There's no doubt that the internet has thrown up many challenges for record shops, but a well-run business can still succeed. Our guide gives you all the essentials for starting up and running your own record shop business.
- Research your target market
- Decide what to sell
- Operating practices
- Establish your customer profiles
- Selling on eBay and Amazon
- Price your products
- Buy an existing business
Research your target market
Unless you're hoping to generate the majority of your sales income by trading online, you will need to find out whether there is enough local demand for your record shop. First of all, check out the competition. Count how many outlets there are already in your area selling recorded music. If you are planning to target a specific niche area of the market, for example dance music on vinyl, you may feel that you won't face competition from HMV, supermarkets and other large stores that sell more mainstream music. However, if you intend to stock the same mainstream titles, you will have to take all of these stores into account when you work out if there will be room for your business. Don't forget that regardless of the type of music you stock, you will almost certainly be competing with online music retailers that sell a vast range of music in physical format (mostly CDs and vinyl but also cassettes). All 'traditional' sellers of recorded music in physical format face strong competition from the digital downloads and streaming sectors and this is a market that the independent record shop can't really tap into.
Your choice of location may be influenced to a certain extent by the type of music and other products that you intend to stock. A shop that focuses on a specialist niche may not need a particularly prominent trading position as it may be able to generate enough custom from word-of-mouth recommendations and targeted advertising rather than relying on passers-by. A shop that stocks a broader cross-section of music may need premises close to the main shopping areas to get enough custom. You could consider the alternatives to traditional shop premises such as trading from a market stall or as a mobile vendor at fairs, shows and other events. It's a good idea to think seriously about offering online and possibly mail order sales - particularly if you specialise in a niche market.
Try to make an assessment of the demographic profile of your area as certain age and social groups tend to like particular genres of music. Some demographic groups also buy more music than others.
Also check out local crime rates - you don't want to have to cope with excessive levels of shoplifting, break-ins and theft.
Why will customers choose your shop
Once you have decided on the proposed location of your premises, you will need to make sure that you will be able to encourage enough customers to choose your shop rather than existing outlets. Check out the competition to see:
- what range of products they offer
- whether they focus on a particular type of music
- what services they offer, for example an ordering service for difficult to find titles
- if they participate in the annual Record Store Day promotion that has become very important to the independent sector
- whether they also sell online
- what prices they charge
- what their opening hours are
- how helpful and knowledgeable their staff are
- what type of customer they are attracting
- if the premises and fittings are modern and smart
This might indicate that there is a gap in the market that you can exploit. For example, your 'unique selling point' (USP) might be that you can reliably supply difficult to obtain imported titles.
Find out what people want
It can be extremely difficult for small, independent shops to survive in the music retailing sector in the face of competition from the national chain HMV (which itself has struggled to survive in recent years in the face of strong competition) and other stores, online retailers of music in physical format like Amazon and, increasingly, digital 'stores', in particular iTunes and streaming services like Spotify and Apple Music. It is therefore important that you make sure that there will be a market for the goods that you are going to stock. You may want to consider talking to people in your local area to find out:
- what sort of products they would want you to stock
- would there be demand for other services, such as whether they would be interested in club nights or in purchasing concert tickets through you, or even something totally unrelated like a café area in your shop
- what they think of your proposals in general
- what, if anything, don't they like about the existing record shops in your area
You may find that talking to people involved in the music business in your area, such as DJs, independent record labels, bands, pub and club owners, may give you some good ideas for your shop and help to build the community element that is increasingly important for independent record shops to survive.
Research current trends, plus legal and tax issues
Decide what to sell
The range of products you sell will depend on what type of shop you intend to run but may include some or all of the following:
- vinyl - many independent record shops generate a large proportion of their income from sales of vinyl, which has hugely increased in popularity in the last five years or so
- picture discs
- music DVDs and Blu-ray discs
- cassettes, which have surprisingly made something of a comback in the 2010s
- clothing and other music merchandise
- books and magazines
- console and computer games
- portable music players and related accessories
- concert and other event tickets
It is likely that you will stock both singles and albums.
You may decide to offer an ordering system so that customers will use you to track down hard to find titles. You may also decide to stock both new and secondhand titles.
Independent record shops have to work hard to survive these days, so it's important that your shop:
- is clean, tidy and professionally fitted out (don't forget to look critically at the outside of the shop - smart paintwork is important)
- is well stocked with the titles that are in demand from your target customers. Certain areas of the music retailing business are fashion-led so, if it's appropriate to your business, you need to make sure that your stock reflects current trends. If you're planning to operate in a niche area, it's likely that your customers will expect you to be at least as knowledgeable as they are about the genre and be able to source difficult to find titles
- is staffed by knowledgeable employees
- offers a high standard of customer service
Don't overlook the potential of your window display - a bright, regularly changed display can help to attract passing trade. Signs in your shop window will inform passing customers about any other services you provide like concert ticket sales.
You can also use your shop window to advertise any special offers or promotions you will make, or to highlight new titles that have come in or are going to be arriving in the near future. Taking part in the annual Record Store Day promotion is also very important for many independent record shops.
One of the most important aspects to consider in the daily running of a record shop is the accurate management of your stock. There are different ways of achieving this, the cheapest being the manual 'master bag' system. This involves keeping track on paper of the identity and quantity of orders from suppliers and also a record of what has been sold in the shop. The two records can then be compared to see what needs ordering, what titles may need discounting and so on. This can be a time consuming business and there's an increased likelihood of human error.
The alternative is to install a computerised system for stock control. These vary in complexity and what they are able to do but range from being a computerised version of the 'master bag' system to systems which handle everything, even down to automatically re-ordering online when stocks become depleted. These systems are quite expensive, so you will have to give careful consideration as to whether you can justify buying one.
Recorded music is among the most frequently purchased items online. While many people now just pay to download the music tracks themselves, CDs (and vinyl) still sell very well online. Depending on the type of music you stock, you might decide to set up an ecommerce website so that you can potentially reach many more customers all over the country - even the world.
Using an online marketplace like eBay or Amazon is an alternative way of selling online and gives you the opportunity to see whether ecommerce works in your business without incurring the cost of setting up your own website. Selling online works particularly well if you specialise in stocking unusual, niche and hard to find recordings.
Keeping in-store and online inventories synchronised
Software systems are available that keep the shop and online inventories in line with one another. This means that if an item sells out in the shop, the online database is updated accordingly. Similarly if an item sells online, staff in the shop are alerted so that they do not sell that item in the shop.
Establish your customer profiles
Typically, a record shop's clientele is characterised by two factors; age and social grouping. Teenagers and young adults are key record buyers and are likely to make up a large proportion of your customers if you plan to stock mainstream titles. By social group, C1s buy the most music and ABs buy the least. Social grouping also tends to affect the genre of music bought; rock and pop music is bought equally by all social groups but dance music is mostly bought by C2s and DEs and classical is bought mostly by ABs. (It should be noted that in recent years singles sales have become dominated by downloads and streamed music, to the extent that the CD single may shortly be a thing of the past.)
Your market research should give you a good idea as to what your main customer base will be so you can make sure that your stock reflects their tastes. If you're planning to offer unrelated services like café sales then you're likely to get a broad range of customers of all ages, from dedicated music lovers to casual shoppers.
You may be planning to offer discounts to certain types of customer, for example, university students, local DJs and schools. The benefit of this type of scheme would be the raising of your shop's profile among a potentially large customer base as well as generating goodwill.
Special offers and discounts
You may consider running special offers throughout the year. These can result in bringing more customers through your door who you hope will buy more than just the items that are advertised on special offer. However, it is important that you monitor your takings during these times to make sure that you are getting more custom, rather than just giving your regular customers cheaper products. Offering discounts on selected lines can also be a good way of shifting old stock, especially if you do not have a returns agreement with your supplier.
Participating in the annual Record Store Day promotion can be an excellent way of boosting sales and the profile of your business.
Don't forget to brief your staff on what discounts are available so that they don't offer friends and relatives unauthorised discounts.
Selling on eBay and Amazon
Selling online can be an excellent way of reaching new customers and boosting your sales. But setting up your own ecommerce website can be expensive and you may not be sure at the beginning whether the value of the sales you'll make online will justify the set-up costs.
As an alternative, trading on eBay or Amazon lets you get a feel for selling online but with much lower start up costs. And you may decide to keep on selling through eBay and Amazon even when you have your own online shop.
You might already have your own personal eBay account that you use to buy items for yourself and to sell things that you don't need any more. But if you're trading as a business on eBay you're legally obliged to make it clear in your listings that you're a business seller. This means that you'll either need to register a new business account or upgrade your personal account to a business one. There's guidance in the eBay Seller Centre on the definition of 'trading' if you're not sure whether you need to register as a business seller.
Similarly, with Amazon you can use an existing account or create a new one when you register as a business seller.
If you're not already running a business and you intend to start selling things on eBay or Amazon - perhaps just in a small way to begin with - then you'll need to notify HM Revenue & Customs (HMRC) that you're trading. There's guidance on the Gov.uk website that gives an overview of what counts as trading and what counts as self employment. It also gives details of your tax and record keeping obligations.
Decide whether to have your own virtual 'shop'
Having your own virtual storefront will give your business a valuable online presence and will allow you to display all your products together in one place.
When you sign up to sell on eBay, you have the option of setting up an eBay Shop. This allows you to create your shop using an existing template or to customise it to your own design. You don't have to choose the eBay Shop option straight away - you may decide it's best to wait until your monthly sales build up to a certain level and then upgrade.
With Amazon, you'll automatically create your own storefront regardless of the package you choose. You won't be able to customise it very much but you will be able to add your name and logo and provide some information about your business.
How much does selling on Amazon and eBay cost?
Before you start selling on Amazon and eBay it's a good idea to find out how much you'll have to pay in fees. Depending on the items you sell and the method you choose for selling them, your total fees can be quite substantial. And while some of the fees you pay will be linked to the number of items you sell each month, others are likely to be fixed costs which you incur even if you don't sell anything.
Both eBay and Amazon give you the option of selling as a business seller without paying any fixed monthly fees, although it's usually more cost-effective to choose a subscription-based package unless you're only selling a small number of items each month.
The eBay website has a fee illustrator tool and a fee calculator that will help you compare the fees for different selling methods and get a good idea of how much your actual per-item selling fees are likely to be.
The Amazon website gives detailed fee guidance, including some examples of pricing for their subscription and non-subscription packages.
Managing your listings
Uploading your inventory to eBay or Amazon and managing your listings can be a time consuming task, particularly if you're planning to sell a large number of items.
Both eBay and Amazon offer useful listing tools, some of which are free and others that you'll have to pay for.
Promoting your items
Because there's such a huge number of items for sale on eBay and Amazon at any one time, it's very important that you do everything you can to stand out from the crowd.
Always make sure that your listings include accurate, spell-checked descriptions and that your photos and other images show the items that you're selling in the best possible light.
You might want to take it a step further and use the various marketing tools provided by eBay and Amazon such as search optimisation, cross-promotions and paid-for advertisements.
As an eBay or Amazon seller your online reputation is extremely important. All sellers have a feedback score based on actual customer feedback and this is the main measure that future customers will use to check that you are trustworthy and reliable.
So you'll want to keep your rating as high as possible by providing an excellent level of customer service and fast delivery at reasonable prices. Make sure you always respond promptly to customer queries, deal with returns efficiently and keep an eye on your stock levels to avoid your listings showing an item as being in stock when it has sold out.
Be aware that packing up orders and sending them out can be time consuming, but it's important to stay on top of the job to make sure that the right items get delivered in good time to the right people. Very many parcel delivery services now offer bulk shipping tools that integrate with your eBay or Amazon account and these can greatly simplify the process of arranging and tracking your deliveries.
If you're selling on Amazon you might also consider using the Fulfilment by Amazon service, where you send Amazon your inventory and they do all of the picking, packing and shipping as well as providing customer service.
The eBay and Amazon websites have a great deal of useful guidance to help you get started as a business seller and to expand your business as demand for your products grows. Both also have lively seller community forums where experienced sellers are often happy to answer questions.
Price your products
Most suppliers of new records recommend a retail price for each title but it is up to you whether or not you stick to it. You will find it difficult to charge more for chart albums than your competitors do, but you may be able to add value to more obscure and hard to find titles. If you stock both formats, it's likely that you'll charge more for the same album on vinyl than on CD.
Getting the price right is very important. You need to make sure that the difference between the cost price and the selling price leaves you enough to cover all of your operating costs, including your own drawings. Due to increased levels of competition that has driven down retail prices of recorded music, average profitability of record shops has steadily fallen in recent years.
Having 'bargain bins' can be an excellent way of clearing out stock that has reached the end of its shelf life (for example, a single that has gone out of the charts and receives no radio play). As the alternative with some of these titles is to discard them, you could consider setting very low prices for items offered in a bargain bin.
If you intend to specialise in a 'niche' area of the market, it may be that your prices won't be affected by what your more mainstream competitors charge as they don't stock the same range as you. If this is the case, you can charge what the market is prepared to pay.
If you plan to sell secondhand titles, make sure that they are priced high enough for you to cover your costs but low enough to encourage people to buy them rather than buying new. Some of the secondhand titles you sell may be collectables, in which case the selling price is likely to be considerably higher than a comparable new title. Setting the price of items like these may require some detailed research.
If you use auction listings to sell music and other items on eBay (and similar online marketplaces) then you'll need to decide whether to set a minimum price using a reserve or a starting price, or whether to let the auction run from a low start and allow the market to decide the final selling price completely. To avoid this uncertainty, you may decide to just use fixed price listings.
The level of sales made by a record shop can be greatly affected by the time of year. Christmas is the busiest time of the year for the majority of record shops - on average around half of the year's takings are taken in this period with December being the busiest month of the Christmas quarter - although this is now rivalled by the Record Store Day promotion in April in participating shops. So it's important that you make an allowance in your cash flow estimates for the increased amount of stock that you will need to buy for these periods as well as the increased sales. You may also need extra staff in this period, in which case the wages payments should also be adjusted upwards.
Television programmes such as the X Factor and The Voice can have a huge impact on music sales and on dictating popular music tastes which may or may not affect your business, depending on the type of music that you stock.
Buy an existing business
You might decide to buy an existing record shop rather than start your own venture from scratch. Buying a going concern can mean that:
- the premises and stock are already in place
- there are established customers who are prepared to actively support the shop
- the business can generate income immediately
- suppliers have been identified and relationships established with them
- the business has a track record which can help if you are looking for finance
- staff are already in place
- an ecommerce-enabled website and eBay and Amazon 'shops' have already been set up
However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Bear in mind that the independent record shop sector has been in long term decline and, despite something of a resurgence in some parts of the UK, it is quite likely that the existing owner is selling due to lack of demand.
Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around, however you should take into account that independent record shops have been hit hard by recent developments in music retailing and many have been forced out of business. The important thing is to have established the current position so that the price you pay for the business is not too high.
Other matters to consider include:
- the state of the premises, fixtures and fittings and so on. Will you have to spend money refurbishing or replacing assets
- existing staff rights
- the quality and value of any stock you are buying. Check this over carefully before agreeing a price
- the type of stock you are buying - for example, do the genres of music stocked by the previous owner match your tastes and areas of knowledge
- how to retain key personnel once you've taken over
- does the business owe money that you will be responsible for
- if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller
Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs.