ( for example being closed on Sun and holidays may not be YOUR option in a large retail mall)
- do you know the competition? what is available at other stores in the community (not only hobby shops) - some electronics stores have similar hobby type products, … is their product line duplicating yours? do your suppliers also sell to other businesses in the same area - which ones, check them out first.
- a bonus for any parent of young children is to make sure that you have a kid friendly area in the store for young children (brio, thomas the train, puzzles to play with, videos to watch etc.) In my bookstore, this was always in use, allowing customers to shop or ask questions about products…
- make the most of marketing ( a basic model RR circling the front window area, a plane in the window, a TV with a train or toy product, electric sign etc… any movement, draws visual attention to your business - that helps to get them to, or in the door, the rest is up to you…)
- have a 3-5 yr plan to establi***he
further thought:
when starting a business, go for a short term lease if you can - 6 months (even 1- 2 yrs) is better than a 5 yr lock-in. you’ll have more financial opportunity after you are established… and in the event that the location turns out to be a poor choice you can relocate sooner.
I don’t own, and never have owned, a hobby shop, but let me offer some tips based on personal observations of what has been going on in south-east Arizona. First, find out if there is a market in your area for model railroad items. How many clubs are in the area? How many home modelers? Contact the clubs and find out how many members they have and what scales they model. What are the backgrounds and incomes of the members? What other hobby shops are in the area? How far away? Where do these members currently shop? What items do they purchase – cheap shake-the-box Athearn kits, or higher quality ready-to-run Atlas, etc. When I first joined the local club, there were only four members; currently we have 17. Being near an Army base, the membership changes practically every month, and very few of us are full-time residents. We have one local hobby shop, that survives only because it also carries radio control airplanes and the owner’s wife operates a knitting/weaving/sewing business in the same building, and that is what pays the bills. Several years ago there were at least six hobby shops in Tucson, which is 70 miles away – today there are two and one of them is on the verge of bankruptcy and the shelve are so bare that no one from here bothers to stop there anymore. Our next available choice is Phoenix, 250 miles away, or the Internet, where prices are 10 to 20 percent cheaper than any hobby shop and there is (usually) no sales tax. In short, carefully evaluate your market before you take the plunge.
Would it make just as much sense to check out and help an older hobby shop, with the idea of forming a partnership or buying half? Most companies are expecting a huge turnover in the next 10 years as us boomers retire. Somebody may take our old jobs! That may be true of small business & hobby shops too. Ought to be a way to clean up & improve an older business. New tile carpet + new lighting makes better appearance for the customer. New computer programs (bar codes) to make inventory & pricing cheaper. A database for your customers so you have an idea who comes in & how much stuff to get. The best shops always have a good selection of common items: paint, glue, magazines & books. And somebody that knows how to fix problems. I’d like to see somebody that does some painting & detail work & would do conversions for a fee.
I don’t believe there’s a lot to make out of the hobby business anymore and for one major reason.Your own suppliers will gladly sell directly to your customers through mail order for pennies more than what they charge you for the same material.
This results in the local hobby shop having a dim profit margin at best if he wants the customer to come back.Even worse,the local hobby shop becomes the expert who will often lose his time and efforts to explain “how it works” to end up selling a small item or two,to then find out that the same customer has purchased all his important goodies through a mail order house.
I’ve seen this in R/C a few years ago.The modelers expected the local hobby shop to stock in case they needed a spare part,a stick of balsa or a gallon of fuel but invariably went the mail order route for big purchases.This particular hobby shop has closed since…
You want to open your own shop…well I wish you good luck.I wanted to do that a few years back but with all the competition from big suppliers,I felt that I didn’t have a fair chance,at least in my town.It may be a whole different situation in your area,but think it over,at least twice.You may have a good chance,since Wal-Mart doesn’t sell mlodel trains…yet.