I was reading some posts on Facebook complaining about “rip-off” prices in High Street shops compared to buying on-line. This caused me some amusement and a bit of headshaking, that people could be so poorly informed as to the reasons for differences (and why you might choose to pay them when buying a guitar). Hence, I thought for this “Imagmusings” we’d look at the economics/practicalities of running a small guitar shop and why you should choose to buy your next guitar from your local dealer rather than on-line.

Let’s start with the economics. The margin for retail in this industry on new guitars is typically 35%. So simply put for a £250 R.R.P. guitar the retailer would make a gross profit of £87.50. Sounds good, however if you buy this guitar using a credit/debit card the card reader supplier charges the retailer 2% so we are down to £82.50. This is still ok and is why you find for face-to-face sales in the shop the owner is often willing to offer small discounts or bundle deals with straps and cases. However, remember the small retailer will not get the discounts available for buying in bulk when they purchase guitars from their wholesaler, since they purchase in small numbers, so their initial purchase price will have been higher, and hence they still may not match Am***on.

As a customer you will of course also quite reasonably expect when buying from a retail shop that the guitar has been set-up and has no obvious defects. You’ll expect it to be on display and want to be able to play it and ensure that it suits you. Therefore, you expect it to be in stock. This means that our retailer has many £000s of pounds tied up in stock at any one time. Depending on how the original business was financed this will either be their own money or bank loans on which they are paying interest. However, the point here is that as a potential customer you will be able to play the guitar you are thinking of buying. This is a huge plus for buying from a retail outlet. Many people who buy on-line are disappointed with the guitars that arrive, usually this is because they have not been set-up correctly, but it can be that there are faults (poor QC) or that you simply don’t like the way it plays. Incidentally, your local guitar shop will of course be very happy to set-up the guitar you bought on-line, for a fee, and this is another important source of income for many stores.

For a small retailer selling on-line the picture can be quite brutal. From the £250 sales price the popular web hosting services will want 9%, so the amount going to the shop will be £227.50. As a customer you will be expecting your guitar to be well packed and shipping to be free (to match the larger retailers). A low-cost packing box for an acoustic guitar is around £9 and shipping will be typically around £10 (carrier dependent), so we are now down to £208.50 and a gross profit of £41. A small shop might only be selling in total two guitars a week during the quiet part of the year so profits on from on-line guitar sales could be as little as £80-£100 per week.

How about used guitars? Guitars that are brought into a shop will at the least require, new strings, fretboard cleaning and oiling, a set-up and an overall clean. In many cases some small repairs are required also e.g. replacement nuts, bridge pieces, bridge pins, scratch guards etc. So, the price of parts and an hour’s labour minimum needs to be factored in for each instrument. Typically, then you will expect a shop to be buying at 50-60% of the price they would hope to sell the guitar for even if it is in “good” condition. The person who buys it will expect it to be in “excellent” condition! I do quite often hear “they only offered my half what it’s worth” when people talk about my local competitors. What is being offered is what it’s worth to the shop given the economics I’ve discussed above. It must make the 35% margin at least after it’s been prepared for sale. It will take up space in the shop that could be taken up by things that will make 35% so has to match this. (For my own part I try to explain this to people and point out that eBay/Gumtree/Facebook Marketplace etc are an option). If you are buying a used guitar then hopefully it is self-evident why you would go to a guitar shop. The guitar will have been repaired and refurbished in preparation for sale, the shop will have a returns policy and hence all of the risk of buying used on-line is removed.

Let’s look again at the economics of our shop’s quiet periods. From the total (£200?) weekly profit, the retailer will be paying rent on the shop, service charges (electricity etc), web-site hosting charges, bank charges and would hope to be able to pay themselves some sort of wage! As you can see then the quiet months are therefore most likely loss-making. Customers, however, quite reasonably expect the shop to be open all through the year, birthdays occur, strings break, plectrums are lost. Hence the small retailers stay open but are dependent on sales over the Christmas and New Year periods to actually earn any money, much like the hospitality industry.

The economics of running a small guitar shop suggest therefore, that the owner is not making millions. For the customer however you will have someone to talk about guitars to, somewhere to try out guitars you are interested in, somewhere to get repairs done, a source of good quality used instruments, and a source of new instruments that have been checked and set up. It is up to you to decide if this is all worth a little bit extra on the initial price you pay.