I don’t know how the business operates nowadays. When I was working my way through grad school in a hobby shop, the standard retail markup was 40% - that is, the hobby shop would pay about $89.40 for a kit with a retail price of $149.00. The wholesaler in those days got, I think, somewhere between 20% and 30% - say $35.00. So the manufacturer would get $54 or $55 for the kit.
Maybe somebody who’s currently in the business can give us some more up-to-date figures, but that’s about how it worked in my day (back in the Garfield administration). The markup in the hobby business has always been higher than in some others. Book dealers, for instance, get a markup of about 20%, as I understand it.
Remember that the hobby dealer doesn’t get to keep anything like the total amount of the his markup. His landlord probably determines his rent by taking a percentage of his profits. (In my day I believe it was in the neighborhood of 10% to 15%.) Then the employees of the shop have to be paid (albeit probably not much), and the shop probably will have to pay some ridiculously high amount for the shipping of the merchandise.
Local hobby shop owners don’t get rich. Most of them, in fact, don’t stay in business long. I mourn the demise of the local hobby shop like everybody else does, but nothing on this earth could pursuade me to make a career out of the hobby business.
Before we lament the demise of the LHS and the subsequent collapse of this hobby,. perhaps a little perspective is in order. What do we really need a LHS for when practically everything about the hobby can be addressed via internet resources? Product selection? Price? Tutorials? Advice?. Discussions? Galleries? It’s all here and it’s all good.
But just like horses didn’t go extinct when cars came around, we’ll still see the LHS. Maybe not many of them, but there will still be a need to have paint/glue and a rudimentary selection of kits on hand for “convenience” purposes.
Archelon raises a good, perfectly legitimate question. There’s no way that, except in a big metropolitan area, any local hobby shop could hope to stock even a fair fraction of what’s available to modelers today - in any branch of the hobby. Just take a look at a model railroad magazine. In any given month, half a dozen new locomotives get released. Each of them is available in six or eight road names, and costs several hundred dollars. A hobby dealer would have to invest thousands of dollars to maintain such an inventory - and if he stocks a diesel engine in seven road names, it’s a safe bet that the eighth one will be the one the customer wants.
In many ways the web is a better source of merchandise than the local hobby shop ever was. I think what I miss most about the Goode Olde Dayes is an aspect of the picture that wasn’t directly related to money. The shop where I worked was a social institution. On any summer evening it would be full of people from lots of different professions, income levels, and parts of the community - people who never would have had any interest in each other had it not been for their common interest in model railroading, aircraft, or whatever. I made friends that way whom I never otherwise would have met. In few other environments would one see a bank officer listening intently to the wisdom of a Conrail engineer or a retired aviator.
The other thing the hobby shop offered was a way for kids to break into the hobby. I bet most of us remember studying, goggle-eyed, the models in the display cases or hanging from the ceiling at the hobby shop. And kids got their “training,” such as it was, from the clerks and the other customers.
Times change, and archelon is right: serious scale modelers can survive perfectly well without local hobby shops. But I’ll miss them.
I don’t know what the mark up is from manufacturer to distributor, but the distrubutor price is almost always around 60% of retail. So the LHS would be getting it for about $90, maybe a little less. Out of the $60 the LHS makes from selling the kit, they need to pay utilities, rent, possibly employees, and have something to take home at the end of the day to live on.
The online retailers and especially the Ebat retailers have an advantage. Many of them are working out of their garage. They have very low overhead. If they make $10 on the kit, they might actually be putting more money in their pocket than the LHS who made $60 before expenses on the deal.
Some of those Ebay retailers are, I’m almost certain, buying the kits gray market. That is they are directly importing them via non-traditional channels and cutting out the distributor. Including shipping from Asia, these people are probably getting the same kit for $60 or $70, so if they sell for $90, they are making a decent profit.
The LHS that stick around will be those with both an internet shop and an inviting place where people will go to and hang out. When I lived in Seattle, there was a place like that in Renton. It had started in the late 90s and they had expanded once already when I moved away in 2003. They were talking about another expansion when I was last there. On the weekends, the place was always busy.
The people who worked there were chatty and friendly and encouraged people to hang out and talk about modeling.