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Discussion Starter #1
I was talking to a friend and GC forum member (@GTmaker) today about the possible profit margins at L&M.

I indicated that I thought their typical/average margin would be about 30%.
He felt it would be much more.

What do you folks think (or know)?
 

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It's actually around 5-7% for the retail side of things believe it or not.
 
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Markup is more than 30% (especially for smaller items - there is a sliding scale strings and picks are a silly high markup, top of the line guitars and amps much less, as a percentage of their cost). The margin on that though, I have no idea (what LanceT said; overhead etc).
 

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Discussion Starter #7 (Edited)
I guess we have to define profit margin vs markup vs gross margin vs operating profit , etc.

Let's stay with basic markup on wholesale to retail. This will obviously vary depending on the item, so let's stay with stating your opinion of an average percentage.

EDIT: I was typing while the last two entries were posted.

@Granny Gremlin What do you think the AVERAGE markup would be?
 

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Discussion Starter #8
It's actually around 5-7% for the retail side of things believe it or not.
What would the average markup percentage be to get that figure?
(assuming you don't mean the 5-7 % to be the markup)
 

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What would the average markup percentage be to get that figure?
(assuming you don't mean the 5-7 % to be the markup)
5-7% is profit overall was my understanding. Mark up varies on product. The largest profit items being Yorkville produced and distributed and things like CS Gibson and fender having the smallest margins. I can't tell you exact mark up but I remember being shocked how little the discount was when a buddy purchased a new Gibson (with his staff price being cost)
 
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Discussion Starter #10
Mark up varies on product. The largest profit items being Yorkville produced and distributed and things like CS Gibson and fender having the smallest margins.
Any guess/thought as to the AVERAGE markup?
 

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Couple of weeks ago I got a Firebird for 20% off the floor price which was already knocked down from the list as it always is. They said they couldn't go any lower o/wise thay'd make nothing on it. I've usually been able to negotiate down from what the asking price is - don't make a song and dance about it just I'm willing to buy this can you do anything on the price. Traynor AM Custom 225 acoustic amp was 1,200 at L&M - called one store offered a grand they said no - called another and they said yeah we'll sell you that amp for 1000. Same with Martin guitars - make an offer tax in and go from there. If you don't come across as some kind of jackass most times they will try to find a number. It's all about moving inventory.

So, with respect to markup, they were able to knock 20% off the Firebird and still make something.
 

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Any guess/thought as to the AVERAGE markup?
Hard to say... and I don't really want to speculate and provide inaccurate information.
 
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5-7% is profit overall was my understanding. Mark up varies on product. The largest profit items being Yorkville produced and distributed and things like CS Gibson and fender having the smallest margins. I can't tell you exact mark up but I remember being shocked how little the discount was when a buddy purchased a new Gibson (with his staff price being cost)

Staff get a discount, but they don't get things at cost.
 

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So, with respect to markup, they were able to knock 20% off the Firebird and still make something.
Old inventory costs a store money. I’ve owned several retail businesses. Inventory turn is a key metric. Most inventory is financed and the goal is to sell it before it comes due. On a typical gross markup of 20 to 30 % anything that is on the shelf after 90 days is costing you money. Note this is in general terms. I am talking turn over enough inventory to pay your cost plus overhead plus salaries before the term of the overall inventory financing is up. This means you have a sliding scale for markup. Things that move fast tend to have a higher markup and are hardly ever discounted. Things that move slowly have a lower markup, to help move them quicker, and are often discounted, especially if they have been sitting for a while. It is not uncommon to sell high ticket items at or below cost if they are old stock. You need cash and the high ticket item was paid for from the profits of the quicker moving items. Fast moving inventory pays to keep the store running. High ticket slow moving items are the profit.
 

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Staff get a discount, but they don't get things at cost.
Depends on the product... they actually get 10% below cost on some items
 

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@greco I couldn't tell you - never worked at L&M or another music store specifically. I'm sure the concept of loss leaders applies (which Kerry alluded to). Not sure average markup is meaningful, but it could likely be broken down by product catagory (like I said before the highest markup would be consumables like basic picks and strings ) and that could be meaningful and useful info.
 

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Sales people often speak about markup whereas accounting people speak about margin of profit. Here is the difference using $100.00 as the retailer's cost.

$100.00 x 40% markup is 100 x 1.40=$140.00

$100.00 x 40% margin is 100/.60=$166.67

When I was running branches for my company in the HVAC business, we needed to sell most thing at 40% margin to stay in business. Some things we would sell for less to be competitive on large volume items and some things we would sell at a higher margin of profit to try and make up for the lower margin of profit items.

To stay in business and flourish, we needed to be above 30% margin of profit across the board. Some companies need more that that 30% and some need less if there volume is higher than average. I would think the music stores need to be above 30% to stay in business and experience some growth. That is my thoughts based on my past experience. Am I right? Maybe. Maybe not.
 

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I think big stuff would be between 15-30% markup...accessories like cables and things much more.
When I worked for HP I dealt with a lot of retail stores like Bestbuy...theres a reason why they always push you to buy USB cables etc when you buy a printer, computer etc....markups can be 100%+. Its easier to hide /inflate the markup on that stuff. So I think you have to look at "average" more than "typical". Costco had a different approach...most of their printers had a USB cable bundled in...so they could say they gave you a $15 value for something that cost maybe a buck, which theyd actually make the OEM pay for anyways. that was the thing about Costco, if you had products for sale at other retailers, you always had to give them something a little special to get the contract. I cant say things are the same today or not.
 

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Pricepoints (and associated markup) can be expected to vary with how much of that inventory one can expect to move. And the amount you can move will, in turn, depend on pricepoint. So if something that a retailer expects to sell a lot of can have a 50% markup without pushing the envelope in terms of what the consumer is willing to pay, then the retailer would be foolish to NOT leap for that 50% markup. Particularly since that item can help to offset, and effectively subsidize, a 10% markup on another product that has a much higher pricepoint and won't sell many units very quickly.
 
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