Neighborhood Train Shop

Since it has been reported many, many, many times here on OGR, that local "neighborhood Train Shops" are going out of business throughout the U.S., at a fairly rapid pace,,,,,,,,why would one desire to open a new shop?

it seems all the stores that are still in business sell much more than trains. I think if you only set up for trains you won't be able to pay the rent. the pricing form manufacturers has gone up, so your mark up will have to be very small to stay competitive.

Passion is great, but it won't pay the bills.  Personally, I would just as soon advise opening a restaurant as a train store, and we all know how well restaurants do in their early years.

I'm a BIG supporter of local trains shops, but I sure wouldn't advise anyone new to the business to open one.  25 years ago my advice would probably have been a bit different.

This is a simplistic answer to your question, of course.  There are many variables and considerations involved in starting up a business.  Enthusiasm is certainly important, but some other things are equally or more important.

This is only my opinion and its free so take it for what its worth.  Running a train store is hard work and takes lots and lots of hours.  Once you start it up kiss the rest of your life goodbye.  You won't be able to afford to hire help so you will be there every time the store is open.  You need to either make a mark up of about 50% to cover all your costs, or have a major amount of sales.  You will be buying new product from a distributor who has already marked it up. So your mark up doesn't work any more because of all the competition from the Bay and direct sales.  The option is marketing campaign to sell on the internet at internet prices, and to make every show/meet you can including York.  In between you will have to put up with cranky customers, people who will shop to see what something looks like and then buy elsewhere, losses due to shoplifting, people like me telling you how to run the place.  And you will need a major amount of inventory or no one will come in.  And lots more.  Good luck.

How To Make A Million Dollars With A Train Store - Start with two million.

If you simply must go through with this, start by taking some business courses at your local community college or, better yet, hire a reputable business consultant.  Have your money ready.

Pete

Thanks "Hot Water", as I value your 2cents, I know my replies are lengthy, so I'll just say this is number one on our list of do's / don'ts. Thanks again

Excuse me Gents as I was replying to "Hot Water" I did see all your responses until I came back.................many thanks and again,If we had the answers I wouldn't ask this question!

I agree with JohnS. I too am considering this. But you also need to look at the market your in. diversification, presentation ,quality of service and networking are most likely the key. Having something that draws customers and the ability to sell on line is also a must.  

Doug

Consider opening some other kind of store selling something EVERYONE wants, not the small fraction of the population that likes trains, and a fraction of that like o scale.

Sell coffee, cell phones or something.  At the mall where I snowplow,I see folks show up an hour before the " big name coffee shop" opens in the middle of a blizzard to buy their $6 coffee.

It's kinda like posting 'how do I build a house?'....Real house.

A topic really too detailed for a hobby forum. Too many variables to take into account to have any real good info here. You more than likely can get some 'light' info but no real hard data.

I've worked in hobby shops over the last 30+ years. Don't think I'd open a brick and mortar store right now. But that doesn't mean it can't work....just I would not right now.

Don't waste your time and money on such a failure prone idea. Today's train shop is almost certain to go belly up...and put you in the proverbial poor house while that's happening. Go enjoy your trains as a hobby, but make your money doing something else.

Brandy....I would never tell you not to follow your dreams...but sometimes dreams can turn into nightmares!

So...what I am going to tell you comes from 25 years in the marketing/advertising business:  Plan enough in your budget for promoting your business!!  Sure, word of mouth is the best form of advertising but it is also one of the slowest ways to grow your business because it is usually just regional.  This hobby involves such a small percentage within any particular local market that a new business will not survive unless they get the word out as quickly as possible over a large geographical area, especially if you are going to limit yourself to model trains only.  So...this means that you have to plan $$$$ for marketing your business.  I have seen so many businesses fail because the owners spent all their money in setting up the business only to have little to no funds to let others know they exist.  By the time word of mouth got the message out to others, it was too late since the bills piled up faster than the income. 

Today, an e-commerce website is essential.  If you don't have your shop on the web where your customers can easily navigate through and purchase your products, then be prepared for disappointing sales.  Online / digital services are the future of most businesses and our hobby is a good example of the progression toward armchair shopping. 

Finally, I would be amiss if I did not point out that OGR plays an important role in helping those train related businesses who are interested in connecting with the O-gauge market and the demographics within that market.  It may be of interest to many that in January we had over 7 million page views here on the forum with click through rates over 10 times the national average.  There were 75,000 unique visits during that time span.  While we have over 13,000 registered members, we have several times that many visiting and using the site.  Since OGR has already provided a place where a large percentage of the market is ready, willing, and able and is here now, you may want to consider contacting me....I may be able to help make your potential nightmare turn into a dream!!!  Regardless of what you choose to do, I wish you the very best of success!!

Alan

You did not mention if you have any experience in running a small business and in retail.  The broad nature of the question implied you did not, and many of the replies assumed you do not.

I coach small business owners through a local retiree advisor association and also have watched my older son, who seems to have a gift for for starting and building successful small business, for the last ten years.  

Setting aside all commentary and advice along the lines given above (all of which is sound by the way), and looking only at issues specific to toy-trains:

- as advised, don't have just toy electric trains and layout materials and structures.  Even though I would not advise becoming a full-range hobby shop if you want to focus on trains, be sure to get Brio, Thomas, Chuggington, and other wooden toy trains in the store.  Some diecast cars and similar.  

- how plugged into the local toy-train community are you?  Stores like that generally make most of their money in the 80/20 rule: 80% comes from only 20% of their customers - the really good, steady, repeat ones.  Maybe in fact is 85/15.   Whether you think you know the local toy-train community, the question is, do they know and trust you?  If not, it could take quite - more than a year - for for word of mouth to spread and for you to establish a steady flow of customers.  Do you have the resources to operate a year or more like that if you aren't plugged into that community?

- being a toy-train enthusiast, if you are one, is a two edged sword.  It helps with product knowledge and a passion for your products that will make a difference with customers, but many people who open a business in their favorite hobby fail because they can't keep their passion from corrupting their sould business judgement.

- finding a location, renting it and fitting out the store, etc., is not trivial, but i's not the major key to success.  How are you going to get products? At what discounts?  Making contacts with manufacturers direct may not be possible - a lot of smaller stores have to deal with wholesalers, etc.  This is where long term viability will come from.  

- be careful if you decide to let friends or family work for you unless they are partners with a stake in the business (and be carefuly even then).  It can get messy both ways - personal and messing up friendships and family relationships.

- finally, of the two dozen of so  retail businesses I have coached/watched be founded in the last five years or so, the successful ones all developed a healthy on-line sales business.  The best of them, a small "fru-fru womens accessories store started about a mile form my house, is doing over $4 million in sales annually now, with more than 90% of that on-line.  They've expanded their space five times in five years but all of that went into room for the on-line business.  The stop itself seemed to have plataued at about $2K in sales a day - good actually, but . . 

Retail is dead.  Even big-box stores are now cutting back and closing stores.  Staples will close 250 stores this year. If you are going to become a train retailer I won't open a store. Too much overhead,locked into public store hours, limited pay back, risk of theft and malicious damage to displays and stock. For real estate perhaps a garage (if zoning allows) or small industrial unit.

Dave, I totally agree with everything that you have said, many, many things that couldn't be scored on a forum, but you have to start somewhere! All we see are the positives.  Through experiences of others, you can also get some "real life" this is what's going to happen if you do's. I think that anyone who goes into business at anytime past/future will definately have a passion, and feel that they can reinvent the proverbial wheel again, never making the mistakes that past business folks have made.....Thanks again everyone, keep those card and letters comin!

Well depending on the location a store in a mall can be quite expensive. In addition to the rent based on square footage many malls also charge a percentage of gross sales.

Prior to making a commitment do a little research to find out how many model railroad enthusiasts are within a reasonable driving distance of the location. Contact model railroad clubs to find out how many members they have and what scales they model. Go to local Greenberg or other model railroad and hobby shows and see what the attendance is like.

Prior to opening a store and making a huge investment maybe you could consider getting a table at the regional hobby shows and start there. After a period of time you could develop a decent clientele which would hopefully insure repeat business.

Lastly, the net profit in new train merchandise is in the single digits but there is a much greater profit in used products. So a 40% to 60% ratio of new to used might insure greater success.

Sadly a train shop these days might as well be a blacksmith shop for horses and buggies. I wanted to be an engineer in charge of a steam locomotive but the only constant is change and the odds of success in the waning days of the rise in O scale as we boomers aged, is a hope against hope. Better to dodge passion mixed with business than get crushed.

Having spent a good deal of my career in the management consulting field, I can tell you that retail is a tough business. Aside from the financial commitments, there is also a big commitment in time. Especially since you are talking about a mall location. You will most likely have to dovetail with their hours of operation by contract.

Then their is the issue of hired help. You and your friend will easily get worn out if you plan to be the workforce. Consider the push to raise the minimum wage to $ 10.00. Then their are vacations and sick days and unexpected call-outs.

I would recommend that you have in savings most of the cost for leasehold improvements (shelves, counters, walls, etc,) and start up inventory of parts and equipment before you seriously consider doing this.

Lastly, I would recommend that you find a stand alone location other than a mall. Think of this, it is summer and a beautiful day outside. How many train guys will look for you when there is so much else going on outside. But a mall will insist that you be there until they close. You should have exclusive control over your hours of operation.

I could fill several pages about getting into the retail business, but at least this will get you started thinking about some of the pitfalls.

If you decide to move forward, good luck with your venture.

Maybe some of you business pros can tell me - Curious to know does it make more sense to own your property than it does to lease/rent?  As I see it, that way you can be building up equity, you're not watching your rent money disappear forever, and you're not subject to a rent hike when your current lease expires.

Pete

Pete:

The most simplistic answer I can give you is there are definitely significant advantages to owning the property where your business is located, both financial and operational. Every situation is unique, but if it were me, I sure would prefer owning the property.

My suggestion for anyone would be, do what Mike Wolf did.  Start in your own home mail order only and if you are successful there maybe consider bricks and mortar.  99% of small businesses fail.  Not trying to be negative just cautious and realistic. 

One other bit of advice I might offer (among 1,000 or so that come to mind):

If I was to open a train shop (will never happen) that was going to be a trains-only store, I would include some diversity of scales, and would likely carry what I--and a consensus of active hobbyists--regarded as the "best" of the HO and N offerings.  Would kind of want to hedge my bets a bit if I was going to be involved in such a niche market in the first place.

Think of it this way.

Travel back to just before WWII......go to one of the huge major rail terminals.....let's just use the old Penn Station in it's busiest days. Stop a passenger and tell them in 25 years this will be gone and rail travel on a huge decline to the point all railroads gave up on it and a government agency had to take over.

They'd ask if you were drunk or crazy.....THE busiest place in NYC and the most used way to travel GONE?!?!?!

Same for brick and mortar stores.....just a matter of time.  

Not knowing beans about business but wishing I had an LHS closer to home, I would point out that there appears to be several successful model train businesses listed in the flashing banners at the top of the forum web page. Clearly these guys are doing something right and one of those things is offering products on line.

The question you need to ask and the ones who need to answer here is, "Do any of you own a train/hobby shop?" If the answer is yes you could take their advice as a general rule since most of them that are successful is dependent on a wide range of conditions that may or may not apply to your area/base/expertise. If the answer is no they really shouldn't be giving you advice since as Allan has noted their view of the viability of a train store is or could be prejudiced by their passion for the hobby. 

I don't see any type of brick and mortar stores going away, they may scale back due to economic reasons but they will always be there. Comparing them to rail travel is apples to oranges, totally different reasons for the decline in rail travel that really don't apply to retail stores.

Jerry

I too am in the camp that says don't do it.

However, there is a business model that I have seen work many times. You start very small, working out of your basement and begin to build a customer base. Then maybe in ten years you'll be big enough to move to a really low rent location.

Elliot , that's how most successful businesses started. Nowadays you see people open up in high rent locations and have the latest and greatest only to see a for lease sign in the window 6 months to a year later. If there isn't a hobby shop within 50 miles of you maybe there's a reason. The successful ones have risen to the top and their competition has withered away, that coupled with the fact that we are a nation of drivers means that for the most part someone will drive an hour, hour and a half to go to a specialty store once or twice a month, look at retail outlets, most of those stores wouldn't survive as a stand alone or in a regular mall.

If someone is really interested in opening a store they should check with the Small Business Association for advice and guidance, coming on the Forum and asking if you should open up a train store is like asking a bunch of alcoholics if you should open up a bar or liquor store! 

Jerry

I live in the DFW area. To the best of my knowledge, there is only one bricks n mortar store in the entire metroplex of over (?) 6 million folks. There may be something over in Dallas, but I usually stay on the Ft Worth side now that Collectible Trains & Toys is gone.

My LHS is pretty-well stocked; the guy's been at it over 30 years now. I've picked his brain a bit. He is very well-stocked with Lionel and Atlas products. He is a trains-only store, but carries all scales. He says that 80% of volume and $$$ sales is HO & N. He does not have an online presence.

I wanted to open a hobby store in 1989-1990. Like you, it was my dream vocation/avocation.

The best advice I can give you is to research your niche. Develop a business plan. Be super-critical of any numbers you use. Have it reviewed by your local SCORE (service corps of retired executives). They will politely beat you up, but you WANT to be shown the weak spots now, before you've gone out on a limb financially.

The public library has a series of books (sorry - it's been 24 years and I don't recall exact names) published by the US Dept of Commerce. They basically contain every single industry in the US and have information on dollar volumes, floor area, turnover, etc.  GREAT real-world numbers rather than some of us tossing out opinions.

As others have said, Lionel and the other biggies will not sell directly to you until you establish a certain level of sales OF THEIR PRODUCT. There are some decent distributors who will recommend a line of product for you to sell. Listen to them. If they dump stuff on you, they won't be selling any more, either, so they know what moves in a given market.

I applaud you for wanting to pursue your dream. Some DO make it. Approach it with pragmatism and take off the rose-colored glasses. Listen to the folks who have the real data.

And, no, I never did open that store....

Another concept is a store-in-a-store.  You rent out floor space in an existing similar business to piggyback onto their customer base.

Yep, some do, indeed, fare quite well!  I know one dealer who is relatively new to the business and who seems to be doing fine.  In my column in the June/July issue of the magazine I'll tell our readers why I believe some stores can make a good go of it even when it seems that retirements and the Internet are swallowing up an ever-increasing number of others.

First rule of retailing: Location, Location , Location. Unless the mall you're interested in is doing well and is in a prime high traffic area, think about doing something else. Really.

Second rule of retailing: OPM (Other People's Money). Unless you have already made your fortune in another line of work you're going to need to go to a bank and take out a loan. Having dealt with many bankers over my life, I can tell you they're going to demand a sound business plan and if you have no experience creating one, then the earlier suggestion regarding taking some courses which will help you develop one is the first thing you should do. You will also need collateral. They're not going to give you the money just because you have this brilliant idea.

I think there are at least another 10 rules, but that's a start.

I wish you luck...the demise of brick & mortar retail shops, the small "mom & pop" stores that made up the bulk of the downtown centers of most of our suburban communities is an evolutionary step backward, in my opinion, one that will have an adverse effect on our entire way of life.

diversify!

Location, Location, Location!!!

advertise, get your contacts, pay for stock

up front.

Two items need some clearing up............

I did run two different retail hobby shops. I also worked in the hobby licensing field and current work in the plastic hobby kit business. I have a better than average real world view of the retail and manufacturing end.  Not a casual 'NO' vote here....I'd do it if it was viable....there are 3 hobby shops in WV.....should be room....but it ain't gonna be me!

I was not comparing rail travel and the hobby of model railroading. Read it again and you will see it was how something so vital on this date, 25 years later is a very small shadow of itself. It was an analogy of how brick and mortar hobby train stores were a going concern in 1955......may soon be a shadow of it's former glory. Not gone....but drastically different today. 

I had a friend who taught with me who loved photography and wanted to open a camera store. I asked him why he would want to take something for which he had great passion and derived enjoyment from and turn it into something that he might resent because he depended on it for an income and it wasn't' supplying his needs. Stores are like spider webs and you must constantly be there to catch the flies.

On the other hand, maybe with a well thought out plan and a creative angle, a trains and doughnut shop, (??) and given a good location and sufficient area train interest it might work out. It would be good to have an extremely trust worthy partner so that you could divide time on the web. (staying with my metaphor)

BUT.....I have NEVER owned such a shop nor been a businessman so take what I say with a huge grain of salt.  I wish you well and do not want to squelch your passion. Best of luck to you.

Your asking a bunch of guys that buy 75% of their trains on e bay if you should open a train shop???????You can sit at home and do NOTHING and make 5% on your investment.Rockstars would like to thank himself for this useful reply.

No offense to anybody, brandy, but most of the good, relevant advice you got here probably came in the first dozen replies.  Your thread has and will illicit interest and continuing comments because, whether most folks will admit it or not this is a common dream among model railroaders, even as most know it will remain only a dream.  

In spite of the advice I (and others) gave above, if you really want to do this, go into it with your eyes opened and do everything you can to make it a success.  As to owning the property, etc.  - things like that are a distraction.  When you start a business two things are critical: a) preserve you cash and credit - spend as little as you practically can and don't buy anything if you can avoid it until you have cash flow, and b) minimize risk to the extent you can (you've taken enough just starting the business).  As a result, a modest plan for inventory and sales that is highly likely to make money is far preferable to taking a big plunge that might succeed but uses all your cash and credit. I said above my oldest boy just has a talent for starting businesses that thrive, before he sells them once going.  He's said many times that it is far easier to grow a small, successful business than to start a larger one from scratch - it just takes a bit more time and planning. 

The problem with a mall is you are going to become a baby siting store,  I would contact manufactures and see what the perentages are I think you'll be shocked. I would also add you can put me at the top of the list of people who working in the business killed the love of the hobby. I can't imagine how you would be able to pay the rent in a mall so I would strongly suggest  you do your home work and really think it through. I wish you the best if you decide to do it.

Another possibility is to take an incremental approach and not quit your day job. I know of one owner who does this. Some begin as others said, working out of their home. Either way, this might be a way to avoid putting all your eggs in one basket and reducing the risk.

Gentlemen,

   Talking to Jim of Jim's Train Shop would be a good start for this gentlemen, however Jim was a one of a kind, many many people visited Jims store and purchased from him on line because we liked him and his business, he was not always the least expensive however his reputation for fairness was nation wide.  Everyone knew Jim & Peggy and their Christian values of life, they could not jilt you even if they wanted to, and they never wanted too, everyone knew and respected them and the way they did business.

Opening a business today is a risky investment, opening a train store is even more risky, most trains stores today are multi phased hobby shops, talk to Dave at Bill & Walts to see how much of his business is actually train sales.  If a man wants to invest in a trains store as a hobby and cares little about the money he makes, that is one thing, making a living at it today, is something else.  To be like Jim Sutter was, today you better be wealthy, have the right contacts to start out with, and love the train busness, and be able to develope Jim's kind of reputation for dealing with people.

PCRR/Dave