I have a friend who's thinking of branching into that line of business, would appreciate any information, advice, guidance. Any access to #s also appreciated. Thanks!
Before I'd invest much, I'd study how likely it is that most of us will be streaming new games/movies instead of buying hard copies.
I've talked about that with him, and the location is more of a college town so the idea is to pull the college kids used things and swap it with other college kids. Not targeting the "new" games/movies per say, but the stuff that kids are tired of using/listening/playing. I know there's alot of kids in college who still listen to CDs in their cars, or purchase hard copies of video games. Even with the rise in piracy and streaming, there's still enough of a market out there to justify a small college store...if that makes sense.
yeah...make sense. i have zero handle on that market, so I just spouted the first thing off the top of my head. best of luck to you!!!
If he's looking to make a career and decent income from that, it doesn't sound that promising to me. If it's kind of a side venture and he's got a little money to play with, it should be fairly low risk. It's not too capital intensive...just rent and bills for the space and an initial inventory (i'm guessing he would go out and find some used games/music to stock the store to attract people). There's not much to compare it to, but Hastings is a similar business that focuses on selling used DVDs, games, and music in college towns. They also sell new, IIRC, and do rentals and books. It's hard to compare a corporation to a sole proprietorship (?) ... but looking at Hastings (gohastings.com) last annual report, they held a 1.3% profit margin (after taxes) and have profited each of the last 3 years at a similar rate. Your friend would obviously be on a much smaller scale, but it seems there is a market for it in the right location. Hopefully he's looking at a location without a Hastings or Gamestop to compete with. Hastings does about $3.2 million per store in sales on average, so let's say your friend's small shop does 10% of that ($320k), which I would guess is a best case scenario (unlikely) for a new business of his capacity -- and somehow manages a 10% profit margin (purely hypothetical, could be higher or half of that - I understand that taxes are pretty brutal on small business) -- that's $32000 net income after taxes ($48000 at 15% PM - this would probably be the ceiling IMO). Keep in mind that he may have to use debt to build his inventory, so it may be less than that after he pays off some debt...not to mention if he hires other employees. Again, all this is just a rough guess, and I'm comparing it to a corporation that has been in business for 40 years. Not really any numbers out there for small business since they don't report to investors. I wouldn't bank on it as my main source of income, but it could be a fun venture if he is not dying for the money.
I just looked very hard at doing exactly what your friend is thinking of doing or very close to it. Location is important, very important, and inventory is as well......there are some success stories, but mostly they don't do all that well. DD
Definitely a side venture....and no Hastings or Gamestop in the area....there are used textbook only vans that roll on and off campus (can't come on campus and set up shop due to campus bookstore) but they don't do CDs/Video games/DVDs.... DD, what made you change your mind? What sources did you use to come up with actual #s? I'm trying to help him draft a business plan but don't know where to begin with finding numbers.
Maybe a laundromat that also serves alcohol? I think itunes, steam, or pirated off the net has killed these kind of shops.
I met with the owner of Game Over, and went to a store up in North Austin that was doind something similar. Then I ran the numbers and they just did not add up to something that was franchisable.....and worth a lot of $$$. So, I bailed on it.... The start up costs were going to be about $100,000....and I had a business loan lined up....but the time to make it work, and the lack of a decent exit made it not worth doing. DD
The route that he plans on going is not the typical, franchise store route. It's looking at a start up of anywhere from $1000-5000 in just used dvd/cd/video games. Starting out from back of a van around campus and then pushing hard on the promotional front to the college crowd.....typically following the used textbook van format, but with more offerings for buy/sell/trade......keys to success being great social/on campus marketing and the basic appeal of "let us buy your junk" (which college kids have piles of in dorms/apts)....also doing rentals of videogames/gaming systems.... Inspite of the gameflys, netflixs, etc the main component of this would be the ease of access, due to on campus location and instantaneous one on one experience vs. waiting for things (which college kids hate). Very small business/out of van with a resale concept and low low overheard and startup cost.
That might work, but who will he find his customers? And why would they go to him if they can get a guaranteed deal from Netflix, or Gamefly etc....that guarantees things are not scratched etc. The van thing sounds too sketchy feels like someone going...pssst...dude, you wanna buy some speakers? DD
Actually I'd think it was the opposite. College town = tech savvy teens and 20somethings. You want to put a store like that out in the burbs, where old farts and children live, since they either can't or don't know how to pirate stuff and are more apt to use hard media over streaming. Personally, it sounds like a bigtime losing investment to me, especially given that market.
I agree Donny, and more than that people are going to be downloading rentals of games soon as well..... The packaged goods location based business is dying ....witness Hollywood video and Blockbusters.... DD
It's basically risk-free, since he is just starting out of the back of a van...no huge investment to lose in the first place (depending on whether he thinks $1-5k is that big of a loss. I don't think the market would be there in the 'burbs. Less gamers overall than a college campus so you wouldn't see as much traffic. Sure, younger kids play games but they depend on mom and dad to buy them ... they're going to be less apt to be thrifty and trade in games, and more likely to just pick up the kid a game at wal-mart with the groceries. I could be wrong, but I think even with all the digital downloading/piracy, gamers still buy a hard copy more often than not. And it's kind of hard to "trade in" a digital download of a game.
I agree. I'm not doing business with any character out of the back of a van. Are you kidding me? Hey...at least he will be able to live in his van DOWN BY THE RIVER when this little business venture goes belly up.
Apparently the VAST majority of money made by places like Gamestop come from used games market. Pretty high margins in that one portion of the store apparently.
I have researched this a lot and it is upwards of 85%, but publishers and developers are taking that head on, and as more and more games are delivered electronically, Gamestop will go the way of Blockbuster and Hollywood video. DD
Wow...well....maybe the OP is on to something here? how does GameStop control the market with those margins? You'd think they'd be vulnerable to smaller players willing to take less of a cut (especially for that type of industry). The used bookstore model -- or some online based model matching buyers and sellers and facilitating the exchange.
