How to start a record shop

Useful links:

• The music market
• Business location: Where’s the best to sell records
• Music shop launch and running costs
• >How much can I earn as a record shop owner
• What to expect as a music entrepreneur
• How to make the internet work for your music business
• Useful contacts in the music industry

The music market

If you know your Fall from your Fauré and your Goldie from your Górecki then you just may have what it takes to be a record retailer. For many an entrepreneur raised on music, opening a record shop is the realisation of a dream; introducing young and old to a whole world of music, and distilling a lifetime’s passion into a burgeoning business.

But it’s a tough sector: the mass-market for vinyl has long since gone, despite a modest rise in sales recently, and the market for pre-recorded tapes – and practically every other recordable format we’ve bought or collected over the last 50 years – is rapidly shrinking in size. Even the once-ubiquitous music store CD is in its death throes, being rapidly eclipsed by net-based music retailers and mp3s.

However, although the format keeps changing, the one thing that remains the same is the UK’s insatiable appetite for music. Here are some things to consider before you decide to set up shop.

Chart breakers: how the music industry has transformed 

According to figures from the British Phonographic Industry (BPI), the average cost of a CD fell below £8 for the first time in 2009. 16 million albums were bought digitally in that same year, and digital album sales now make up over 12.5% of the market. The market for physical singles has completely disappeared, with downloads utterly dominating – now making up more than 99% of sales.

Year-on-year album sales were down overall in 2009, although the rate of decline has slowed and is far from the ‘death of music’ predicted by some of the more hysterical sections of the media. Sales fell 3.5% overall in that year – not as bad as some expected given the recession.

Recent years have proved difficult for music retail, with many companies going into administration, and supermarkets and web-retailers taking increasing shares of the market. The widespread availability of unauthorised free music online both hampers the development of legitimate digital music services and cuts into CD sales.

So although music in all its formats is still popular, record shops are not a dead cert by any means: the falling retail price of music continues to make life very difficult for retailers. However, the internet and mail order are viable alternatives to basing your business in a shop.

A different business tune

The age of the record store chain is coming to a swift end. Retailer Woolworth’s closed its doors for good in 2009, following the trend set by former mainstays such as Ourprice and Solo. The last bastion of mainstream CD sellers, HMV, closed another 60 branches in January 2011 as it too continues to struggle against the increasing dominance of digital.It seems clear, then, that the days of the large high street record store catering to a wide variety of tastes are numbered.

Today, if you want to be successful record retailer, whether in a shop or online, you need to target a niche sector, whether it be dance music, reggae, classical or indie. Vinyl records, surprisingly, have seen an increase in sales in recent years, reversing the seemingly unstoppable downward spiral seen since the 1990s. In 2010, 234,471 vinyl LPs were sold, the highest number since 2005 – but the format still only occupies a paltry 0.2% of the album market.

Classical records have also seen a real increase in sales, partly due to the popularity of pop-classic radio stations such as Classic FM. A smaller rise in jazz sales has also been noticed but only in the South East where radio station Jazz FM has also been successful in building a faithful – and well-heeled – audience. However, the move to digital radio via satellite TV may just see this trend spreading through the regions.

Music shop qualifications

Becoming a record retailer is a matter of dedication and knowing your subject rather than of having qualifications. The typical entry point for a retail owner is to have gained experience in record retailing, either as a worker in a record shop or more often as a buyer at a shop.

Mark Burgess, owner of independent London record store chain Flashback, agrees that knowledge of the industry is essential for starting out. “I would say don’t go straight into it – get some experience,” he says. “The records business is increasingly becoming an antiques business, and you wouldn’t open an antiques dealership without knowing about antiques. I had 15 years’ experience in the music business before I opened Flashback, and I got started by bringing a network of customers with me.”

Most begin small and build up – starting with just a box of rare or cheap records and a market stall is not uncommon. Phil Leigh, owner of Leeds mail-order outlet Norman Records, says, “I used to work in record shops years ago and eventually I was in charge of buying stock, which was great. I started up 15 years ago, with £50, a box of my own records and a typewriter, and began by taking ads out on Record Collector. A couple of years later I set up the website.

“I did it all from home but moved premises several years ago, and there are now eight of us working here. Starting small is good but the downside is you build up slowly. I suppose you have less to lose that way. I started doing this part time and one day quit my job and started doing this full time and finally it’s paid off.”

The qualities required are pretty much what you would expect for any other small business. “Aside from common sense, you need the patience of a saint, stamina and a very understanding partner,” says Leigh.

If you’re looking for advice on starting out there’s no substitute for talking to people already in the business. “I used to speak to other mail-order dealers on the phone and pop into second-hand record shops in Leeds to speak to them about stuff but largely I did it all single-handedly,” says Leigh.

The record store

So if you haven’t been put off by the decline in physical formats and the death of the high street record shop, and you feel like you have enough experience in the business to stay afloat, then it’s time to think about what kind of record store you want to open.

Many retailers are now choosing to go online. This means you don’t have to worry about rent or location, so your overheads are greatly reduced – although Phil Leigh makes it clear it’s far from free: “We still have the overheads of rent [for the warehouse], stock, postage, mailers, power, and of course the website needs to be maintained, which is quite expensive for us – even though we try to do it as cheaply as possible.”

Leigh believes that the design of your website is crucial to success. “I think people visit us because we try and be the closest thing to a physical record store we can be. They like our approach – we come across as humans and try and keep the tone friendly and personal. We’re not faceless and we hope that this personality shows through the website.”

Leigh says that he would love to open a shop one day, but the spiralling rent prices are a major obstacle. He adds: “There are only two really good independent record stores in Leeds, and they’re both struggling. If we opened a store in the city we’d be putting one of them out of business – it’s us or them. We don’t want to do that.”

If you still decide to go down the offline route, then choosing a retail location is important, as it is for any other business. Mark Burgess has the following advice: “You have to take various things into account and it’s a balance between affordability and visibility. Bear in mind that your records are going to take up a lot of floor space – you’re not opening a jewellery store”, he says. “Because of that, you’re not going to find premises in a bijou location, but do get on tourist traps if you can.”

And be sure that you enter an area which is not already served by a well-known record shop. “People come to us because we’re the only store in the whole of north London that sells new records,” Burgess says. “In that sense we’ve got a captive market and people are just relieved that they don’t have to travel miles to buy the record they want.”

You also need to think about whether you want to retail new stock direct from the labels’ distributors, or second hand records bought from private individuals. Most independent record stores specialise in second hand stock as less and less physical music is produced, although some indie labels are starting to press new releases on vinyl.

What kind you sell will affect your profit margins. “With second hand records, the ones you buy will be somewhere in the region of 50% of selling value,” says Burgess. “When buying new albums direct from distributors, you’re going to be looking at more like 60 to 70%.”

If you do decide to sell second hand, then it’s worth advertising locally to attract people to sell their stock to you, advises Burgess. “But slowly the printed media is becoming less and less attractive,” he warns. Also, ensure you don’t fall foul of the law when playing records in store. Burgess’ advice is to join the ERA Trade Association, which gives you a percentage off on both your PPL and PRS annual license fees (you need both to be allowed to play recorded music in a public place).

It’s also very important to provide a positive experience for your customers. Make sure you can offer expertise to customers looking for a particular genre or music similar to a given band, provide some kind of facility for listening to music, and make the environment welcoming for people – don’t let your store become a confusing maze of towers of dusty moth-eaten LPs.

Although Norman Records is expanding, and moving to bigger premises to handle larger amounts of stock, Leigh’s advice to potential entrepreneurs wishing to open a record store is to look elsewhere. “If someone asked me whether they should start a record shop, I would say no. It’s perpetually a struggle, especially with the economy as it is at the moment, and we’re constantly under threat from music piracy and digital downloads, with more and more people preferring to download music on their computer rather than buy an LP.”

So while the right type of offering can still succeed, it’s important to remain realistic about growth prospects in the industry. “HMV is about to go, and with it will go labels releasing music on CDs in this country.” says Mark Burgess. “Stores are closing all over the place and only the best are surviving. [Opening a record store is] certainly not an undertaking that you would take lightly.”

Business location: Where’s best to sell records

The location of your premises is going to be one of the biggest considerations for you. Obviously for a mail-order or internet site, location is pretty much irrelevant, although somewhere in easy reach of a good post office and not too out of the way is best.

If you’re setting up shop then the high street is going to be your prime spot. The downside is that it’s expensive, and to compete with the big chains you’ll need to spend money on shop fittings in order to make your business stand-out.

Montgomery says, “Each record shop we open now is typically 3000 sq ft – and with shop fitting at around £100 per sq ft you can spend anything between £500,000 and £750,000. But opening in the back street all you’ll need is a few boxes.”

Another aspect is how you should display your stock. It’s displayed either dead (just the empty cases) or live (the whole package). Obviously if it’s dead then you’re going to need a second set of shelves behind the counter to house the CDs; if it’s live then you’ll have to invest in a fairly expensive security system.

The main advantages to a live system is that you can have multiple checkouts around the store.

Music shop launch and running costs

Setup costs are expensive for a record retailer and can be the biggest barrier to entry, which is why so many begin small. Leigh agrees: “You need a lot of money to sell new release records and do it properly from the start. You’ll need a back catalogue and the mark up is very low.

“So for small folks starting off, small is really the only option. As I started off slowly my setup costs weren’t that horrendous. Now with computers, internet sites and office equipment it can be quite costly, but if you get things as you need them and grow naturally it’s much less stressful.”

The typical cost to start up is around £10,000 plus, and that includes shop fittings (a cash till, record racks and a good, loud, sound system), stock and a website (you’ll need one regardless of your likes and dislikes of the internet, see the internet section).

You’ll also have to add staff and running costs to this, plus you’ll need a Performing Rights Society (PRS) licence to play music in your shop (see contacts)

Stock unfortunately all has to be paid for up front but there’s occasionally the offer of sale or return. Leigh says, “All my stock is bought and paid for (though you get 30 days’ grace), and I do very little sale or return. The UK music distributors tend not to offer that option. It’s only labels who you may deal with direct who may offer that.”

Recognising the next big trend is where you can get an advantage over the chains. “The secret is knowing your market: read the media, watch the TV and read the obituaries – dead artists sell well. If Bob Dylan died it would be bigger than Christmas,” says Montgomery.

But be warned, you have to get in early. “My worst mistake was not buying enough or not buying early enough and missing sales. Once you’ve missed it in the first four weeks, that’s it. Plus if an artist fails then it’s normally the third album where it goes wrong,” he continues.

When you buy records you’ll either buy them directly from the record labels or through a distributor. Some distributors provide something known as operating networks. The network system is a nationwide ‘chain’ of retail outfits that shops are invited to or elect to become a member of. Examples of distribution networks include SRD’s Subterranean, Pinnacle’s The Knowledge and Vital’s The Chain With No Name. These networks cost shops nothing to join but commit them to buying a specified amount of stock every week or month.

The benefit to retailers affiliated with these networks is that they get special deals on product, have exclusive access to limited edition releases and formats and are allowed to take a certain percentage of releases on a sale or return basis.

Many distributors are orientated towards certain styles and genres of music, but there are numerous distributors in the UK alone and each occupies a particular niche in their respective market.

Alternative revenue streams are a good idea and may help you survive in a difficult market: another area in which you can do sale or return is selling tickets for local music events. Tickets for club nights and gigs mean you get publicity on any fliers, plus a steady stream of potential customers through your door, and you get to take a commission on any sales.

Putting on your own events is also a way of gaining extra revenue. But it’s not unheard of for no-one but the band to turn up, in which case you make a huge loss. Music ephemera is also worth looking into, music books, posters, t-shirts, and turntable slip-mats are all lucrative extras, with much higher markups than the CDs of the artist.

How much can I earn as a record shop owner?

Return on investment can be immediate depending on how small you are when you set up, or it can take a few years. For a small market stall you should be breaking even pretty much immediately, whereas with a larger store it will take much longer. But getting established in the market is another matter.

Getting a regular clientele can take years of work but there are advantages to getting that clientele, particularly when it comes to advertising yourself.

Leigh agrees: “I used to advertise in Record Collector, which got me a lot of my initial custom but these days I don’t advertise at all as I have a large enough customer base to keep me afloat. Word of mouth by offering an efficient service is enough to keep me going.

“I tried the NME once but that was rubbish and far too expensive! Advertisers never leave you alone once they’ve got your number and they’re far too expensive in my opinion.”

Other ways of attracting attention to your self are in-shop record signings, DJ promotions, readings by authors, newsletters, rare record searches and if you’re more adventurous, local radio slots and club nights.

What to expect as a music entrepreneur

As with all retailers you can set your own hours, although if you’re sensible you’ll set those hours to reflect your customers’ choice rather than your own. This means opening Saturday and Monday (new records are nearly always released on a Monday to give the maximum sales period through the week and ensure a good top 10 position).

Mail-order and the internet pretty much shield you from working odd hours, but there are still busy and slack periods and if you want to be great at customer care then turning around orders in the least time possible is essential.

Leigh says: “I do 8.30 am ’til 6pm Monday to Friday with no breaks, pretty much. Occasionally I may leave half an hour early but more often than not there’s things to do and I have to work late, so on average around a 47-48 hour week with no breaks.

“It could be much worse as I try and keep my weekends free. My busiest days are Friday when I update the site and then Monday when I come back to work after the weekend. I’ve got hundreds of emails to answer and orders to get together.”

In addition to the weekly highs and lows there are seasonal changes. “It’s busy for me from January through to late Spring and then it goes quiet ’til September. People don’t buy records in summer. But it’s quite nice it being quieter over summer because it gives us a chance to get up to speed with any systems that may need altering to make things run more efficiently,” says Leigh.

If you choose to run the business as a one-person operation then it is possible – although the hours will probably be very long – but inevitably you’ll need some staff to help you.

The average record retailer can get by with probably one full timer, and one or two part-time staff. Wages are traditionally poor in this sector and perks non-existent. Working in a record shop is seen as a perk in itself, reduced price CDs and the ability to listen – and tape – any record they want are also added bonuses.

After all that work, what can you expect to earn? A typical outlet will on average take between £3,500 to £5,000 a week, from which you have to pay for stock, wages, rent, rates and utilities. Leaving you a profit of between £400 to £800 a week depending on how much of the work you do yourself.

How to make the internet work for your music business

The internet has been both a curse and a blessing to high street and mail-order shops. The internet has certainly increased the demand for music, and enabled a lot of people to get access to music they wouldn’t normally come across.

Web marketplaces like gemm.com, netsounds.com, musicstack.com combine the databases of many different dealers, shops, mail order companies and collectors to form a single giant database enabling customers to search in one place for that hard to find or deleted music item. So they get that lost CD and you get access to a worldwide audience, plus there’s the ability to get your company’s customer service scored by anyone who buys from you.

The more quick, polite responses you give, gets you more stars in the gallery of retailers, plus most of the markets are free regardless of whether you are a part-time seller with only a handful of items for sale or a large retailer with thousands of items.

On the downside, the internet has also opened up the market for retailers like CD-WOW.com. This site buys the top 100 artists in bulk in the Far East then sell CDs out of large, out-of the way warehouses at cheap costs with next day delivery. This makes the latest chart-toppers selling at £14.99 on the high street look more like a rip-off than value for money.

But if you want to sell on the net then it needn’t be expensive. Online catalogue software starts at around £99 and £299, and a website and domain name shouldn’t be more than £50 a month. After that, all you’ll need is a payment provider Paypal to give you some way of taking credit/debit cards, plus credit lines with the usual record distributors and possibly a contract with a good next-day courier.

Useful contacts in the music industry

Entertainment Retailers Association

With hundreds of members ERA is a trade association which acts as a forum for retailers and wholesalers in music, video, multimedia and DVD products industry and was set up in 1988 with a view to exchanging information and pooling knowledge.

Membership fees depend upon turnover. It also has a free pamphlet with useful info on starting a record shop.

Website: www.gera-europe.org

Chain With No Name (CWNN)

CWNN is an alliance of retailers who support the best emergent acts and labels. It’s aided by Vital, which provides key retail support and co-operative marketing initiatives. There are currently 103 shops in the chain, offering exclusive products, specialised sales support and discount initiatives. It is free to join and applications are assessed on turnover and level of support across a wide range of genres.

Website: www.vitaluk.com

Performing Rights Society (PRS)

If you play music in your business you need clearance to do so from the owners of that music: the PRS and MCPS represent the owners and can get you the clearances you need. There is a minimum annual higher royalty for a music licence as well as a minimum annual standard royalty for a PRS Licence.

Website: www.prsformusic.com

British Phonographic industry

Website: www.bpi.co.uk