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The Problem with Hobby Stores
Author: The Lark
Date: 01-03-2014 - 16:45
I used to be in the model railroading business. The main reason why hobby stores fail is because most owners are completely inept when it comes to business acumen. They resort to various shenanigans or blame others for their failures. As with anything, there are exceptions but the vast majority exhibit one or more of the following problems:
1. No computerized inventory tracking system. At any given time they have no idea what is left on the shelves, in storage, or missing. Just as many stores have no computerized invoicing or cash register system either. This makes it impossible to analyze purchases by customer. People who buy one product generally buy other related items, so having ample inventory around of each is critical if you want customers to keep coming back.
2. A vague understanding of their customer base. They don't engage anybody to see what their interests are. A hobby store in Northern California once told me their inventory of locomotives and rolling stock painted for east coast railroads didn't sell very good. Hello? This isn't rocket science, railfans on the west coast are primarily interested in west coast railroads.
3. Shady business practices. When I was still in the business, several stores claimed they didn't understand the sales contract AFTER they signed it. Whatever the problem was they expected us to cave and give them a full refund. We had a store that wanted to convert past sales to consignment, even though we never operated under consignment. They wanted us to refund what they already paid, about $1000. When we refused, they took us to small claims court. The judge wasn't amused and dismissed the case in less than five minutes.
A number of stores returned "defective" items for a refund that weren't defective at all-they just wanted the cash because the items weren't selling.
One store had an arrangement with USPS to leave parcels at the neighboring business because they were closed on Mondays. A worker there accidently tossed our shipment into a cardboard baler and it was destroyed. The hobby store felt we were responsible because the contract said FOB Destination and the shipment never physically reached the hobby store.
4. Socialistic Tendencies. We never forced any hobby store to buy anything. Whenever they did, it was at a wholesale price that we mutually agreed upon in advance and put in writing. No tricks, no surprises. We negotiated prices just like any other business and not everybody paid the same price for the same item. Generally speaking, stores that ordered larger quantities on a regular basis got a better price. I was amazed by the number of stores throwing temper tantrums whenever word got back of the lower pricing. They also @#$%& whenever we offered the same items for sale on our website at anything less than full retail price because they deemed the competition unfair.
At one point we refined our manufacturing processes to cut costs and be more competitive. This allowed us to lower prices $5 to 10 per item. Since wholesale discounts are calculated on a percentage basis, several hobby stores complained we were "running them out of business" by slashing prices so they couldn't charge as much. This whole concept is totally lost on many hobby store owners; lower prices on popular items either means they will sell MORE of them, or it leaves the customer with cash leftover to spend on OTHER items.
Production and material costs are high in the hobby business. No manufacturer is selling millions of anything so they can't take advantage of economies of scale like a company such as Apple or Samsung can do with consumer electronics. I'd guess that production costs, labor, and raw materials for most model railroad stuff runs somewhere in the 30-50 percent range of the retail price. Thousands of man hours went into the development of our products and we had normal administrative costs just like any other business. To make it worthwhile, we needed to recover 60-70 percent of the retail price on everything we sold. I didn't advertise these figures when negotiating with hobby stores but was forthcoming when they asked. Hobby stores often demanded something entirely unreasonable like a 50 percent discount-even after I told them what our costs were.
A lot of model railroad manufacturers, and I presume book publishers as well, are throwing in the towel because the hobby stores are running them out of business with rigid demands and a refusal to wake up to the 21st century way of doing things. There's just no excuse not to use a computerized inventory and invoice system to streamline their business and help make informed decisions about what works and what doesn't. There's also no excuse if you have a storefront location not to also have an internet presence and online store.
1. No computerized inventory tracking system. At any given time they have no idea what is left on the shelves, in storage, or missing. Just as many stores have no computerized invoicing or cash register system either. This makes it impossible to analyze purchases by customer. People who buy one product generally buy other related items, so having ample inventory around of each is critical if you want customers to keep coming back.
2. A vague understanding of their customer base. They don't engage anybody to see what their interests are. A hobby store in Northern California once told me their inventory of locomotives and rolling stock painted for east coast railroads didn't sell very good. Hello? This isn't rocket science, railfans on the west coast are primarily interested in west coast railroads.
3. Shady business practices. When I was still in the business, several stores claimed they didn't understand the sales contract AFTER they signed it. Whatever the problem was they expected us to cave and give them a full refund. We had a store that wanted to convert past sales to consignment, even though we never operated under consignment. They wanted us to refund what they already paid, about $1000. When we refused, they took us to small claims court. The judge wasn't amused and dismissed the case in less than five minutes.
A number of stores returned "defective" items for a refund that weren't defective at all-they just wanted the cash because the items weren't selling.
One store had an arrangement with USPS to leave parcels at the neighboring business because they were closed on Mondays. A worker there accidently tossed our shipment into a cardboard baler and it was destroyed. The hobby store felt we were responsible because the contract said FOB Destination and the shipment never physically reached the hobby store.
4. Socialistic Tendencies. We never forced any hobby store to buy anything. Whenever they did, it was at a wholesale price that we mutually agreed upon in advance and put in writing. No tricks, no surprises. We negotiated prices just like any other business and not everybody paid the same price for the same item. Generally speaking, stores that ordered larger quantities on a regular basis got a better price. I was amazed by the number of stores throwing temper tantrums whenever word got back of the lower pricing. They also @#$%& whenever we offered the same items for sale on our website at anything less than full retail price because they deemed the competition unfair.
At one point we refined our manufacturing processes to cut costs and be more competitive. This allowed us to lower prices $5 to 10 per item. Since wholesale discounts are calculated on a percentage basis, several hobby stores complained we were "running them out of business" by slashing prices so they couldn't charge as much. This whole concept is totally lost on many hobby store owners; lower prices on popular items either means they will sell MORE of them, or it leaves the customer with cash leftover to spend on OTHER items.
Production and material costs are high in the hobby business. No manufacturer is selling millions of anything so they can't take advantage of economies of scale like a company such as Apple or Samsung can do with consumer electronics. I'd guess that production costs, labor, and raw materials for most model railroad stuff runs somewhere in the 30-50 percent range of the retail price. Thousands of man hours went into the development of our products and we had normal administrative costs just like any other business. To make it worthwhile, we needed to recover 60-70 percent of the retail price on everything we sold. I didn't advertise these figures when negotiating with hobby stores but was forthcoming when they asked. Hobby stores often demanded something entirely unreasonable like a 50 percent discount-even after I told them what our costs were.
A lot of model railroad manufacturers, and I presume book publishers as well, are throwing in the towel because the hobby stores are running them out of business with rigid demands and a refusal to wake up to the 21st century way of doing things. There's just no excuse not to use a computerized inventory and invoice system to streamline their business and help make informed decisions about what works and what doesn't. There's also no excuse if you have a storefront location not to also have an internet presence and online store.
