How do shops make money

[Sandygoat]

I was reading the lotties thread and I'm kinda confused on how shops make their money. How can you explain it to a consumer. I've heard people say that they make their money on the dunks and clothes. Also if you could explain why maybe some shops don't get anything from certain distributors. Sorry if this is very amateurish but I get lost whenever I try to read into it. 

[TheFandangler]

I'm not trying to be a dickhead with this response but...they make their money off the product they sell. Certain things like hardgoods (decks, wheels, trucks, etc) typically have lower profit margins than softgoods (especially shoes, but also clothes and random bullshit). When people say that shops make their money off dunks and clothes, what they mean is that those types of product do the most to help keep the shop afloat. Additionally, shops can sell shoes and clothes to non-skaters, which just means that they can sell more stuff and bring in more money.
It's hard to make a shop work off just hardgoods, although some have done it I guess. People really only buy so many decks and whatnot in a year and as I said, the margins aren't as good as shoes. The privilege that some shops now have of selling Dunks has been huge for them. This brings in the sneakerhead crowd and they are always willing to pay top dollar and the dunks fly off the shelf meaning the shop isn't encumbered with a product they paid for that just sits. They get their investment back right away and don't have to worry about if it's gonna sell or not.
A lot of shops end up selling other stuff to keep the lights on and so that they can actually provide a good scene for the skaters. My local shop growing up made a killing off longboard stuff because they were the only place that sold the stuff and longboarders are geeks for their gear and are willing to pay a lot of money for bearings and shit. They weren't in the longboard scene, but it helped keep them afloat. Also, in colder climates snowboard gear really helps pay the bills.

I hope that helps clear it up for ya!

Disclaimer: I am not a shop owner or employee, so I may have some stuff wrong here. This is just my understanding of the skate shop industry. Please feel free to correct me anybody who knows better.

[yourbreakfsat]

I was reading the lotties thread and I'm kinda confused on how shops make their money. How can you explain it to a consumer. I've heard people say that they make their money on the dunks and clothes. Also if you could explain why maybe some shops don't get anything from certain distributors. Sorry if this is very amateurish but I get lost whenever I try to read into it.

This is my experience from working at my local.

I've heard people say that they make their money on the dunks and clothes.

Let's start with this. Shoes and clothing wholesale prices are 50% of retail. Sometimes wholesalers will give the shops discounts if they buy a certain amount of product, or if they just like each other.

With the actual skate gear (decks, trucks, etc), the profit margins are FAR worse. The average wholesale price is about ~67% of retail. The 17% difference in prices adds up quickly.

Let's say you're selling 10 decks for $50 each and 10 jackets for $50. Each deck costed you $35, while each jacket costed you $25. Assuming you sold all of them, you received $500 from each category. Your actual profit is $150 from decks, and $250 from jackets, for a total profit of $400 from the $1000 you made. You would have to sell two more decks to equal the profit from the jackets.

"Wouldn't selling a complete skateboard be more profitable compared to a item of clothing?"

Yes, but it doesn't happen everyday. Customers are way more comfortable spending $90 on three t-shirts or $100 on limited edition shoes instead of dropping $160-180 on a complete skateboard, especially if they don't know if they want to really get into it. Only skaters that are really deep into skating or the new people who've made up their mind will buy skateboards, but they're a minority in the entire skate shop customer base.

It's much cheaper and profitable to sell clothing and shoes instead of skateboard parts. The sneaker hype helps out a lot with this, as you'll have a bunch of nerds lined up all night for dunks which will sell out right away. There's also a chance that the people who missed out on the shoes will end up buying some sort of clothing so they don't make their visit a total waste.

It's also easier to sell clothing. You don't need to do 1 on 1 time with the customer on clothing, but with skate parts you need to spend a lot more time with the customer and you don't receive any extra profit from it.

Selling clothing:

Hey I'm ready to buy this t-shirt.

Cool, let me ring you up.

Selling skate parts:

Hey I'm looking to get the best deck and also the best parts you have. Where do I start?

*Proceeds to explain the difference between deck sizes, explain the difference between hard and soft wheels, helps pick out hardware and griptape and stickers, and then puts the total in the register.*

Oof, this is more than I thought. I'll just get the deck today and the other parts maybe later this week.

Unfortunately the above scenario is somewhat common. The majority of customers don't want to spend so much money on a wooden toy with wheels, but clothing is more attractive.

Also if you could explain why maybe some shops don't get anything from certain distributors.

As stupid as this sounds, this is literally based off the fact if the distributor likes you or not. If you're butt buddies with them, they'll help you out, maybe give you discounts on your orders, and fulfill your order before others. If you guys hate each other, they'll close your account and probably talk shit to other distributors about you (although this isn't the sole reason for closed accounts. Make sure you pay your open accounts and don't buy stuff that won't sell). It's pretty fucked up honestly, since that level of pettiness can kill a shop.

Another reason is that the shop doesn't have an account with the distributor. While they can easily hit up the distributor with an email asking for a new account, the shop may not want to open a new account especially if they still need to fulfill other accounts.

[Mbrimson88]

Yep both pretty much on point with that info.

Also with certain distributors, shop location comes into it a fair bit too, so if there were other existing shops too close or even within a certain distance, they sometimes have exclusive shop rights (especially the bigger accounts) so a smaller shop will not be able to get the product from certain brands or the whole distributor.

Creating a new account with a distributor almost always needs cash up front until such time as the shop is trusted, so if you don't have the funds, you cannot order the stock.  This can even be true a decade into the life of the shop, for some accounts.

Having the shop always up to date with their accounts is also a good way to always stay in good with the distros, but often this is not possible, so some shops get behind on their orders and cannot order more until they pay their existing account debt.  This is a sure way to ruin a business, no new stock, no cash flow, no business.

People laughed when I said you needed at least $10,000 in reserve for a shop and in reality about $100,000 to actually open and sustain a shop, but I have seen so many smaller operations close up because they just could not sustain the business over the lean times (usually January to March) to be able to make good on the good months (lead up to Christmas / summer months).

The increasing availability of online cheap deals also makes it harder for the smaller or local shops, so they really need to do as much as they can to try to get as many local skaters interested in supporting the shop too, otherwise it doesn't matter how much you have or how long you can sustain the business, it will just not work.

Lastly the reality that shops often need to get other interests in the shop or have something else to draw customers in is very true, eg some shops will sell all sorts of other things, other sports equipment, smoking things, paint and graf stuff, or try their hand at fashion brands because the core skate scene is minimal.  Having a shop as part of an indoor skatepark is one of the better options, but I refused to stock or help with anything other than skateboards in the time before covid when that was open.

[ewartegner]

I, too, have wondered what stores make money on. And @yourbreakfsat is right. Wholesale prices on shoes and clothing and absolutely all products are about 50% off retail prices. Now it all depends on the amount of product being sold. A few years ago, my brother opened his own grocery store. But he needed capital to get started. He got some help here with how to make extra money https://moneylifewax.com/side-hustle-ideas/. Now thank goodness his business has taken off, and he's long since paid off his debt. I will say this, if you have ideas and you know how to implement them, do not doubt yourself. Trade-in any product has always been profitable. This requires initial capital, the choice of products that will be in demand, advertising, of course, and the right approach to business.

[Oreganus]

I first decided what I would like to sell and only then decided to open an online store. I know that some people do it differently, but for me, this is the only realistic option: first, determine what exactly to sell. You need to love what you do and not sell anything to make money. Although on the platform thefrugalexpat.com among the tips there is such a point and you can earn a lot in this way. Starting with large gifts, we then began to sell just huge things, and now we are also trying other products: various decorations for the interior and comfort. But again, only because I like it. And you can sell anything...

[PuffinMuffin]

Wow, thanks @Oreganus and @ewartegner your advice doesn't seem like a scam at all.