FDD Talk 2018: Music Go Round Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Music Go Round franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Music Go Round franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Music Go Round franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Music Go Round outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Music Go Round’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, high, and low gross sales and average gross profit of the 32 franchised Music Go Round Stores in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017, grouped by year opened (2016, 2015, 2014, 2013, 2012, and 2011 and prior)

• 2017 average gross sales for the first, second, third, and fourth quartiles of the 32 franchised Music Go Round Stores in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017

Section I – Background Information

14 Things You Need to Know About the Music Go Round Franchise

Ready to Start Franchising in Canada

1.  In early July 2017, Music Go Round announced that it was now registered to franchise in Canada. The brand is currently seeking prospective franchisees in Canada to further develop its North American footprint. Music Go Round is registered to franchise in all of Canada’s provinces, but will primarily be targeting Alberta, British Columbia, Manitoba, Ontario, and Saskatchewan for expansion. In particular, the franchise wants to open its first stores in Toronto, where there is strong consumer demand for the brand’s merchandise.

2.  The success of Music Go Round’s sister brands – Plato’s Closet, Play It Again Sports, Style Encore, and Once Upon A Child – throughout Canada as well as interest from consumers and prospective franchisees alike were driving factors in the brand’s decision to expand into the country.

3.  Steve Murphy, president of franchising at Winmark Corporation, said, “Expansion into Canada is a natural next step for the brand. We receive emails nearly every day from Canadian consumers interested in purchasing a product from Music Go Round. It’s been unfortunate that we have not been able to service them locally thus far, so we are excited to finally be able to answer their requests with some positive momentum. Music Go Round is the absolute best at delivering consumers quality, used music equipment and gear, at an affordable price. The time is right and we have the business model and industry expertise to satisfy the pent-up demand.”

4.  In a press release discussing Music Go Round’s desire to expand into Canada, the brand talked about its success in the U.S. The franchise said that its stores have continued to show strong individual sales growth with significant momentum from its e-commerce site, in addition to in-store sales. Music Go Round’s online store features more than 35,000 items from all of its brick-and-mortar locations and averages 200,000 user sessions per month.

5.  The brand’s success is consistently recognized by the National Association of Music Merchants’ (NAMM) Top 100 Dealers list, which spotlights the industry’s best music product retailers. Music Go Round is the only company to earn a spot on the list for six consecutive years.

6.  According Tim Kletti, brand director for Music Go Round, “Our franchisees believe in our concept and embrace the idea of recycling – and this shows in their success. Many of them are aspiring or accomplished musicians who experienced our store before joining the franchise, and could see the impact Music Go Round can make in any community.”

Franchisees Capitalizing on E-Commerce Sales Model

7.  Music Go Round is the only Winmark brand so far to supplement its brick-and-mortar sales with an e-commerce storefront. In recent years, e-commerce has become essential for retailers because consumers are using all avenues to research and buy products, especially more expensive items like musical instruments.

8.  Kevin Dierker, a Music Go Round franchisee, said that Music Go Round’s e-commerce sales model is primarily what influenced him to become a franchisee in 2014. He said, “It was definitely a bonus because I had worked at other music stores that didn’t go into the e-commerce world, that ended up failing. I knew that a large part of having a successful business was having an online presence.”

9.  Dierker also said that online sales make up 20 to 25 percent of his total monthly sales and that he serves both out-of-state and local customers thanks to the website. According to Dierker, most of his brick-and-mortar customers browse the website before coming into the store. This makes sales easier because customers already know what they want and they are more likely to actually purchase the item because they’ve been thinking about it for a week. This trend of researching online before purchasing in-store is called “webrooming” and 81 percent of customers do it.

10.  In addition to making sales easier for Dierker, the website has also increased foot traffic at his store. He said that customers who browse the site without searching for anything in particular, show up at the store because they’re impressed with the inventory. Music Go Round’s online inventory is massive and highly detailed – each instrument is listed with numerous photos so customers have a good idea of an item’s condition.

11.  Music Go Round also offers a generous return policy if customers are unsatisfied with their purchase. Customers have 48 hours to inspect the merchandise and play with it before they have to inform the store if they’re not satisfied with it. They can then send it back for a full refund.

Company History

12.  Music Go Round was founded in 1986 by Bill Shell in Minneapolis, Minnesota. It was a consignment shop for new and used musical instruments, gear, and equipment and was originally called Hi-Tech Consignments. After seven years of growing the business, Shell sold the company to Winmark Corporation in 1993. Winmark changed the brand’s name to Music Go Round and replaced the consignment model with the retail resale model that Winmark uses for its other franchises.

13.  The first corporate-owned location opened in Roseville, Minnesota in late 1993. Winmark opened three additional corporate stores before opening the first franchised location in 1995 in Alpharetta, Georgia. Music Go Round is the smallest of Winmark’s five resale franchises and there are currently only 35 stores in a handful of states.

Entrepreneur’s Franchise 500

14.  Music Go Round is the only Winmark brand that did not earn a spot on Entrepreneur’s 2018
Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Music Go Round franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Music Go Round’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  33
• Outlets at the End of the Year:  33
• Net Change:  0

2016

• Outlets at the Start of the Year:  33
• Outlets at the End of the Year:  35
• Net Change:  +2

2017

• Outlets at the Start of the Year:  35
• Outlets at the End of the Year:  33
• Net Change:  -2

Company-Owned

2015

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2016

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2017

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• The following is a financial performance representation entitled “Unaudited Statement of Average Annual Sales and Gross Profit.” The gross profit figures do reflect the cost of sales but do not reflect the operating expenses that must be deducted from the gross profit figures to obtain your net income or profit.

• The following statement of average annual gross sales and gross profit includes annual gross sales and gross profit as reported by 32 franchised Music Go Round Stores located in the United States that commenced operations during the years 1996 through 2016.

• This statement includes information from only those franchised Music Go Round Stores located in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017. No other franchised Music Go Round Stores are included in this statement due to insufficient history of operations (not in operation for the 12-month period ended December 30, 2017 or transferred during this period).

• The financial statements Winmark (the franchisor) receives from franchisees for these Stores are unaudited, and Winmark does not audit or independently verify, or express an opinion regarding, these statements.

• There were 32 franchised Music Go Round Stores that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017. All 32 franchised Music Go Round Stores are reflected in the average.

• This financial performance representation does not include information for the 1 Music Go Round Store that transferred in 2017. No Stores closed in 2017 after being opened for less than 12 months.

Part 1 – Statement of Average Gross Sales and Gross Profit for the 32 Franchised Music Go Round Stores for the Fiscal Year Ended December 30, 2017

Year Opened – 2016