How to Start a Record Store
The thought of opening a record store in today’s era of music streaming might seem challenging, but record stores are actually doing well, thanks to a resurgence in vinyl’s popularity. While this type of business isn’t without its challenges, dedicated and creative store owners enjoy success. If you love music, appreciate vinyl, and enjoy engaging with other music lovers, starting a record store of your own could be financially rewarding while allowing you to work in the music industry every day.
Record stores typically stock a variety of music and video entertainment products for purchase. It’s common to find an assortment of vinyl records, CDs, and accessories, like sound systems and earbuds. Some stores specialize in hard-to-find and rare music genres, while others take a more general approach, offering the most popular contemporary music. Some businesses also have programs where they’ll buy used merchandise from customers to resell.
While the same products that record stores stock are usually available online, these stores offer something that online retailers cannot: The ability for consumers to come in, browse, and sometimes listen to products before buying them. Today, many record stores are valued for the community, experience, and atmosphere by connecting DJs, indie record labels and bands to music fans.
Owning a record store is often a labor of love, so it’s important to make sure that you’re truly passionate about the music industry. That passion can translate to success – one of the best strategies for choosing your store’s inventory is to rely on your own tastes and choose products you want to have in your personal music collection.
According to IBIS World, the record industry’s growth declined by 9.0 percent from 2014 through 2019. During that time, the number of businesses fell to 2,660, and industry employment also declined to 10,191. In 2019, the industry was predicted to bring in $1 billion in revenue.
The industry’s decline is partially due to the competition posed by online music retailers like Amazon and streaming services like Spotify and Pandora. Because consumers can access their favorite music online without having to purchase records, there’s less incentive to travel to a brick-and-mortar store to buy complete albums. Big box retailers are able to offer albums at significant discounts because of their ability to purchase in such a large volume, which can also eat into an independent record store’s profits. If records stores are to survive, they need to find new and unique ways to offer products and experiences that consumers can’t get online.
A resurgence in the popularity of vinyl records is a promising opportunity for record stores. Classic FM reports that in 2019, vinyl sales outnumbered CD sales for the first time in 40 years. While vinyl records certainly evoke nostalgia, that’s likely not the driving factor behind their sales, especially since younger people are actively buying vinyl. A YouGov survey found that one in four 18-24-year-olds had purchased a vinyl record in the month before they were surveyed. Instead of seeking nostalgia, younger people may be looking for tangible items to justify their spending. Vinyl records tend to have a warmer sound than CDs or streamed music, and consumers may enjoy the thrill of hunting through piles of vinyl records to find a hidden gem.
Record stores market to music lovers who value the quality and tangible nature of records and CDs. A store’s specialty areas may change that target market slightly – a store that stocks only rare or vintage records will market to a more niche audience than a store that stocks contemporary music products.
Checklist for Starting a Record Store
If you’re thinking about starting a record store, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a record store, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
A prime retail spot can bring in walk-in traffic and help drive public awareness of the business, but it also brings high rent costs. In addition to high visibility locations, be sure to consider proximity to complementary businesses, ease of access, and parking availability.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
There are no licenses specifically for record stores; however, there are general business registrations that will need to be researched. Requirements vary depending on where the business is location, but the more common ones include a business license, sales tax permit, Employer Identification Number (EIN), and Occupancy Permit.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a record shop is another. To get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
With the streaming era of today, be prepared to get creative in building and marketing your store. As you work on your business plan, focus on a niche that’s unmet in the community or in the music industry as a whole. Offering used, rare, or vintage records is one strategy that can be effective, and that will set your shop apart from the competition of streaming services.
Marketing techniques may involve everything from using social media marketing on Facebook and Twitter to announce new records and special events. Some stores may use online advertising or even radio advertising to reach new customers.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a record store. A few of these include:
– General liability insurance protects the store if a customer falls, slips, or is otherwise injured while on the property.
– Commercial property insurance protects the business against the financial loss it would face if its store and/or inventory were damaged in an event like a fire.
– Worker’s compensation insurance helps to cover expenses like medical bills or lost wages that can occur if an employee is hurt while on the job.
The cost to insure a record store will vary depending on factors like the value of the business’ inventory and how many employees the business has. It’s best to request quotes from multiple insurance providers to get the best idea of what insurance might cost. When comparing the quotes, focus on variables like coverage limits and exclusions, premiums, and deductibles.
Step 10: Hire Employees
A record store owner may be able to manage the store when it’s just starting out but will probably need to hire staff if the store is going to operate during standard retail hours. According to PayScale, retail sales associates earn an average of $10.86 per hour or $36,259 per year.
Employee salaries are just one of the multiple expenses that come when hiring staff. A record store’s budget will also need to include expenses like workman’s comp insurance, paid time off, and health insurance contributions.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a record store?
While factors like the store’s size and location will affect startup costs, plan to spend at least $50,000 to open a small store, while larger stores can cost $150,000 and more. The cost to start a record store that offers only used merchandise will be slightly lower because of reduced inventory costs.
Some common startup costs for a record store include:
– Furniture and shelves/display racks
– Sound system(s)
– Music stations
How much can a record store owner make?
A record store’s revenue will vary depending on its location, size, and even how long it’s been in business. While hard data on average record store profits isn’t currently available, Glassdoor reports that record store managers, who are often also the store owners, earn an average salary of $44,032 per year. That salary can range as low as $30,000 or as high as $65,000.
What skills are needed to run a record store?
A record store owner won’t need a business degree to get started, but certain skills and experiences can increase the store’s chances of success.
Music industry knowledge. A record store owner will need to be knowledgeable about the music industry to choose the best inventory and understand what customers would want to see in the store.
Awareness of music trends. The music industry evolves quickly, so a store owner should be aware of new and evolving trends and how they might affect customer buying habits.
Resourcefulness. Owners of record stores specializing in vintage or rare records will need to be resourceful in finding and buying inventory to sell.
Customer service skills. Great customer service is one factor that encourages customers to make an effort to go to a record store rather than rely on online purchases. A store owner who can strike up a conversation and build a relationship with customers can contribute to the store’s success.
Organization skills. Strong organization skills will help a store owner set up the store in a logical manner, ensure that specific inventory can always be located, and keep the business running smoothly.
Creative marketing capabilities. Record stores face tough competition, so creative marketing is often necessary for their survival. A store owner who can identify new and exciting marketing and event opportunities can build customer enthusiasm and loyalty.
Are there grants to start a record store?
It’s extremely rare to find a grant to start a record store. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a record store?
The NAICS code for a record store is 45122.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?