Group Buys - PLEASE read!

[FiberLux]

Thanks Steve and Dennis for your prospectives on this issue!

Really, I want to thank everyone for stepping up to give their $0.02 on Group Buys. It's definitely an important subject and we will spend some time on it at the January meeting.....

I hope everyone is planning to join us at this meeting. We need and want your input, whether we all agree or not!

Boyd

 

[yupyup]

i think this topic can lead to more political issues.....

but here's my analogy;

- think of companies as hobbyist
- think of employees as lfs
- think of government as wholesalers
- think of overseas/outside countries as online aquatic business

Why most companies doing a lot of outsourcing - it is cheaper to send our work overseas.

Here are some questions that may help some of you whether you need to support lfs or not:

1) should we blame this to big companies that outsourcing is the trend, or employees or government? we all want to keep our jobs here, correct?

2) Do you think that companies are actually getting the same quality of work overseas? Shipments of livestock or drygoods are not predictable. I can talk to my lfs face to face, steal their time and express my feelings and frustration when I need advice to guide me on how to fix my problem (free of charge). What kind of advise do you get online?

3) Do you think in long term that this will be healthy to our economy? I think taking away business and let's not even mention lfs but businesses that pays our local or state taxes and businesses that helps raise our property value will actually hurt ourselves somehow. I don't buy online due to personal security (I have to admit that I am paranoid) although this can happen anywhere but I'd rather minimize them. If online stores rules the business then we will loose our personal advice (free of charge) to an automated phone menu selection.

4) So why can't we compete with other countries rate of labor? I'm sure your reasons will be similar to our lfs reasons. LFS are here to make the same living as we are. They also work hard like we do. We all know which lfs charges the most and which ones are resonable. So support the one that you feel is the right one for you. We also know that this hobby requires a lot of time, maintenance and it is very expensive. We need to realize that our lfs are also spending a lot of money and time to keep their corals and fish that are presented to us available for purchase.

I support at least a couple of fish stores (will not mention their names) used to be three, however, the other one went out of business but learned a lot from him and I'm sure I'm not the only one. I guess the only thing that we can say now is.... we should have supported him more?

just a thought.

 

[flapjack1439]

I've never participated in a group buy. Maybe it's just the live stock I'm looking at, but the difference in pricing isn't worth the risk, to me, of buying something site unseen. I also prefer, if I can, to spend my money locally.

I've found that different lfs seem to have good pricing on certain items. Just like any other retailer. You just have to look around and be patient. Sea Schor, Tropiquatics, Advanced Aquatics, Coral Paradise, Sharky's, and others can be very competitive. These guys are our neighbors and have families to feed. They deserve a shot at the sale. They aren’t getting rich in the aquarium business.

We all go into these stores and shop, if not buy. We talk to the owners, pick their brains and get to see product first hand. Even if the pricing isn't there, we use their stores to get an idea of what we want. There is nothing wrong with taking that information and buying where the pricing is better. But these lfs owners deserve a little consideration. I'm as frugal as the next guy. I have bought dry goods online. But, if the difference is a couple bucks, and sometimes more than a couple, I'll give it to the lfs because I can take it home now, for his customer service, the fact that he is a local guy and all the info I've gained from them.

That being said, group buying is an individual decision. I, personally, would not feel right trying to tell someone else where to spend their money. If a lfs is willing to host a group buy, that’s great and perhaps, I’d try it. It’s done all the time in the Radio Control hobbies with local hobby shops.

 

[mhurley]

For those that may remember when JDieck removed some SPS from his tank and gave (yes gave) them away. That one colony was over 2 foot across! He single handedly collapsed the Chicago suburbs market for Acropora Nana in one evening. And he heard that comment from an LFS!

So it's not just group buy's that impact these businesses.

I am in no way suggesting that we stop trading frags, just making a point.

 

[Naperville Reef]

<a href=showthread.php?s=&postid=8894836#post8894836 target=_blank>Originally posted</a> by mhurley
So it's not just group buy's that impact these businesses.

sort of like the CMAS sponsored frag swap?

 

[mhurley]

<a href=showthread.php?s=&postid=8894869#post8894869 target=_blank>Originally posted</a> by Naperville Reef
sort of like the CMAS sponsored frag swap?

If memory serves, there was previous discussion about allowing the LFS to come to the swaps and sell...just not to take over the whole thing. I don't know where that ended up though. I can tell you that at one or two I went to, I will guarantee there were some businesses there..just didn't make it known.

 

[SaraB]

<a href=showthread.php?s=&postid=8894969#post8894969 target=_blank>Originally posted</a> by mhurley
If memory serves, there was previous discussion about allowing the LFS to come to the swaps and sell...just not to take over the whole thing. I don't know where that ended up though. I can tell you that at one or two I went to, I will guarantee there were some businesses there..just didn't make it known.

Mike - At the Frag Swap on the 20th there will be some LFS's set-up (Commercial Sellers).

 

[mhurley]

<a href=showthread.php?s=&postid=8895499#post8895499 target=_blank>Originally posted</a> by Sara B
Mike - At the Frag Swap on the 20th there will be some LFS's set-up (Commercial Sellers).

Yep...I was not at that one. Good to hear.

edit: in the future tense I mean....Since I'm no longer doing corals.

 

[SaraB]

<a href=showthread.php?s=&postid=8895524#post8895524 target=_blank>Originally posted</a> by mhurley
Yep...I was not at that one. Good to hear.

edit: in the future tense I mean....Since I'm no longer doing corals.

Mike - you could join us there since it's the upcoming January 20th Frag Swap. You could rejoin CMAS, eat some pizza and share in this topic of conversation in person!:rollface:

 

[mhurley]

I'll have to see if I can find my suit of armor, helmet and riot shield.

 

[snorvich]

Well, one more view from a different perspective . . .

Let's say that LFS-ABC rents a store and pays $2000 per month (which is pretty cheap these days) and has an owner operator that pays himself $36,000 per year and has one employee who makes $30,000 per year. He also has electricity and miscellaneous monthly fixed costs. So his FIXED out of pocket costs are almost $9,000 per month. If he can really do that, he is being frugal, by the way.

Now he purchases livestock for sale and has shipping costs associated with that and also tries to stock a reasonable array of dry goods. If he has a gross margin of 100%, that is takes his cost and marks it up by 100%, his break even revenue per month is $18,000. That is, no profit, just clearly costs. So that LFS needs to make about $4,000 in revenue per week to just come out even. How many LFS do you know that actually do that?

In my prior posting, I indicated some of the brands that I buy. LFS COULD stock them BUT those brands have strenuous requirements to become a dealer (so much in inventory) AND they cannot sell mail order, only locally. Which is why no LFS carries my brands.

So, the life of an LFS is no picnic. Most of them are running their store on credit card debt and are not breaking even. (there is a timing issue with revenue and inventory expense).

So, yes, group buys, people like me, and frag swaps make it really tough to stay in business.

Just another perspective.

 

[jcm1229]

I've stayed away from posting on this topic but most of my comments have been echoed by others. One point to make is that several LFS have a maintenance arm of their business. This is where a lot of revenue stream can come in.

 

[snorvich]

Yes, the maintenance side of an LFS can be profitable and in most cases the maintenance side is carrying the store side. Depending on the level of accounting sophistication they have, they might decide to increase the maintenance side and close the store side.

Having thought about this a fair amount, I have come to the conclusion that a LOCAL only store cannot make money because of the fixed costs problem. A maintenance arm has little fixed costs and most of their true costs are variable and those are revenue producing.

 

[Kmiec123]

The main reason I will shop at a frag swap(members) is the same reason I like tank raised fish(when possible). Less disease, less stress, and less impact on a huge problem of harvesting the ocean. Not to sound like a one sided "tree hugger", which I am not, but I heard a story first had of a man that dived in Hawaii 15 years ago and saw countless clouds or yellow tangs. Went last year and could count small schools of 15-20. Big difference over a short term right in our back yard. This is happening and the future of our hobby is in jeopardy. Just another thought. Carl

 

[Kmiec123]

One of the reasons I like environmental friendly stores. Or at lease an awareness.

 

[FiberLux]

<a href=showthread.php?s=&postid=8895859#post8895859 target=_blank>Originally posted</a> by snorvich
Well, one more view from a different perspective . . .
If he has a gross margin of 100%, that is takes his cost and marks it up by 100%, his break even revenue per month is $18,000. That is, no profit, just clearly costs. So that LFS needs to make about $4,000 in revenue per week to just come out even. How many LFS do you know that actually do that?

So, the life of an LFS is no picnic. Most of them are running their store on credit card debt and are not breaking even. (there is a timing issue with revenue and inventory expense).

Steve, I appreciate the additional perspective. I hope you won't mind my making sure that people know about real world gross margins. Based upon what I have seen and what I know about certain reef products, there is no way that a LFS could be working on a 100% GM.

While I am sure there are certain products that afford higher margins, the vast majority are sold at gross margins under 50%. Since my business is lighting, I've studied lamps, ballasts and other lighting products at length.

For instance, an Ushio MH lamp that might cost us $100 was probably sold by Ushio to a master distributor for $50, but you have at least one and up to three middlemen between the factory and consumer. A fish store might only end up with a 10-15% GM on that same lamp.

That's also a good reason why I want to support my LFS wherever possible.

Thanks for letting me add my $0.02.....

Boyd

 

[Sullyman]

There's obviously money to be made by an lfs or they wouldn't keep opening up. That and I think there's growth in the hobby, so if a store is really hurting, it's missing the mark somehow.
I really don't want to hear about how hard and expensive it is to run a store, they(the owners) picked this hobby as their way to make a living. The last store I remember closing was Fish Rac, and King Coral is there now.
We are lucky there are so many great/good stores here, but they are here because we are. And we obviously are spending money at these stores and doling out free publicity.
Sound like I don't like lfs, nope I frequent a few I find to be great and I feel I have friends at those stores.
I don't think an occasional group buy will be the demise of one or any of the stores here.
And I don't think you'd ever run a group buy through an lfs without all the others crying foul.
You guys should have a very good meeting.
peace

 

[snorvich]

Boyd, non livestock such as lighting does not have a gross margin equivalent to livestock because livestock has a significant shrinkage rate and high transport costs. But, if I assume your percentages for dry goods are accurate that is why a LFS cannot afford to stock, for example, a variety of MH bulbs. If he can get a higher gross margin elsewhere, he will not be incented to carry inventory which has low turns and low margin.

A fish that sells from a wholesaler MUST have at least 100% gross margin to cover shrinkage and transport costs. But, of course, if your argument that the gross margin is less means the break even point is more. Do you really think that the small LFS are hitting 18,000 per month? Work that backwards into corals and fish and you will see it is highly unlikely. And I was conservative about fixed costs.

Now frags are a different issue but they don't sell for as much as fish or whole colonies. However their gross margin actually approaches infinity since they are pruning from a renewable resource and all that costs the producer is calcium, food, light costs and, oops, real estate costs. In the case of a hobbyist, raising frags in the basesment, real estate costs are effectively zero (at least for our purposes) Total real costs for hobbyists are not zero, but are not significant. That is why so many people want to have frag grow outs in their basement. Marketing, on the other hand, even in the cases of frags changes the equation considerably. And raising frags in a retail environment may use leased spaces effectively or not depending on volume sold.

Consider a breeder, who, for example, raises tank raised rare clown fish. His gross margin is significantly higher but the number sold is not so high that total revenue is significant even though profit margin is very high.

The real issue is PROFIT CONTRIBUTION (to coverage of fixed costs) which is the sum of all gross margin for all products sold. If it is insufficient, eventually the store goes out of business but in the mean time racks up significant credit card debt. Sure new ones keep opening up as hobbyists dream of making this a business but the cold reality is that it will not convert to a profit making situation in most cases. Being a knowledgeable hobbyist does not mean becoming a profitable business owner. Many people make that mistake.

Before opening any kind of business, the prospective owner needs to run a pro forma P&L to see if the business model supports the business.

Don't get me wrong, I am not arguing for or against group buys, I could care less. I would like people to understand the economics within this market so their decisions are rational. If LFS go out of business, is that good bad or neutral? I suspect that if they do, average cost to the hobbyist will actually increase.

By the way, I do not agree with Sullyman that the LOCAL market is expanding; I would think that, statistically, it is contracting. Perhaps the total marketplace is expanding but the percentage buying online is increasing for various reasons which shrinks local dollars spent in the hobby.

 

[mm949]

sorry i think this thread is leaning OT.....it is true that many items can be purchased online for the SAME price an LFS is getting from a distributor.....it is possible for an LFS to compete with online by buying dry products direct from the manufactorer....

i think its a great opportunity for buyer and seller and would welcome the ideal of group buys from a LFS....

but what do i know......been getting rich for years from the fish trade...lol

 

[roxtonkrux]

Here is my 2 cents. I have been in this hobby for about ten years now...I have worked at LFS, wholesalers, and been a hobbyist... and about everything else you can think of related to this hobby. I am a former CMAS member...but havent renewed my membership in a few years. I can never make it out to the suburbs for those meetings With that said take this for what it's worth.

In this industry order size is everything...unless you have a hook up with some jobbers in L.A. lol

What I am getting at is, if you want LFS to get awsome corals in...it takes support. The best pieces go to the jobbers/cherry pickers and those who are consistently ordering large quantities.

The same goes for dry goods. Most stores dont have the space to put in minimum orders for goods directly from the manufacturer. Some smaller companies, yes there are a few with no mimimum orders that help support mom and pop shops...but from the company manufacturing these items, it's tough to sell small orders to these mom and pop shops when online vendors come in with massive orders for their warehouses out in the cornfields.

As for this beeing OT, I dont believe so...It is just opened up to a broader discussion. Group Orders are giving lots of business to online vendors and not LFS.

IMO, the extra buck you pay is worth it at LFS. They have real face to face customer service and have their items on display. People pay admission to the Shedd, I'd much rather go see Ocean's Floor, Oldtown, or Menard's old joint in terms of entertainment.

I primarily trade corals with other hobbyists, but when I do buy items I purchase them through the LFS.

The direction this hobby is going is online, where chop houses will succeed and the good honest LFS will not. This is sad, but true. I am all for e-business, It's a great model and helps us afford more. But as some others have said...this hobby isnt cheap. For this hobby to truely succeed IMO it is through the LFS. They have the real hands-on experience that cannot be taught and most online vendors wont share. e.g. can you ask live aquaria how that exact fish you ordered is eating, interacting with other fish etc...what about what type of food it prefers?

I am by no means telling people how to spend their money. It's yours not mine...but you must take into account the long term effects...think Wal-Mart. If you're not aware of the effects Wal-Mart has on local economies then perhaps you should read up on it. I for one refuse to purchase anything from them. I dont care how good their prices are. But again that speaks volumes about the types of businesses I support. As the customers, we are in power here...its up to you how you execute that power.

One thing to think about...why should the well known stores continue to support CMAS? They donate to raffles, and they give discounts...how does CMAS support them back?

If some of the well known LFS stopped their CMAS support I have a hard time believing their business would suffer that much. In fact they would probably be end up ahead.