Advice wanted: Taking over an HiFi Store

[solderdude]

People like to spend money on a dream.
High-end is just that.
In order to sell the stuff you either have to convincingly lie to customers (and see if you can sell them the stuff they want to buy and give you a good margin) or you have to sell what you stand behind. In this case the inventory is likely not worth it. You may end up with a lot of gear audiophools are not really interested in though.

 

[Astoneroad]

Run, Forest, Run. Good luck.

 

[JeffS7444]

I wish we had gift cards back then, because gift cards are the work of a genius: The store collects the money immediately, but the card recipient may never get around to redeeming the full amount for merchandise.

 

[Mr. Widget]

My advice is this.

If this is a mission of passion and your goal is simply to not lose money, it may make sense. If you are looking at this as a business opportunity and you hope to be profitable, don't do it.

As many above have mentioned, there are many pitfalls to owning a HiFi showroom, but you may really enjoy it and if you can afford to run the shop and you don't need the investment for your retirement, you can probably find worst ways to spend the money.

 

[Doodski]

I wouldn't want to sell audio as a standardized commodity, because the profit margins are probably going to suck.

Profit margins on home audio and car audio are the highest of anything in a AV store with car audio being ~5%-6% better at years end usually. Think a good salesperson can average about 35% on home audio at years end when a clerk can manage maybe 29% average. That's what we where running for years.

Whereas people are much more apt to spend generously if there's an emotional appeal too.

Creating excitement and reacting on that is what good salespeople do. It requires daily effort, is a lifestyle and requires a constant drive to be the best one can be. It's difficult to always be prepared and ready to turn it on whenever a customer arrives. Clerks just serve customers and pros make things happen that otherwise would not have happened. There's the emotional appeal and it's in the salespeople populating the store. Some are constantly reading self help books to keep fresh and at the top of their game, others are naturals and some are just clerks as I mentioned. Myself I regularly attended sales conferences paid for by the company or the extended warranty company because I maintained high yearly margins of about 35% in home audio sales and they wanted to keep that excitement going because it is contagious for the other sales staff that see and hear the techniques and see the success. Others want that when they see it can be done and that makes a good foundation for a sales team. A audio store is a team effort because if one person is creating a following with the intention to stay and make a occupation of it and others are simply clerking it and walking customers out the door with nothing in their hands it creates animosity and resentment between the staff because the movers and shakers making it all happen feel they could have done better with that customer.

 

[Doodski]

I wouldn't want to sell audio as a standardized commodity, because the profit margins are probably going to suck. Whereas people are much more apt to spend generously if there's an emotional appeal too.

When I worked there, the store could be crazy-busy on Saturdays: Some regular customers stayed until closing, it could be standing room-only, with queues for the seats in the demo rooms.

That's when you know it's being done correctly. I love that excitement. It gives me a buzz.

 

[fivepast8]

The only way I can see the business flying is to cater to those higher-end folks who want turn-key. You install the equipment and even do a preliminary EQ tuning for room correction etc.

Yes, that is exactly what I was envisioning, even setting up the iPad with Qobuz, transferring their library, ripping CDs etc. Full turn key operation!

I think there are two questions here.
1) Can the store make money and survive.
2) Would you enjoy the work.

I've no idea about how to answer the first question, but is there an option to work unpaid in the store for a week? People I know who have made big career changes have done this, and found it illuminating.

Yes, that is the plan, to work and observe for a while.

Also, the MBA in me takes the 'only pay for the warehouse stock' as a sign to run...

Not necessarily: winding down a business has associated costs of its own, paying rent while peddling off the stock. On the other hand, as many pointed out, the business may not have much intangible assets: the past profits are not guaranteed as the main sales person is leaving (owner). I am not worried about valuation of the business, much more about the viability, integrity and business model per se.

In Switzerland, there is very little in terms of mail order and free return in the audio field (as of yet). Exception is Genelec. Also puzzling is the number of Hifi shops scattered all over Zurich city. Most of them have been around for ages.

 

[Bjorn]

I would be very careful taking over a store that basis it's income largely on snake-oil and turn it in the direction of an objective approach. Many audiophiles have a great need to defend their believes, thus turning them will be extremely difficult and you'll probably loose a majority of the customer base.

Better to start from scratch if you believe there's a market for this, and you have the right products and knowledg/service to offer. This will also be very challenging since most audiophiles have a different belief.

 

[sarumbear]

In Switzerland, there is very little in terms of mail order and free return in the audio field (as of yet). Exception is Genelec. Also puzzling is the number of Hifi shops scattered all over Zurich city. Most of them have been around for ages.

This is the total opposite to the situation in UK. We buy online.

In central London there is only one shop, which is high end. There’s just one more shop, which sells mainly used equipment and at the edge of the city, half an hour away from centre by bus/underground.

Most Hi-Fi shops had been advertising themselves for a while as Home Theatre shops as that’s where they found profit. Not only there are more equipment to sell in one transaction, including TVs, but they can charge set-up fees. Along with those we have lots of HT designers/installers who build residential theatres, which is big business. Their professional shows are at big exhibition centres, unlike hotel Hi-Fi shows.

 

[Koloth]

I would not do it.
I worked in one of the stores on that map for years.

If you want an actual business, pursue the high-end of the market: store opens on prior appointment only, lots of project management/home installations, not a lot of volume, small margins for errors, perhaps four big orders a year.

If you want the experience of being a shop owner, be prepared to listen to hour long ramblings of random walk-ins whose spouses dont share their "hobby" and who have figured that a hifi-merchant on the other hand must surely appreciate the pictures of their second-hand acquired gear or their musings on the varieties of isolation spikes...

 

[RayDunzl]

I'd decline, unless it was my passion.

 

[Chrispy]

I'd decline, unless it was my passion.

I did a change from a professional b2b type business to more a retail situation with one of my passions....might depend how much money you want to throw at the passion . There can be a difference between the passion part and making a business out of the passion part. Would the passion in this case be the sheer joy of good audio gear or selling stuff you don't even believe in (or trying to convince one of those "audiophiles" to think clearer?). I don't think I could sell silly audio gear, and in this case that doesn't sound like a good business plan particularly.

 

[Mr. Widget]

If you want an actual business, pursue the high-end of the market: store opens on prior appointment only, lots of project management/home installations, not a lot of volume, small margins for errors, perhaps four big orders a year.

That's what we do, however our market may be different. Also, we are a bit larger than that with dozens of projects a year and a number of them being into the 7 digits requiring years to complete. It is very satisfying, but even though the numbers seem amazing, it is still not terribly profitable.

If you want the experience of being a shop owner, be prepared to listen to hour long ramblings of random walk-ins whose spouses dont share their "hobby" and who have figured that a hifi-merchant on the other hand must surely appreciate the pictures of their second-hand acquired gear or their musings on the varieties of isolation spikes...

We rarely have to deal with this and it still gets old pretty quickly.

However, as I and others have said, if it is your passion, it can be rewarding on a personal level.

 

[Doodski]

I'd decline, unless it was my passion.

It takes a special kind of person to be good at running and working in a HiFi store. From coaching the staff, being a friend and a boss simultaneously, handling repetitive rejection and being in top form for selling everyday all day so as not to miss opportunities. I saw ~several dozen peeps come and go because they could not manage/handle the environment. Staff turnover over the years' period is high and finding good capable sales people that want to work a HiFi store is tricky and I think it's a numbers game. Keep replacing those that depart for other jobs and once in awhile a good candidate is found. I've seen university grads come and are horrible sales people and then a uneducated carnival worker is hired and becomes the best sales person going. One never really knows who is who until sinking or swimming in the environment. Sometimes people hang around for several months and are unproductive and make peanuts and then they over a period of 2-3 months suddenly become successful and are qualifying and selling like a pro. Some need coaching from everybody including the other salespeople that are usually pretty busy managing their own customers. It is a team effort and if a skater or a shark is in the group it really demoralizes everybody. Skaters are people that barge in front to get to the customers and sharks are people that steal deals and steal your customers when you are on days off. I loved doing it for ~8 years and the last year I needed a major holiday. That's when I decided to return to study and got a education in electronics and became a electronic technician. One must take time off and if scared to take time off because of sharks things can get rough. So management must set terms on the sales floor and decide what kind of sales staff loyalty program they want to have on their floor. The best program I found was to serve the customer and write the deal up for the sales person that spent all the time selling and then when they are on the sales floor after days off they do the same for the other peeps. Any other way and the group fractures and people form cliques and they all have grievances that are justified but troubling for management and especially troubling for the customers. If the customers are troubled because of a shark then that shark either goes or they start getting their deals stolen. Very nasty internal affairs if not regulated and watched constantly by everybody. There needs to be trust and respect amongst everybody so the staff can relax and focus on customer service.

 

[GeorgeBynum]

even setting up the iPad with Qobuz, transferring their library, ripping CDs etc. Full turn key operation!

You, as owner, would want to be billing based on at least $100(US) per hour, probably double that. I cannot imagine your customer being willing to pay that for those services.

Otherwise, I'm ignorant but my thought is run, don't walk, the other way.

 

[fcracer]

There are a lot of great small businesses that will need to find new owners in the near future. A lot of successful baby boomers finally wanting to retire, while seeing their creation continue on without them or their family’s involvement.

In valuing any company, always start with cash flow, then accounting financials, then other attributes. Then take all of that and discount it by what percentage of clients you think you can retain. Then that sets a baseline from which you can grow.

In summary:
1. Cash flow analysis, where does cash come in and where does it go. How much is left at the end of each month.
2. Financials analysis using standard metrics of revenue, profit, cost of goods, sales & general admin, rent, etc.
3. Profitability deep dive (as someone mentioned, does 80% of the profit come from 20% of products?)
4. Client analysis and market power.
5. Discount all of the above by 50% because clients may have stayed with the shop because of the previous owner.
6. Do a new set of financials at the discount level to see if you’ll survive the tough years.
7. Develop a growth plan from this new lower base and determine if you’ll have the passion for this in the long run.

 

[DMill]

In Switzerland, there is very little in terms of mail order and free return in the audio field (as of yet). Exception is Genelec. Also puzzling is the number of Hifi shops scattered all over Zurich city. Most of them have been around for ages.

So what would you offer that none of them are not already providing? And is that marketable? those Are the questions I’d be asking myself.

 

[kemmler3D]

If you'd have to change the total ethos of the store, I agree that you're likely to lose the customer base that exists now. If all you're really buying is a bunch of inventory and a lease, you can get those things yourself without buying an existing business. If you want to keep the superstitious audiophile customer base, you'll have to cater to their fantasies about audio.

 

[Galliardist]

This is the total opposite to the situation in UK. We buy online.

In central London there is only one shop, which is high end. There’s just one more shop, which sells mainly used equipment and at the edge of the city, half an hour away from centre by bus/underground.

Most Hi-Fi shops had been advertising themselves for a while as Home Theatre shops as that’s where they found profit. Not only there are more equipment to sell in one transaction, including TVs, but they can charge set-up fees. Along with those we have lots of HT designers/installers who build residential theatres, which is big business. Their professional shows are at big exhibition centres, unlike hotel Hi-Fi shows.

Google disagrees, shows quite a few. Have they all shut in the last year or two?

 

[Punter]

I have a suggestion for the OP. Offer the owner of the shop that you will work there for free for a month and see how you like it. It should give you the opportunity to catch the vibe of the place and it's customers. It will also give you a peek at the likely (real) customer numbers and the length of time you would have to take with a potential customer to make a sale. Walk-in timewasters would be a natural hazard as they are in any hobby related store and it would be useful to get a gauge of the type of frequency you encounter those types. If you are currently free of other work obligations I think this would be more instructive than poring over sales figures and so forth. At the end of the day, you're going to have to like the work to keep the doors open.