What I just realized about Sam Ash

[TaylorGirl]

The point of the original post wasn't that guitar dealers make a profit (well, er, duh, right?), it was the fact that their trade in policies expose perzackly what that profit matrix is.

My store is very open with the percentages on trade-ins and consignments. I applaud their honesty and it's information  that helps me decide whether to sell it myself, trade it in or consign it.

[donlyn]

What I just realized about Sam Ash

Going back to the original post, you should not be considering "Mark-up", since most retail operations work on the basis of xy% (60% in the example) of expected selling price or something similar. However that is only a trade value which they set, not for something that is supplied brand-new. More on this a bit later.

Also something to consider is what is being purchased. The gross profit maybe based on 60% (which does become 40% of the sale $) of retail for a used item, but the gross profit is still only 40% of that eventual sale, and may not even be that much after the sale, including haggling on the other end.

But consider that you are using a used item (trade-in) as a value from which to figure profit, not a new item. The cost of new inventory differs from business to business and the quantity purchased, but many businesses would be happy to clear a 20% gross profit on a new item. It is often less. I worked for a company that had a key item for sale with only a 5% gross profit, and they ended up taking a loss on each one. But the profit margin was much better on all the accessories and warranties and other "add-ons" which drove the business. Ot that putative 20% gross profit I mentioned of a new item, 15% may be figured into the ledger for general expenses, maybe leaving 5% for net profit.

And why do I mention new product? Because you didn't. Most business survive by selling new product because it brings the customers into the store. So if they can sell used product (usually less demand items, and certainly an uncertain supply chain) they can maximize their profit margin on this type of item, but can only run a business with this gross profit if they have a steady source stream or an unusually large inventory of trades from which to work.

Brick and mortar retail is a hard business, and is very fragile as is evidenced by the last couple of years. Overhead is much greater than on-line sales, but the sale is immediate and at hand.

Don

[jrporter]

Well, not just Sam Ash.  Pretty much all music stores, particularly the "big guys".

They are capitalists.  Filthy, rotten capitalists.  How dare they insult us by trying to make a living?!

So two days ago I traded in a Squier CV for a Taylor 324ce at my local Orlando Sam Ash and during the negotiations it was revealed that they use a formula predicated on allowing a trade in value of 60% of what they professionally estimate they can get for the instrument/amp/pedal.

That's a 66% markup (or "markdown" in this case), about a 40% Gross Profit - not unreasonable for a retail operation with that level of sobering overhead.

But one can infer more from that.  One can easily assume that this margin is not arrived at by accident, that it is a corporately established formula that would translate not just to trade-ins, but to all products on their floor as well.

In other words, if they are going to PAY you for something predicated on a 40% GP, then they are going to get that same 40% GP when the SELL you something.

Meaning that they likely paid somewhere in close vicinity to $1325 for that instrument (sounds about right, right?) and they are STILL going to end up with that 40% profit on it even after discounting the MSRP a bit by virtue of recouping that loss on the sale of the trade in.

No real point to this.  It's fine, it's not usurious, just interesting to me to see how the sausage is made once in a while.

Still, it would be nice if maybe some music store would be opened by missionaries, give me that Martin D (fill in the highest number you like here) for free.

Dang capitalists.  No D45 for me...

(Note:  I used a Martin instead of a Taylor in that example 'cuz ain't nobody givin' no Taylors away fer free.)

Okay, as the OP, I've been striving for new heights of mediocrity in guitar playing since Johnson was president (uhhh, Lyndon, not Andrew) and am a proud to be a cog in the capitalist system.

The point of the original post wasn't that guitar dealers make a profit (well, er, duh, right?), it was the fact that their trade in policies expose perzackly what that profit matrix is.

Or such is my assumption anyway.

My background is kitchen design, and retail kitchen dealers aim for a 50% markup (33% GP).  Not surprising that guitars (a lower ticket item) might be a bit higher.

CeeAre

I'm a retired teacher and sometime used guitar seller who loses money on every sale (and tries ever so hard to make up for it in volume) so I don't know where I stand on the capitalist/missionary continuum. Like TaylorGirl, I would appreciate Sam Ash's transparency. Thanks for explaining the OP, but color me confused. If the missionaries are offering free guitars, does that mean you're offering free kitchen remodeling???