Why can't the hobby shops survive?

Tbone Jun 25, 2007

  1. Tbone

    Tbone Permanently dispatched

    657
    11
    18
    I live in Nashville Tennessee and we had 5 hobby shops last year.This year three are going out of business and the other two charge full retail and dont carry much N scale.Why cant a city like Nashville with almost three million people in the city and surrounding counties support our LHS?Is it the internet or what?I know people search for deals on the net but if I want one piece of flex track I dont want to pay 5 dollars for shipping.Please help me understand.Thanks
     
  2. Stourbridge Lion

    Stourbridge Lion TrainBoard Supporter

    16,684
    90
    183
    Yes, the Internet will have this kind of effect on stores that don't have a good presence. I use the Internet more and more even when it comes to my LHS. I make orders at my LHS over the net and get infomred when the order is in so I don't have to drive there just to see if they have the stock in or not. I can also get all my Pre-orders done this way.

    I'm sure it not the only reason but I'm sure it's part of the reason...
     
  3. skipgear

    skipgear TrainBoard Member

    2,957
    190
    45
    I'll start this out by stating that I am working at a shop that is doing quite well right now. We just moved to a store 2.5 times the size of our previous store at the begining of this year. We lost a good deal of business initially because of the move but it appears people have found us because we have already caught back up to last years sales. That said, we are a full line hobbyshop (read as HobbyTown USA), an evil word in many peoples dictionary.

    The internet definitely hurts us, It is really hard to compete with somebody willing to accept a 10% profit margin on sales. We discount what we can but don't even try to compete head to head against some of the internet pricing. We might as well give the stuff away at some of the prices. Selling at a 10% margin, we could make more money by investing it. Very few of our customers complain about pricing, they are happy to have the items available to them when they need them. We have been having very good luck stocking more and more detail items.

    I really feel it is just about impossible for a single line shop to stay alive just as a brick and mortar. There are days when RC supports the shop, days when Railroading supports the shop. Without a huge customer base (such as the internet) it is very hard to have a good day, every day, in just one category. Heck, we just had a $5000 sale of rockets to the BoyScouts. Things like that don't happen in a train only shop.

    BTW - We specialize in N but also have a moderate selection of HO with just a little Z and O to keep the christmas crowd happy.
     
  4. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

    63,802
    11,331
    652
    Well, it takes many factors, to make a hobby shop go. There's more to it, than just pricing. It's hours open, inventory, atmosphere, location (ease of access and parking.) Service- Not just repairs, but speed of obtaining ordered items. It's many pieces, when assembled, they create one big picture.

    Boxcab E50
     
  5. Tony Burzio

    Tony Burzio TrainBoard Supporter

    2,471
    143
    41

    A combined brick & mortar and Internet presence is the only way to survive. I hope someone figures out that a chain of store fronts strategically placed around the country (to cut down on shipping time) is the maximum return on capital...

    The rule is, "buy two, get one free". (Local hobby shop vs internet).
     
  6. Doug A.

    Doug A. TrainBoard Supporter

    3,481
    123
    54
    Well, this one will probably go ten pages, but here are a few thoughts...
    -I think (local) hobby shops' failures are less about the Internet and more about the fact that for decades they've gotten away with bad business plans, worse customer service, and generally not doing things that most businesses have to do to survive. This is because they didn't have a lot of competition for the most part, and because any cyclical business patterns were survivable as a result.
    -Because of this, I think you see a lot of good local shops surviving and thriving. Not necessarily because the competing LHS's are dwindling, (although that certainly helps) but also because the "honeymoon is over" with the Internet having such a great advantage as it once did. I see people starting to realize the value of having a local place for parts, assistance, returns, and other intangibles that make doing business via the web a little clumsy. e-Bay has "jumped the shark" in my opinion, and the increased shipping charges by the USPS has certainly not helped.
    -Manufacturers appear to be helping the local shops a bit by cutting back on QA, meaning it is more important to "kick the tires" and, for example, test a locomotive, or check a car or structure for broken parts, poor assembly, and the like.

    Having said that, I still think the e-tailers will keep the upper hand because of high-dollar purchases like high-end locomotives, DCC command stations, large track purchases, etc. As "hybrid" LHS's sprout up that keep a good web presence and extend their GOOD business model and customer service to the web, you will probably see people taking a second glance at that 10% they are saving. Of course, it can be argued that those exist today in the form of many of the advertisers here and similar e-tailers, but unless they are down the street, (like you fellows in Denver, Albuquerque, SanFran, etc.) you still have a decision to make.

    I do think that local shops will have to build a presence on the web to survive, eventually. And the shop (LHS or otherwise) that can build an "next generation" e-commerce site will also gain a competitive advantage. I understand this will be a challenge given the margins involved, and there is no "Amazon of Model Railroad E-Tailers", yet.
     
  7. MRLdave

    MRLdave TrainBoard Member

    804
    106
    23
    I don't think the internet really has an upper hand, but the LHS has to really service the customers........Sure I can get the latest car I want for $12 on the net and it's $16 an the LHS, but add in the $5 shipping and it's taken a 180 degree turn. The key then becomes IF you can get it at the LHS. My local HobbyTown doesn't have much, and ordering from them is hit or miss...usually miss. The shop I usually get my supplies from is a 150 mile drive (one way), but he has 80% of the stuff I need/want, and he orders from Walther's every friday so if I let him know what I want in advance, it's there when I arrive. He also doesn't require any payment in advance unless it's a really high priced item (like one of those $1000 brass steam engines). I still pick up old/out of stock/out of production items on the internet, but almost all my "new" stuff is from my LHS.
     
  8. J Long

    J Long E-Mail Bounces

    425
    0
    15
    Model Railroading is a niche market and moving a decent volume is difficult in even the largest cities. I buy most N scale, engines especially, at LHS's who discount somewhere between MSRP and internet. It's a lot of fun to seek out N scale dealers while traveling and bring home a pocket full.
     
  9. Grey One

    Grey One TrainBoard Supporter

    8,492
    1,703
    117
    In high school (I graduated 1973) I worked in a chain hobby store and about 16 years ago worked in a family run computer store selling clone systems. The chain has shrunk considerably and the computer store is long gone.

    The factors leading to the success or failure of any business are the same. For retail stores in general the biggest factor is demographics which carries with it "Location, Location, Location". For hobby stores in general it would come down to the same thing computer stores need. A perception of:
    "Quality, Service, Support, Expertise"
    (A phrase I coined and placed at the bottom of every quote when I sold personal computers at the computer store).
    If the buyer does not perceive a need to have these from a retail store they just won't buy it there. When one can get:
    • The same quality of product wherever they shop
    • Service from the manufacturer
    • Support from forums like these
    • Expertise from forums like these
    Then there needs to be a very compelling reason to purchase it locally. Those reasons might be:
    • Less sensitivity to price
    • A personal connection with the proprietor or staff
    • Location
    • Instant gratification
    • The need to have something right away for a project being worked on.
    In the computer store model the first four and second 5 were vital to make a sale. Forgo any of them and the buyer went with mail order, (The Internet as we know it was not around yet).

    I hope that helps.
     
  10. Tbone

    Tbone Permanently dispatched

    657
    11
    18
    Everyone has great points but isnt it better to go to your LHS and and actually look and touch your next locomotive.One of my favorite things to do on Saturdays is sit back with the owner and a few customers who come in and talk about trains and our layouts.It is hard to do that on the internet.Just my opinion.
     
  11. Bernard

    Bernard TrainBoard Member

    568
    1
    24
    My father owned a "Mom & Pop" small fabric store that couldn't compete against the larger chains. He had limited storage space and the large store could buy in bulk from suppliers. To survive he had to offer special items that the large chains didn't stock.
    One customer came in an told him that the large chain store sold the same fabric he had for .50 less a yard. My father told him he couldn't match the price and the customer should buy it from the other store. The customer replied, "but I can't the chain store is sold out of the fabric." My father responded, "You know, when I'm sold out of that same fabric I'm a $1 less than the chain store." The customer liked my father's sense of humor and became a regular at his store.
     
  12. FriscoCharlie

    FriscoCharlie Staff Member TrainBoard Supporter

    11,119
    257
    135
    How much money do you think that the place needs to take in every day to stay open?

    Sitting around and talking may be part of cultivating business but it isn't directly making money.

    I am part owner of a store and I know just how much money the store has to take in every single day to stay open. If that money doesn't come in, there is a problem.

    Buying a piece of flex track is not a money making situation for the business. Maybe you drop $1000 there over the course of a year but it takes a constant flow of cash to keep a business open and owning a model train store is a business that caters to a limited market.

    If there is not a substantial number of consumers spending a lot of money constantly, the business is in trouble.

    Chances are that business needs to take in several hundred dollars per day just to stay alive.

    For each employee that you pay $10 per hour to, you need to take in about $80 per hour to make that work. That includes his salary, workmans comp, the cost of the products he is selling, etc.

    Most people don't understand the economics of doing business. Stand around for an hour and estimate the amount of money the business took in.

    One gift shop I dealt with recently made a $250 purchase from us. Assuming that they would double the price, they would make a $250 profit when all of the items were sold.

    The owner of that store told me that their monthly rent was $4,000.

    That means that when all of the products they bought from us were sold, they would have made a profit of enough to pay 1/16th of one month's rent.

    I've been around model train stores before and I'm surprised that many of them are still in business.

    If they are operating from a store front, they are going to have to pay electric bills, telephone, Internet, rent, equipment costs, shipping to get products in the door, employees, taxes, and the list goes on and on and on.

    This is the part that people don't see. Especially when they complain about the price of something.

    If you are running a store, and you pay $10 for something, it would surprise most people to know what you have to sell it for to make it worth selling.

    When people wander in and stand around and talk and buy some small item, there's no money in that for the store. If you waste an employees time, it's a money-losing situation.

    We are lucky at our store in that we own the land and the building and are not paying rent. If we were, it would not be a workable setup.

    I'm a friendly guy and I enjoy visiting with people but when someone spends $10 in our store for something small and then spends 30 minutes standing there chatting with me, I just lost money because I could have gotten some work done.

    People come into our store and say, "Oh it is so nice in here, it smells so good... I could just stay in here all day. This must be a great place to be with music playing and no stress..." and they go on and on.

    It's like the guy that goes into the train store and says, "This must be great. You get to play with trains all day."

    If you occasionally drop $100 at the train store then fine, but they need that to happen every hour generally or they are not going to be there. You may see dollars being spent on Saturday morning but they also need to be spent on Monday morning and Wednesday afternoon.

    People that have never been in business don't really understand this in my opinion.

    One guy that went out of business with a nice train store told me that he had a good customer base and people were there but dollars were not.

    Charlie
     
    Last edited by a moderator: Jun 25, 2007
  13. Fotheringill

    Fotheringill Staff Member TrainBoard Supporter

    5,982
    0
    74
    I feel as follows:

    1. A LHS can not survive on the profit from selling one car or one engine or one piece of track. How many of us would consider going into a LHS and placing an order for track and turnouts and cork and whatever that will total $5,000.00 if the same can be ordered from the internet for 30% less? That $1,500.00 spread can purchase a lot of other things. If the large orders are going to e-tailers, the reason is pricing, and to a lesser extent, service. Even on middling orders of $300.00, there is a potential savings of $75.00 by ordering on line.

    Even within the class of e-tailers, there is a pricing difference. Personally, I have made a choice of ordering from an e-tailer who charges about 7-10% more than a few others on line rather than going for the cheapest price. The reason is for the service that the supplier gives me. He will pre-test any locomotive that I order, locate items that are out of production and has given me advice when asked and is honest in his answers and all dealings with me. I am willing to pay that 7-10% premium for that.
     
  14. Tim Loutzenhiser

    Tim Loutzenhiser TrainBoard Supporter

    1,479
    6
    33
    Sure had trouble trying to show a caboose I'm working on to the e-tailors a week ago. A trip to the local hobby shop, and in 5 minutes had the right trucks and MT couplers - they even opened up the coupler package for a test fit for me. And I have never been able to test run a locomotive on line before purchase!
     
  15. FriscoCharlie

    FriscoCharlie Staff Member TrainBoard Supporter

    11,119
    257
    135
    Tim,

    There's no doubt that LHS can provide a type of customer service that would be impossible online but the question is; Does that translate into the kind of dollars it takes to keep a business open?

    Our store is out in the "middle of nowhere" on a Maine State Highway and I get loads of people stopping in to ask directions.

    So, I have typed in MS Word directions from our store to about 10 common places that people are going.

    When people stop in to ask for directions, I hand them printed turn-by-turn directions and they appreciate it. Does that translate into dollars? Rarely but it is a good service anyway. People love it but it's a freebie.

    The bottom line for any business is; Is the register ringing? It has to and often.

    Charlie
     
  16. Doug A.

    Doug A. TrainBoard Supporter

    3,481
    123
    54
    There's always a but..

    Fotheringhill,

    You've made some good points. There are just so many variables involved though. You mention that service is worth the 7-10%, and I have an LHS whose pricing is in that range compared to the e-tailers. Their store is among the top hobby shops in the nation as far as stock and is well-organized. They have "95% excellent" service. But (there's always a but) there's that 5% and it's a big one...you cannot rely on their ordering/reservation system, which is a real bummer and left me high-and-dry one too many times. Anyway, my point is that the addition 7-10% SHOULD put you in the range of a "10-20% off" shop, which is where it seems a lot of LHS's are focusing. At least the ones that are ABLE to focus. :embarassed:

    I still do some business with that LHS and a few others in the area, (props to Discount Model Trains, Silver Spike Hobbies, Hobby World, and Angelo Hobbies) but I go pretty much bottom dollar on the e-tailer side, and I just figure in from the git-go that 1 in 10 locomotives will be DOA (thus, the 10%) and that I will eBay anything I change my mind about or just doesn't fit my fancy or whatever. However, as a bonus I still get exemplary service, not one dead loco to date (among "a few more than 10"), no issues with damaged-in-shipment, everything I've reserved has been delivered, and even a few of out-of-production finds as well. (props to George and Deb at Wig-Wag)

    Unfortunately for them and my LHS's, my hobby spending is on a curve approaching zero, so I will be more of a spectator in the progression of hobby shop economics for the next few years. But I've got plenty to keep me busy! :thumbs_up:
     
  17. ScottS

    ScottS TrainBoard Member

    26
    0
    11
    I think that MRR has a certain amount of business, and is constant. it seldom goes up or down much. So the hobby can only support a certain amount of business.

    Also one of my friends had a really good point. When modelers are done building the latest model plane or car, they go buy another one and build it. When MRR's are done, they play with them :D
     
  18. tehachapifan

    tehachapifan TrainBoard Member

    1,730
    471
    42
    Another factor is how in-touch (or out-of-touch) a LHS may be with regards to what's available out there. With a lot of N scale stuff being produced in limited runs, some stuff can never be seen or purchased at your more common LHS (by common I mean the store that carries everything from Leggos to RC and has a rather strange collection of MRR equipment....you know, the kind of shop that doesn't have a lick of MT trucks or couplers but, for some reason, will have an MT height gauge hanging there or a bag of bolster pins). There's a lot of LHS's out there that have never seen a single N scale SD40T-2, for example, because they either don't know they exist or they didn't order in time.

    An old practice of LHS's was for a customer to come in and place an order from a catalog. With a few (undesirable) acceptions, this practice is almost non-existent for things like N scale locomotives because the run was probably sold-out before it was ever released and, even if it appears in a catalog, can no longer be obtained. Some stuff is announced, released, sold out so fast it never even makes it into the Walthers catalog, for example. So, if a LHS that carries mostly MRR equipment wants to survive, they would have to have a lot of stuff on-hand...which of course drives up overhead costs.

    Then there's the whole Internet thing. I know a few LHS's that actually carry a relatively good selection of N scale equipment but sell at or above full-retail. There's been a number of times that I've gazed at a cool N scale engine in a display case somewhere and thought to myself that I could buy it on the Internet for $30 less. With more people becoming savvy with Internet shopping, it is going to be increasingly tough for an old-fashioned LHS to sell at their marked-up prices. Like someone said, a LHS should probably also have Internet sales if they want to make it today.

    Russ
     
  19. Tony Burzio

    Tony Burzio TrainBoard Supporter

    2,471
    143
    41
     
  20. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

    63,802
    11,331
    652
    The question here is, how many of those hits were generated by a search BOT? Versus a live person/potential customer?

    :confused:

    Boxcab E50
     

Share This Page