Buying a pre-existing store: Questions

[letterbox]

The ad says:

"Video/DVD store-great location, long established. 14,000 titles--many hard to find. 70K or best offer."

This is in the city where I currently live and I have not contacted them yet but will do so very soon. Wanted to get some ideas from you good folks first.

What are some initial questions I should ask the owner/seller?

I know the obvious ones about software system used, depth of stock, location, financial statements, customer turnover and lease  but I don't want to overlook something important.

Also, what are some problems/disadvantages to buying a pre-existing store as opposed to creating one from scratch?

Anyone with any feedback would be greatly appreciated.

-Letterbox

[Hardcopy]

Well the biggest advantage or disadvantage (depending on the answer) is their reputation. Are they known as a "bad" video store. The rest of it is just number crunching. Their copy depth really doesn't matter because you will be doing the ordering after you open it so if they are getting too many or too few you can rectify it.

Also be sure to inspect the videos. Small ivrs around here tend to not shrinkwrap their movies when they put them up on the shelves nor do they put box fillers in so their movies all appear pinkish and trashy. (they keep too many near the sun)

Rich.

[Bryan Akers]

If you haven't already, I'd suggest checking the store out in person and just pretend to be a customer.  How does the store look to you?  How do the employees relate to you and other customers?  What's the customer flow like?  I visited many independent video stores around my area and have noticed that many of them don't have a single customer (aside from myself) enter the store for any reason for a half hour.  Unless it's just after opening, this is a bad sign.  Check stores out at both slow times (weekday mornings/afternoons) and busy times (weekend evenings).  Although you won't be able to determine some things, your observation will be more honest than how the owner describes it to you.

The biggest advantage of buying a pre-existing store is that it should, assuming it's been around a while, have a fairly complete selection.  That is, most of the general titles the average customer might want will be available.  If you start a new store then you might find that your selection is missing many classics, which makes your store look bad.

The biggest disadvantage, however, is that you'll inherit many of the stores problems.  For example, are the employees problematic?  Does the store have a bad reputation for any reason?  It's not uncommon for a customer to have had a single isolated bad experience with the store, and then never return.  If the store has already turned off many of it's prospective customers, it will have a hard time changing that image.  If you get the impression that the store was disappointing customers, yet you still want to buy it, make sure to advertise that it's under new ownership and let people get excited about positive changes you might be making.
-Bryan Akers

[letterbox]

Thanks for your input folks,

I spoke with one of the partners on the phone about it last night. Several red flags went up.

First there is no manager or owner per se, he said basically the 5 employees "run the store". He and the other partner want to get out (after 3 years of it) because they "don't have time to properly run the store". I didn't ask what his "real" job was... :?
 
The location is pretty good. And this has been an IVR for almost 20 years.

But the rent is $3,600 a month and the lease expires in 2 years. In case you hadn't guessed yet, this is California, where real estate costs are ridiculously out of proportion with the rest of the country. Other than renegotiating the lease--there's nothing to stop the landlord from raising the rent  to 5k /month if he wants in 2 years, especially if he sees positive changes to his investment, right?

[I've already been planning on leaving the state to start a store on the east coast where it's more practical to live/have a business.]

When I asked if the store was profitable he paused and said that if there was an onsite owner/mgr and less employees it would be...hmmm.......

So basically I'm not very interested. I get the feeling they are having hard times and/or never really had the vision or interest in running the store, and that may be reflected in the store itself.

I'm still gonna go there in the next day or 2 to 'case the joint' for fun and I'll report back with my observations about stock, employees, customers etc. etc.

Letterbox

[chrisbach]

$3,600 a month is 3 time what I pay in Wisconsin for 2200 sq/ft, but you did not say how large the store is for an 8000 sq/ft store it may be a great price, but if it's 1500 sq/ft it may be high even for California, but it depends on the location.

The seller said they have 14,000 title, how many actual copies is that and how many are DVD? If the 14,000 title are all DVD and they have 18,000 DVDs, that would be under $5 per copy.  That's not a bad price to just buy their inventory and open a new store somewhere else.

But if it is 14,000 smokey, faded, beat up VHS, then the inventory is maybe worth $14,000, if they can even sell it.

I'd want to know what this inventory is.  How much is new unopened sell-thru?

I've never bought an existing store.  $70,000 sounds cheap for a store with an inventory of 14,000 titles, but it does sound like their are some warning signs.

Also, do they rent adult?

It may be an oportunity to buy a badly run store cheap and turn it around to a moneymaker, or it may a dog not worth $14,000 if liquadated.

You need to look at it in person.

I've actually sat near competitors parking lots with binoculars and counted the customers coming and going and tried to count the number of movies they rented to estimate their business.  If you are interested in buying this store, I suggest you pick several slow and busy times and count their traffic for a couple of hours each time, then get their financial information and see how it matches your observations.

Good Luck,

Chris Bach
Music Stop - Movie Time
Cedarburg, Wisconsin