It is just me or does it seem like there are just more and more shops popping up all over the place? What are the margins like in this business?I have to believe most are just a way to help pay for the expensive crack rock known as racing!

Anyone care to add any value or insight?

The reason I ask is because on paper it seems like you could make *some* although not a lot and it somewhat peaks my interest. Although my business side says look at Porters 5 forces (Barriers to Entry, Supplier Power, Buyer Power, Threat of Substitutes and Degree of Rivalry) and online parts business must be a bust! Easy to get into, suppliers have all the power, buyer have little volume and little power and there are a ton of stores (substitutes)

What Gives?

 

Kids want go fast parts and show parts.
Companies must provide such parts.
Open a shop providing such and you are a winner.

Supply and demand my friend, in a day where we depend on the internet for everything opening a virtual store is cheap unlike a B&M one.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by 94accordsedan &raquo;</TD></TR><TR><TD CLASS="quote">Open a shop providing such and you are a winner.
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If it were that easy, any jackass could sling parts out of his mother's basement and make a bunch of money.

The problem is that without the sales volume then you're just up the creek. There a bunch of big businesses out there that can make their profits on volume sales and ride out the slow times in business. I see medium sized business fail all the time that buy H-T sponsor banners.

I want to open a shop within a few years, but I think primarily the focus will be just regular car service. Sure, sounds boring, but if you can take care of the customer thats going to be your best opportunity to make money and operate a race shop along with it. There will always be broken cars that need repair. The ricers come and go, and most of them are flakes and will just go for the best price online anyways.

 

Yes - I agree that economics is Supply and Demand, but isn't there a ton of supply and not enough demand? How much lower ca prices go? It seems as though there are so many companies that there margins but be terrible? Perhaps no, and that is my question...

 

oh it's a tough market right now....has been for the last few years.

The money right now is in manufacturing.

Buy a CNC machine and get to work...

 

Why do you say buy a CNC machine? Do you care to elaborate?

 

The main problem with selling parts (or anything, really) if you're the Little Guy is inventory. You either have a shload of startup invested in parts sitting on shelves, or you're at the mercy of distributors. That's the biggest hurdle I see in the parts/equipment marketplace - people are willing to pay real money for JDM naughty bits, but don't want to wait on the months it can take to bring them into the
US.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by VTECAcuraGSR &raquo;</TD></TR><TR><TD CLASS="quote">Why do you say buy a CNC machine? Do you care to elaborate?</TD></TR></TABLE>

I would imagine he's talking about custom fabrication, unless he means bits like tow hooks, MC braces and whatnot that don't seem difficult to make IF you have the proper tooling.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by Splat &raquo;</TD></TR><TR><TD CLASS="quote">
I would imagine he's talking about custom fabrication, unless he means bits like tow hooks, MC braces and whatnot that don't seem difficult to make IF you have the proper tooling.</TD></TR></TABLE>

Yup.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by Splat &raquo;</TD></TR><TR><TD CLASS="quote">or you're at the mercy of distributors</TD></TR></TABLE>

Most of these online vendors are just drop shippers, taking their 10% off the top of the product cost. If the distributor is screwing you, then you're screwing the customer - and it happens very often around here. If i'm looking to buy something and I find out they are a drop shipper I just hang up the phone, I want nothing to do with them. I'd rather spend a few more $$ and order from a reputable vendor or the manufacturer and know that I will get the parts in a few days - not a few weeks or months.

 

One of our biggest series sponsors runs his business out of his house. Most of it is done via drop shipment with his wife staying home to work the business full time. Last I checked his product offerings covered several makes and street as well as race parts. Granted he pays to be very highly ranked in search engines but he's netting more than most of us make at our full time jobs. The difference is building a name for yourself by beating published prices and excellent customer service.

For every success story there are 100 failures though. Time is the major investment and you have to be willing to sacrifice a lot to get the thing off the ground.

 

all I'm going to say it's in how you market. where and how is your personal preference.

The answer however is yes you can still make money at it, but if thats your primary interest don't expect to last a long time. It's love of doing it that keeps you from being just another business

 

The short answer to your thread title is "no" for most people. I'm sure there is a way to be successful at it, but the old adage that "it takes money to make money" has never been more true IMHO.

I have had a small online parts business for several years. (It went away during the time I did the same thing for a day job, but now it's back.) Yes it is a worthwhile supplement to a day job income but no it is not enough to live on. It's also not intended to be, because I don't market or advertise it very much, and I enjoy the fact that it doesn't cost me any money to maintain. I don't have an e-catalog, or a toll free number. It started so I could get parts at a discount, and developed into getting parts for friends at a discount, and then developed into a web page. But I doubt it will ever go further than that.

Most of what I sell is quality OEM/tuneup stuff (Bosch and NGK in particular), plus quality OEM hard parts (CSF & BEHR radiators, Bosal exhaust, Sachs clutch kits, Meyle chassis parts, etc) plus mild performance parts (Brembo rotors, Axxis Metal Master & Ultimates, KYB AGX's, Eibach Pro-Kits, etc.) I differentiate myself from other online vendors because I can tell you what works and what doesn't, from personal experience. People come to me for SE-R and E30 parts because I've owned/autocrossed/tracked those. But people also use my advice constantly, then find their parts elsewhere (presumably cheaper.) For instance I'll readily tell you that Bosch Platinum plugs are junk, just use Bosch Super Copper instead (even though they're cheaper.) Or that you don't need $80 Magnecor 8mm wires on your otherwise stock-ignition Honda show car, just buy these nice bright blue $30 NGK wires instead, because they're well-made and have a great warranty. Or that there are six major brands of BMW water pumps and five major brands of BMW head gasket sets, and only two of each are really good. When people come to me they get a good brand, even if it costs a few bucks more or less - and I tell them exactly why. Sometimes it works, sometimes it doesn't.

I think there are WAY too many options out there, and WAY too many people with fancy internet storefronts and great prices, but who know nothing about their products and disappear if you have a warranty/defect concern. On the other hand, I won't sell (or tell you about) APC lighting for example, even though I can get it, because I don't know a thing about it - nor do I have any interest in it.

As for drop shipping... by choice, my particular brands/suppliers all come through me and then go to the customer. This is good because it lets me make sure everything is right before it goes out. I stand behind everything I sell - and have VERY few returns or defect issues as a result. Yes this process takes a few extra days sometimes, but that's part of the deal if you want things done correctly IMHO.

As for pricing... the margins at my level are always under 25%, and under 10% for friends of course. I frequently find myself justifying this structure with thoughts like "well that six dollar mark-up is still six dollars I didn't have in my pocket yesterday."

But even at my level and for the products I sell, competition is fierce. Take Brembos for example... to get the good pricing (i.e. not through their middleman's warehouse 90 minutes down the road with free daily delivery) you need a $10k buy-in. They'll ship you endless pallets of rotors at amazingly low prices. But even if I had $10k lying around, I certainly wouldn't spend it on that, to maybe never make it back (or take years to do so) at another $10 mark-up per unit. And this whole time while I'm trying to get a 25% mark-up on a Brembo, somebody down the street with an e-catalog out of their basement office gets Brembos from the same place I do, marks 'em up 5%, and makes 10x as many sales, hoping to make the difference up in volume alone.

It definitely is "who you know." At least 50% of my business is from people I've met at events and/or had beers with. At least another 25% is from people I know through message boards (there is even a h-t moderator on that list of valued customers.) But I'd say probably only about 10% of my sales come from cold-calls or random web inquiries.

The whole problem with online parts sales is that you can't shake any hands, you can't look your salesperson in the eye, you can't always assume they'll be there to answer the phone, and soforth. I've been on the retail/wholesale counter end of this exact same market in the past and I can tell you that the human element of the transaction will absolutely make or break every deal in this business.

Anyway- long story short, yes I'm sure it can be profitable, but no it's not profitable for me. Although it could be... if I won the lottery first.

Hope it helps-

Jon

 

Jon - I hope this is not too personal, but did you create an LLC and the whole nine? I like the Idea of getting parts at cost!

Thanks for sharing that was a good writeup.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by VTECAcuraGSR &raquo;</TD></TR><TR><TD CLASS="quote">Anyone care to add any value or insight?</TD></TR></TABLE>

My online shop http://www.tankslapperautosport.com opened mid-July, so I can definately comment. The first thing is that you need to have some sort of a catch, trick, unusual source, hook, SOMETHING. The competition is VERY intense, which of course limits profit margins. For the most part, this means that you could never count on it as a full time job, just a supplemental income. Without a catch though, you won't last.

In my case I am able to source the parts from out of the country, which allows me to sell cheaper than those who source through US distributors. Normally that would be EXTREMELY risky in terms of being able to guarantee product availability and shipping time, but this is a very reputable company in their country, and I haven't had problems of that nature. Yes, I'm a drop shipper, but I can sell at lower cost and save my friends money on the same parts offered on the bigger sites.

You can't just throw a site up on the net overnight though, putting a business together takes time and money. You have to deal with all of the tax filings, incorporations, web hosting, e-commerce solutions (credit card authorizations and the like), and crap like that. I have to say though, once I got past those things, I am enjoying the part of the business that deals with negotiating deals with new suppliers, and of course the selling aspect. You also have to pay distributors (for start up and monthly), and don't forget that the credit card companies take a % of every deal as well.

That being said, so far we have not had a lot of sales, but due to the nature of what we sell (mostly safety items, though we are trying to expand), things should pick up during the off season. In our case, we expect to sell a lot of SA2005 helmets, which are just becoming available now, along with harnesses since they have to be refreshed every couple of years. Another big part of it is also being able to capitalize on opportunities. As soon as I read that NASA will likely require a Head and Neck Restraint in 2006, I ran to get the HANS device onto my site within 24 hours. Why? Every racer in NASA is going to need one, and we'll sell them at a discount for NASA members to get them "in the door" and comfortable with ordering from us.

Interestingly, so far every single sale we have made has been to a member of honda-tech, who races a Honda. Since we haven't advertised, that makes sense, as this is the only venue where the company would be noticed. Perhaps the most difficult part is not using a site like this as purely a promotional vehicle. The fact that I've been here for years and have made thousands of posts helps prove that I'm here for the love of cars, not just to sell. At the same time though, it's tough when you see people looking for what you have! I'm still working on that self-control aspect...

With strong connections to the racing world, a business like this can succeed. I am going to be listed as a member benefit for joining NASA, and of those companies listed, I'm the only one right now with the HANS. I'll also be doing a banner ad here on Honda-Tech starting as early as next week. None of those will matter though if we don't have excellent customer service, because there are too many other places for the customer to go. Being a racer, I definately feel good that I can offer advice that I truly believe in, and that I'm doing the right thing for my friends. I guess I'll learn if that is enough.

Matt

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by VTECAcuraGSR &raquo;</TD></TR><TR><TD CLASS="quote">Jon - I hope this is not too personal, but did you create an LLC and the whole nine? I like the Idea of getting parts at cost! </TD></TR></TABLE>

I'll answer for myself. Yes, I am an LLC. Actually the filing has changed a few times. It started as an LLC partnership with myself and two other friends. We differed in the direction that we wanted to go (safety vs performance), so they left to start their own performance related company, and I re-filed as an LLC Proprietorship. Then the best thing happened, my best friend going all the way back to high school wanted to come on board with me, and that was really the turning point. He is fantastic with computers, and very business savvy and organized. Originally he was going to be an employee, but the level of his contributions was just too high to have him be anything other than an equal partner. So I re-filed yet again as a partnership, but still an LLC.

Yes, you get your own parts cheaper, but not so much cheaper as to go on a spending spree. For me the biggest reward was somewhat unexpected. I love running a business, I really do. I really enjoy the challenge and the strategy of it, and I believe in what I sell. I have a lot of long term plans for the site beyond just selling too. We already have a rule book depository for all road racing rule books in the US. In time we are going to have a message board, photo contests, etc. It should be fun.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by VTECAcuraGSR &raquo;</TD></TR><TR><TD CLASS="quote">Jon - I hope this is not too personal, but did you create an LLC and the whole nine? I like the Idea of getting parts at cost!

Thanks for sharing that was a good writeup. </TD></TR></TABLE>

No problem. Not too personal at all. My company was an LLC beforehand, for track event staffing & marketing, that grew into an LLC partnership when others saw the potential (and will hopefully continue to grow, away from the parts end - but that's another story entirely.) Basically, setting up parts accounts was a natural evolution that grew from my selfish desire to save some money.

I forgot to mention earlier that I've also done a fair amount of business with "splitting the difference" from various well known distributors. For example... if you know exactly what wheel/tire combo you want from Tire Rack, I'll use my wholesale account to get it at a discount, then we'll cut the difference down the middle and everybody's happy. On a set of 14" Dunlops for a daily driver, the savings will be virtually nothing. But for a set of 18" BBS with Hoosiers, the savings are significant. See my earlier statement... ten bucks here, fifty bucks there, etc... to me it's worth maintaining, but not necessarily expanding.

Matt is 100% right about needing a catch/trick/niche and has created what for me would be "the next step" if I ever found the time or resources. I'm sure in time he will do plenty of business, because of the great mindset behind his concept.

I think Matt would agree... I'd much rather be known as "the guy you call for good advice about ****" than "the guy who can get anything you need." Even if that means less money in my pocket. I basically do what I do... so myself and people like me... can get good quality parts, and save a few bucks in the process. So be it!

Jon

 

A different perspective, I worked for 1.5 years as an IT specialist for a business incubator and it was interesting to see how small businesses operate.

The company I worked for would rent out office space to business owners and provide them with the tools necessary - accounting, secretarial, IT, etc. Most of them would just break even at the end of the month in terms of sales and other expenses. The problem is there are a lot of people doing it, and its pretty tough competiting with the big name places.

One of the companies I took special interest in was selling college football trinkets. He got the items fairly cheap but had a hard time selling them since he didn't have a B&M store. Sales took off when he started selling on Ebay, you had many return customers. After a while he could filter some of that traffic through the regular business site.

When you have an e-store its a little less expensive since you don't have to pay costs for electricity, property rent, etc. Most of the companies that walked through the doors at my old job started from the basement and moved up. Some succeeded and some failed, at the end of the day its whether or not people want what you are selling.

 

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote, originally posted by getfast &raquo;</TD></TR><TR><TD CLASS="quote">I think Matt would agree... I'd much rather be known as "the guy you call for good advice about ****" than "the guy who can get anything you need." Even if that means less money in my pocket. I basically do what I do... so myself and people like me... can get good quality parts, and save a few bucks in the process. So be it!
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Yes, I agree, and I also try to incorporate other safeguards as well. For example, I won't list/sell a helmet, suit, seat, etc that is not FIA approved. That way my customer would never be stuck with something that they can't use for sanctioned events. Again, the key is believing in what you sell. Especially when it comes to safety equipment, because the consequences are just too important...

Matt