LFS and profit margins

[murph]

Something that has bothered me about this hobby from day one is the staggering profit margins LFS are trying to take on the things they sell.
100 percent profit is the norm and sometimes as high as 300. Now live stock I can understand since they take some substantial losses. But any good business man can easily write that off come April and actually fudge it a bit in there favor.
Perfect example is the lights I just recently bought over the INTERNET for a couple hundred bucks. The exact same product sits at my LFS for 400 bucks. I can only assume they figure its easier to let it sit there until some unknowing sap pays that kind of money for it than to take a reasonable profit on it and sell several over the course of time. Needless to say the light is still sitting on the shelve unsold at the lfs.
When they do eventually unload that thing it is only a matter of time before who ever bought it figures out how badly they have been taken and most likely will never set foot in the establishment again. Is this really good business practice??
I also suspect that the LFS in my area have come to certain pricing agreements. What cost a few more dollars here cost a few less there and vice verse. This makes it useless to shop around so sales territories can be firmly established. This practice IMO is down right UN American (and most likely illegal). Capitalism can only work when competition is in place. Those providing the best product at the lowest price wins the business. This guarantees quality and fair price and when worked around as I described above only guarantees that the consumer gets totally screwed somewhere along the line.
The end result will be that people will simply not enter the hobby or leave the hobby as they realize they are being played for fools. This will also mean that some LFS will be shutting off the lights and locking the doors for the last time as one in my area has already done.

 

[darth tang]

There are a few things you don't probably take into consideration. Running my own business I have a better understanding of why some of the prices are marked so high.
Take into effect the constant upkeep of the store. Water changes, feeding, the equipment used that is over head and doesn't create a profit such as pump, skimmers, and filters. Then you add in lease space cost at minimum is 3 dollars a square foot seems to be average. The store has a LOT of overhead. Now weigh in the fact they don't really sell that many tank set ups and light fixtures on a regular basis. So they have to make their profit when they can because it may be a while before someone else needs or wants to buy these things. It isn't like your typical business were repeat customers are constantly coming in for the same products other than chemistry and fish food. And you will see these items are pretty cheap generally.
Once a person reaches their stocking capacity on fish they aren't likely to buy anything for a while (especially if the are experienced). So in reality their turnover isn't very high so they have to charge higher prices when they do sell stuff. Online the company can reach a BROADER demogragh and sell more items. But the LFS is limited to it's territory or immediate area to rely on sales.
So there may be long periods where a fish store is surviving on "maintenance" sales instead of the higher priced equipment sales as once bought, these items last a very longtime.
Anyone that thinks trhey can open a LFS and keep it open with internet rock bottom prices, I challenge you to try it. You will see it isn't as easy and profitable as you would think.

 

[carshark]

just to kind of touch on the internet business. the prime reason is overhead. it costs about 26 bucks a month to keep a webpage up and running, and when its a simple page, just selling parts, fish, rock, equipment etc etc. they buy these at wholesale, and then turn a very small profit margin. but on a better scale, because for all you know, this online retailer is in a studio apartment with nothing but a tank or two, computer, and bed.. but either way its a smarter business, and a lot harder to go under due to loss of profit, because their outgoing is very minimal. you could have a full time job and the right connection along with a business federal ID, you too could have your business..and still make a 20-30% profit....not to mention as far as around here, there is one fishstore that does both online sales, and in store.
here is the bread and butter folks...Servicing!!! at 1.25 a gallon minimum to do monthly maintnence on someone's tank, not only enables them to minimal work for top dollar, it also gets them a corner on that customers business. and typically people who use a LFS to service their tank, its usually a bigger tank, so that means equipment sales, fish stocking, LR, the list goes on and on. As well as chemicals!!! this seems to be a LFS' best friend...

 

[birdy]

Another note,
I do maintenance for a LFS, the issue with drygood is that the wholesale prices that most stores pay for things is barely 10% less than what you pay from an online store, and in some cases exactly what you pay for online goods. I have seen the local petstore wholesalers price list and I can buy most of the stuff for the same exact price online.
It is not easy to run a LFS and make money, not easy at all.

 

[squidd]

Another thing to keep in mind when comparing "internet" pricing to "store" pricing is which "link" on the chain of distribution your buying from...
As a former "Hobby Shop" owner (similar to the Mom and Pop Pet store) I had to deal with "my place" in the chain of manufacturers, wholesalers, distributors (and internet distributors), mass merchandisers, and then local store fronts...
Way too often I would get a customer coming into the store with a "catalog" ad or internet page and ask if I could "match" the pricing...
Often times the price was only 5-7% over what "I" could buy it for...by the time I add shipping on to get it to my store to turn it over I'd make nothing, if not loose money... (not to mention trying to cover the overhead mentioned above) I had to sell at the going "store" price (cost + 40%) which would end up 20-25% higher than the internet or magazine price...
Reason being, I was only purchasing 2-3 of an item or a "case" of something, where as the distributors were buying a "truckload" of something and the wholesalers were buying "container loads" or "boxcar loads" of something.
Who do you think is going to get the better price...? And then each marks it up a marginal amount and turns it over at a higher volume (low overhead) to generate profits (ala wall mart)
Why do you think Wall mart (or Home Depot) can sell say a "notebook" for 19 cents and the Office Supply store sells the same notebook for 79 cents...?? Volume buying on commodity items...
But who will you go to when you need a "specialty" item or technical advise on say plumbing...?
A Menard's employee who is less than 20 years old, or the local Hardware store owner who has been doing it for 20 years+...??
Now not all Pet stores are known for "good advise" , but for the most part they are there with the bag of salt, or carbon that you need "Right Now" and wouldn't be there for you if we don't support our LFS...
Not that we shouldn't shop around for better pricing, (that just makes good sense), but don't "complain" the LFS is ripping you off (like they're doing it on "purpose")...
Most Mom and Pops are barely making a living doing what they love because they love it...and are charging what they "Have to" in order to survive...
Now "Death Co" on the other hand...

 

[chipmaker]

For some reason or other i have a hard time buying the comment that most Mom & Pop shops are barely making enough m0ney to exist or live on, and they do it because the like it. Folks just don;t squeak through life just because the like what they do so much. I like metal work but wold be hard pressed to work for $4.00 an hour because its what I like to do, and have to drive around in a 20 year old car, patched up clothes, roof etc, just ecaus ei Like metalworking. I certainly could get to like wood work especially if it paid me 20 bucks an hour and I could buy a new car and clothes and fix my leaky roof. I just find it hard for any reason to pay $149.00 for a CSS 65 or $19.00 for a 7watt PC 50/50 bulb at my LFS...no matter how much money I may have, or how much so called little markup they may have.

 

[tangwhispr]

Although its not a fish business I will post the back of one of our invoices. People just don't understand what it takes to run a business

 

[squidd]

Folks just don;t squeak through life just because the like what they do so much. I like metal work but wold be hard pressed to work for $4.00 an hour because its what I like to do,
I don't know..I ran the Hobbyshop/Race track for three years on less than that...for the hours I put in (yes , my income was subsidized by other intersts I had).
Because I "liked it"...provided a service to the community and was working with Kids...
But you can only take "so many" catalog or on line ads stuffed in your face till you say the heck with this...

 

[ophiura]

Originally Posted by Birdy
Another note,
I do maintenance for a LFS, the issue with drygood is that the wholesale prices that most stores pay for things is barely 10% less than what you pay from an online store, and in some cases exactly what you pay for online goods. I have seen the local petstore wholesalers price list and I can buy most of the stuff for the same exact price online.
It is not easy to run a LFS and make money, not easy at all.

Thanks for saying this, 'cause it is true for most things that the store sells, IME.

 

[coachklm]

Just saying my stepmother works for a certain pet supplies hint:CG&P
21$ for 120# cc you can then figure the profit margins on many products off of that...
i know 40# bags of CC here are 35.00 so 3 bags = 105$ for the "common consumer"
I got them for 7$/each

 

[ruaround]

soo many great points have been brought up... esp Darth, Squidd and TangW... another factor is convenience for the LFS (dont have to wait and they take the liability that the livestock will show up alive), you can take it home with you when you purchase it and you are supporting your local business'... when online and buying something site unseen you typically take the liability, you have to wait who knows how long and you are typically supporting another sates economy...
even though the mark up is typically 300% there is alot of shrink that occurs in biz... and 300% of 0 is 0... takes alot of $$$ to run a biz and if you sold everything at a 10% margin you would have to be sellin like WallyWorld to pay your fixed expenses, inventory replenishment, incedentals and salaries...

 

[maxalmon]

I own multiple pet related retail stores, last year all of my employees made more than me, I actually lost about 18K on volume of 2.2m, why? Because I'm expanding my business and reinvesting my profits, low volume high profit wasn't working so we are going to go, higher volume lower profit. The shear cost of running a business is staggering, MY LITTLE 5"x3" FULL COLOR YELLOW PAGE ADD RUNS ME $1400 A MONTH and thats average for just about any yellow page in any large city. Most people don't know this, but for every dollar that the feds take out of your paycheck, the business owners has to match that amount so not only are the feds getting money from you, but I, as a business owner have to contribute the same amount. Unemployment insurance, don't even get me started on that one, my father inlaw has a concrete business in CA, he pays 28K a month! Everyone of my employees (20) cost me $150 a month for health insurance, my advertising bill for newspapers is about 2k a month, Computer support is another $400 and it just goes on and on and on. Just think about how much salt a LFS has to purchase to maintain the store tanks, kinda staggering and put things into perspective the next time we complain about $50 for a bucket, imagine having to purchase pallets

I Own stores in the pet industry and have accounts with every major vendor and distributor, I can tell you this, there are some major changes about to take place due to the cut throat pricing of online storefronts, esuweb.com the owners of coralife and and several other major vendors is about to cancell accouts with a vast majority of online stores because they are creating a huge problem for the LFS, I can tell you that if a stores is selling a MH fixture for $650 they are not making very much, it's a lot less than you think, this goes for a lot of other manufactures as well, the LFS are cutting back on the their orders and the manufacturers are taking notice, the web is great, but it's causing some major financial problems for LFS, I owuld say within the next 6-9 months you will see less and less of the killer deals on lighting and other equipment. It's beent he topic of just about every trade show I've been to in the last year.

 

[phixer]

Where is the common sense here? thats irrational and absurd. I dont know whats worse, being charged $1400 a month for an advertisement or paying it. For that kind of money you could start your own advertising business. Well you know what they say neccesity is the Mother of invention and until it becomes uncomfortable people will keep allowing it. That kind of fleecing is based purely on greed. When the layers are peeled away it becomes obvious where the gaps are. Have you found a work around for some of these issues?
This topic has the HP to be long. I prefer to do most things myself because of the price gouging Ive observed over the years. It's educational and often times the product is superior after enough practice.
After awhile of being so dependant on the system for ones every need its easy to be controlled and manipulated eventually one loses the ability to think for themselves? Cant tell you how many kids I run into that cant make change or calculate mentally but can sure work a cell phone or a video game. :notsure:

 

[seannmelly]

i dunno but all i gotta say is i work at the local fish store and they mark their products up from 200-300%. i will never buy anything again at any fish store when i know how much they make its crazy, ill stay getting my stuff at cost and save alot of money. but i know on a good month the store makes 30,000 but then you gotta take out employees pay, electric, no

[hr]
cause its paid for and taxes and upkeep. the owner is making some good money!

 

[maxalmon]

Originally Posted by seannmelly
i dunno but all i gotta say is i work at the local fish store and they mark their products up from 200-300%. i will never buy anything again at any fish store when i know how much they make its crazy, ill stay getting my stuff at cost and save alot of money. but i know on a good month the store makes 30,000 but then you gotta take out employees pay, electric, no

[hr]
cause its paid for and taxes and upkeep. the owner is making some good money!
And thats why it's called America, capitalism, democracy and all that other stuff that makes this a great place to live.
I've owned multiple stores in many sectors of the retail market over the years. Everyone seems to be focused on the LFS profit, why don't you look at furniture, the average markup for this item is 300-400%, yes, thats right, For an item that cost $500 wholesale the normal retail markup would be to sell the item at $1500-$2000. I've owned a furniture store. Now lets move onto Jewelry, how many of you have purchased wedding bands or watches? The average markup is closer to 600-700%, a good friend owns a store in CA. Now onto clothing which averages 200-300%, why not #itch about the 90% profit that hairstylist make, next time your out for a nice dinner take into consideration that the average cost of that meal is about 20-24% of what your paying, Oh, oh....lets not forget Tennis shoes, somebody Paalease tell me that there is no profit in those! Shall we explore the current gas sittuation with record profits for share holders or the fact that SUV's are the most profitable vehicle, I recall that Escalades have about 20K in profit for GM. The reason why we have a fantastic selection of just about everything in the US is because there is profit to made, if there was no profit then there would be no reason to offer as many items. This one is the kicker, $1.29 for a bottle of water. Starbucks charging $3.75 for Venti Latte...Granted I have no problem paying these prices for any of the items listed above because without profit we would not have the life as we know it in the US.
.
As far as the yellowpage add goes, there are 1.6m people in vegas, half probably got phone books so 800,000 phone books and you don't think it cost very much to print those books now do you? Oh, I forgot, paper is really cheap, last time I was at staples I paid $8.00 for a package of paper which is about the size of a phone book. And all those books had to be delivered, guess that was gratis also. How many of you love the halftime commercials for the superbowl, um, 2m for 30sec commercials. Makes my 1400 a month seem cheap to reach 800k household... Ok, I feel better now, my rant is now compete

 

[tony detroit]

I'll tell you guys the same thing I tell people about our business when they complain about pricing.
"The water's nice, come on in."
If you think the stores are making so much money, go ahead and open one up. After all, you'll be making a ton of money.......
Have you considered a guy making 50K per year with health insurance cost the company he works for roughly 75K to have him?
Did you know your employer matches your SS Tax, and other taxes as well. That means if you pay 200 for the week in SS tax, and others, your employer has to pay the same amount for you as well.
Don't forget about property tax, some shops up here are 15K year, just in tax. Some strip-mall storefronts pay upwards of 5K per month in rent. That's 20K per month with no other costs put into the equation. And you have to make it selling fish.
Don't forget about water and electricity, and losses, and in the end don't forget about your time.
And please, do not use the phrase "write-off" referring to it as free money. Writing off money is income you do not pay taxes on. It is not free money like everybody thinks. It is simply income that is not taxed.
Time is money. We don't go to work for fun, we go to get payed. If it was fun you'd do it for free.
From a family business perspective, I don't think the LFS's are really making as much money as everybody thinks at all. I think the maintenance companies running without storefronts have a much higer profit margin.
What if I told you our INSURANCE AND TAXES ALONE ON A PER DAY COST ARE 1800. And we're just a small mom and pop company. Let me also tell you, there are no sick days, no personal days, it is a second wife to run a business. You are lucky if you get a week off, and when you come back, everything is messed up. Family business is a way of life, it is not just a job.

 

[phixer]

I have to agree, most small stores dont necessarily make huge profits. I feel sorry for most of them because statistically the fact is most will not survive.
The hardest part for me to understand is why people can just accept the ridiculous prices nowadays for everything and try to justify it using words like "capitalism" , democracy and "free enterprise" "but everything is that way" "we have to charge more because (fill in blank)" , greed cannot be justified period, it can be called capitalism or anything else but there is clear distinction between capitalism and greed.
Probably the oldest and most mundane arguement Ive heard is when folks try to give this fleecing of the people authorization by calling it capitalism. Actually this default definition probabably sprung to life because its easier and dosent require thought or effort, just roll over say thank your Sir may I have another and stay a puppet. A better approach I think is to stop and think about what it happening and what can be done other than complaining. This is what innovators do. Are you a man or a mouse?
Staying on topic but a small point that should be mentioned; 4 bucks for a gallon of gasoline? Does this sound right to anyone? think about it , people are having to decide between a gallon of gasoline and a gallon of milk now. Just one example.
IMO a pretty weak stance is to call greed capitalism and readily accept being ripped off because its popular, when actually its a lack of moral courage to call greed what it is and have the fortitude to take action against it?
"Let them eat cake"
Marie Antoinette

 

[maxalmon]

Merriam-Webster Online Dictionary-capitalism
2 entries found for capitalism.
Main Entry: cap·i·tal·ism
Pronunciation: 'ka-p&-t&l-"iz-&m, 'kap-t&l-, British also k&-'pi-t&l-
Function: noun
: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.
.
Notice the wordage "private decision" if you don't like the pricing, don't buy it.

 

[darth tang]

Ok let me give some of the people here a COST break down to run a business. This is going to be an estimate only as I don't have my figures I drew up for my customers when the complain about price.
I own a dog & Cat grooming shop. The average groom in my store cost between 35-45 dollars. Lets go with the highest figure of $45.
Keep in mind each groom averages 2 hours.
Ok 45 dollars is my net.
22.50 of that goes to my employee as groomers are paid a 50% commission in this industry.
That leaves me 22.50 to myself as a shop owner.
Take out 2-3 dollars for water and shampoo.
This leaves me with 20 dollars. Facto in electricity on average per dog of about 1 dollar.
This brings it to 19.
Factor in the cost of washing the towels used for the dogs, maybe 50cents per towel in water and laundry detergent cost...
this leaves 18.50.
Factor in the Taxes of my paid in employee that I must match which can be almost 3 dollars
this leaves 15.50
Factor in lease expense per dog of 2 dollars at this point in time.
This leaves me 13.50.
Factor in my own taxes of about 4 dollars.
I am down to 9.50.
factor in advertising cost per dog of about 1 dollar
I am down to 8.50.
I do my own books and taxes so I have no accountant fees other than usual which comes out to about .45 per dog throughout the year.
I am down to 8.05.
factor in repair and maintenance cost per dog on average for the year is about .25 cents.
I am down to 8.60.
Phone bill and internet service (reasearch and advertisem,ent as I own a website) per dog is about 50 cents.
I am down to 7.10
Factor in heat/cooling depending upon the season to maintain the dogs comfort level is about .25 cents per dog.
Down to 6.85.
Factor in cleaning supplies to sterilize equipment and clean up "doggie doo". is about 25 cents per dog.
So in a two hour period per dog as an owner I make 6.60.
This is less than minimum wage per hour.
Now explain to me how I am being greedy by marking up my prices when compared to a few of the shops in town?

 

[schneidts]

I mean no offense, but how do you live on that, Darth?