The price guitar shops pay to the Manufacturers?

[Christian Reno]

Originally Posted by Portlandplayer

It's important to understand the definition of Markup and Profit Margin.

If an items wholesale cost is $100 and the retail price is $200, this equates to a 100% percent Markup, but is a 50% Profit Margin. In this case a 50% price reduction from retail ($200), would be the wholesale cost of $100.

Retail stores think "Margin".

You are exactly right. It's surprising how many retail sales people do not understand this as well as their customers. Terminology counts.

[UncleJesse]

Originally Posted by EverettWilliams

Collings and its peers have actually done a pretty good job with this - there’s a maximum discount at which their dealers can sell, and everyone sells for the same price, so they wind up competing on service. Martin, with its MAP, has created a bit of a problem - if it’s common knowledge that you can get a Martin bellow MAP, why wouldn’t you? And if there’s a typical ceiling for those discounts, why wouldn’t you seek to hit it? With Collings, there’s just The Price.

I typically view new prices as fixed and don’t negotiate. I’ll pay 90% of list for Collings and, if I were to get a new Martin, I’d expect to pay 60%, that’s market. I don’t try to negotiate below market. But if someone said - I’ll sell you this Collings at list, I’d look at them funny - nobody does it.

The place where I’m inclined to negotiate is with vintage and used. If something is priced fairly, I won’t push it, but if someone is asking over market, I’m inclined to offer market. I don’t really care about the dealer’s cost here - just where the tag is in comparison to the market. But I’ve also been known to overpay for a particularly great example.

I don't know much about collings but lots of people pay full retail for Martins at GC or MF or Sweetwater. Granted that's like 80% because of MAP. Are Collings listed at 100% and you have to negotiate for that 10% or are they listed at 90% right out of the gate?

[Steadfastly]

Originally Posted by Portlandplayer

It's important to understand the definition of Markup and Profit Margin.

If an items wholesale cost is $100 and the retail price is $200, this equates to a 100% percent Markup, but is a 50% Profit Margin. In this case a 50% price reduction from retail ($200), would be the wholesale cost of $100.

Retail stores think "Margin".

So, so, so many people just don't understand this. Manufacturers also think "Margin".

This is how you figure it out using Porland's numbers above.

MARK UP is 100% TIMES $100.00 which equals $200.00.

MARGIN is .50 DIVIDED by $100.00 which equals $200.00.

[PorkPieGuy]

I think the acoustic guitar market may be different depending on brand/company, but I worked with a high-end drum store that handed me a "build sheet" of sorts told me that I was going to pay 60% of retail. They told me they paid 50% and sold for 60% of retail. When my brother worked at a pawn shop/music store about 25 years ago or so, he told me these same percentages on the majority of their new gear they got in except the store he worked in would charge about 65-70% of retail (this was pre-internet, and they were one of only 2-3 other places in town that sold gear).

[rokdog49]

Originally Posted by billybob77036

As a Buyer in the retail world with over 250 brick and mortar locations and a sales goal of $55 million, I find this thread interesting.

Personally, I wish there was no negotiations when it came to guitars, the price is the price. This would save people a lot of haggle, and everyone would know that they are paying the same for it and you don't have to go shop to shop to get the best deal. These are the reasons no one likes to buy a new car, everyone wants to know they got the best deal they could.

There is a lot more to buying than just price, even in today's world.
People buy from a place for a variety of reasons.
As a buyer for a large chain, you already know that most of the time you pay significantly less for stuff than your "Mom and Pop" competitors if there are any. You can't seriously expect them to compete with your chain and it's buying power day in and day out and yet people still buy from them and pay more.
As far as cars go, the reason people don't like to buy them isn't any one reason, it's a bunch of reasons.
BTW, I worked for a manufacturer in a high level position. We dealt with and sold to several very large chains.
We were very fortunate in that we had a unique "brand" and we didn't have to take a lower margin based on a volume purchase by a "big box."
I know how it all works. I'll just leave it at that.

[EverettWilliams]

Originally Posted by UncleJesse

I don't know much about collings but lots of people pay full retail for Martins at GC or MF or Sweetwater. Granted that's like 80% because of MAP. Are Collings listed at 100% and you have to negotiate for that 10% or are they listed at 90% right out of the gate?

With Collings, I’ve never seen a dealer list it at anything other than 90% of list. And this works out pretty well for the dealers - they have some good margin or markup (however you want to slice it) and they have a robust defense against haggling (we will lose our dealer agreement). So, as I said, they compete on service and Collings are sold by some of the best dealers in the country - chicken or egg, I don’t know.

You’re right, I’m sure plenty just click buy on the Martin and pay MAP - and good for the dealers when that works, really. Still, it would be nice if they just set the minimum price and dealers competed on service. By virtue of its massive production, Martin isn’t that choosy about who gets to sell its product. It’s no loss to me as I’m not in the market for new Martins, But massive production and brand fragmentation have not been kind to the brand (but that’s a whole nother ball of wax and way off topic).

[AcousticDreams]

Originally Posted by Paddy1951

If you are speaking of total sales, you are probably correct. Specialty businesses rely on the "extras" to make their total incomes, profit margins. A company may only make a relatively small profit on a guitar. It is all the related things that make up for the large item/small profit nature of the business. I am talking about business in the States.

Percentage wise, a retailer makes more money on a music book than a guitar. The smaller items are things most people don't quibble about.
You might be able to buy a capo for
$ 1.77 less online. If your already in the store, and need the item are you going to get concerned about small amounts? I doubt it. Your time is worth money. Buy the capo and move on.

I have never worked in a retail music store. I have worked in both high end electronics and photography shops. Mark ups on the core products are not great. That high end Nikon you buy has maybe 15% in it to the retailer. The protective glass filter you place on the lens, a lot more.

To the retailers advantage are incentives. Dealer net on x guitar might be $325.00 for one. But $289.00 for 3, $265.00 for 12.

There can be unseen incentives as well. A given guitar may have a dealer net of $489.00. But if you buy 6, you get the seventh for 1/2 off net, effectively lowering the net on all 6 guitars. Then there are spiffs, which can help the bottom line.

Finally, the big box stores may actually be able to negotiate nets that are quite a bit lower because they agree to order a total mix of 1000 guitars per store.

Perhaps, somebody who works in a music store retail environment can elaborate more specifically on all of this.

I also worked at a high end Camera & Sound store back in the 80's for many years. And my experiences mirror yours.

We sometimes made 10% up to %15 on Cameras( but typically %10). The real profit was in Film & processing, and all of the little goodies. Like Albums, and Camera Bags. On that we made 40% to 50% on and More.

I would expect it to be no different for a music store. So how do they stay in business ? Turnover---Numbers, and all those accessories.

On high end Stereo equipment, and we sold speakers that cost as much as 5K...we made a lot more...if I remember correctly closer to 20% to 25%

Very much like a car dealer, the store got kickbacks if they sold a certain number. If say you sold a hundred of them...at the end of the year you would get and Extra percentage back from the manufacturer. That is how Car dealers often sell their cars at supposed dealer invoice. Cause they get more if they sell a certain number later.

Bottom line, a good music dealer works very hard to get our business and stay in business. It is not an easy job. And most of the time it is not a profession that makes tons of money unless you are a giant retailer or your offer those instruments that the high end Retailer do not.
On those High end instruments I would imagine that the profit range is a little bit more. as often the manufacturer sets a guideline to the prices. They do not want their product to be sold by just anyone. They want knowledgeable people who will really explain why their product is good.

We owe a big Thank you to those music dealers that really reach out to help the customer get the instrument that is right for them. As you can see, there are not nearly as many independent guitar stores,- camera stores, Stereo stores, like their use to be.

[Rhythmdoctor]

Most places list used items for 100% markup. I’m willing to bet it’s similar for new guitars. Just a guess though.

[Skip Ellis]

I had a retail store '75-'84 and most brands, dealer cost was 50% MSRP. Some things (especially electronics) was a 'B' item at 40% off MSRP. Some big dealers who go to the NAMM show and order a years' worth of merchandise at a time can get better deals like an extra 10% or free shipping - just depends on what they can negotiate. A Mom and Pop shop might order 24 Martins to be shipped on a 2 per month schedule for a year. I did that with Gallagher which IIRC was a 40% item and I had to buy a minimum of 4 to get the line. They did let me divide it up though. When I became a Fender dealer, it included Fender guitars and amps, Rhodes pianos, and Rodgers drums - I had to buy $5000 worth of product and the invoice had to paid in 45 days. I bought most brands of strings from Ernie Ball for 66-2/3 off plus free shipping and an extra 10% for paying COD. Things have probably changed by now, though.

[Cypress Knee]

I was in retail, and wholesale prices can be all over the board. To automatically assume that an item is "keystoned", that is bought for a nickel and sold for a dime, is not always correct.

Twenty years ago, my main selling item was MSRP at $100. It cost me $55 plus shipping to get the item on the shelf. MAP contracts would stipulate that I could not advertise that item for less than whatever, say $85. But I could sell it for any price I wanted, and if it was a dog that year I bit the bullet and discounted it for whatever I could get, ate any losses and re-deployed the money into hopefully something more profitable.

I had a friend in the high-end bike business back then. His wholesale prices were 65 to 70% of MSRP on a $5,000 to $10,000 bike. His real profits came from repairs and service and accessory sales.

By the way, I had many friends who assumed that I could ship back any unsold goods or returned goods to the manufacturer at the end of the season for credit. WRONG!! Retailers generally own what they buy at wholesale cost.

In the end, when you go into a shop and think "That item is keystoned, I will negotiate the price down to what I want to pay" there is probably a limit to what the shopowner will listen to. After all, he bought the item at a wholesale price. Now he has to cover rent/mortgage, utilities, insurance, shipping, bank fees, credit card fees, advertising, marketing, salaries, benefits, and hope at the end of the day that there is enough left over to make the bills due on the home front.

Just to give an example that everyone should think about, even if I am wading into forbidden territory, let's just say a guitar shop owner has a million dollars a year in sales, and after all other expenses has ten college kids half-time at a thousand hours a year at $10 an hour. $100,000 payroll. His personal take home profit is $100,000.

Where do you think that extra $50,000 for the college kids is going to come from? Sure as hell the landlord won't reduce the rent, or bank won't renegotiate the mortgage. The utility companies - gas, electric, phone, etc - aren't going to give up their revenue stream. The credit card processes will take their cut. The insurance guys will keep their premium streams coming.

So the guitar shop owner decides, "Hey, in the end I can make more with less stress by becoming a greeter at the local WalMart. I am hanging up a Going out of Business sign tomorrow."

Then everyone mourns another local retail shop closing. Just too bad.

CK

[Maryc-k]

The profit margin on Collings, Bourgeois, Santa Cruz, etc. is much smaller than you would think. Add in the shipping from the shop to them, credit card fees from the buyer, and any other costs to the dealer and be glad they are allowed to extend 10% off list.

Totally different business model than Martin, Taylor, etc. No one gets rich owning a guitar store these days.

[SalFromChatham]

Every single new guitar dealer I have ever come across makes so much money in stock options and they have like three homes. We need to break them.

So let's say you get the dealer cost on a guitar. Are you actually going to show up and expect to buy that guitar at cost? Would you like it someone tried that stunt at your place of business? I've never understood the mentality that a business shouldn't be allowed to turn a profit.

[TDavis]

I bought a Martin OM-28 from one of our sponsor dealers yesterday at a 40% discount off of retail price, without negotiating. I think they did great by me, and I’ll certainly buy from them again!

[Steadfastly]

Originally Posted by J-Doug

So let's say you get the dealer cost on a guitar. Are you actually going to show up and expect to buy that guitar at cost? Would you like it someone tried that stunt at your place of business? I've never understood the mentality that a business shouldn't be allowed to turn a profit.

Correctamungo! Everyone needs to make a "decent" profit or they simply will not last.