FDD Talk 2019: 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 2019 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 2019 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 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Music Go Round’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, high, and low gross sales and average gross profit of the 30 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 29, 2018, grouped by year opened (2017, 2016, 2015, 2014, 2012, and 2011 and prior)

• 2018 average gross sales for the first, second, third, and fourth quartiles of the 30 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 29, 2018

• number and percentage of 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 29, 2018, grouped by range of gross sales ($0 to $250,000; $250,001 to $500,000; $500,001 to $1,000,000; $1,000,001 to $2,000,000; $2,000,001 to $3,000,000; and greater than $3,000,000)

Section I – Background Information

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

Ranked Among Top 100 Music Retailers in the World

1.  In early July 2018, Music Go Round announced that it had been recognized as a Top 100 Dealer by The National Association of Music Merchants (NAMM) for the seventh consecutive year. No other major chain or retailer in the used-gear space can claim this hot streak on the prestigious list. Music enthusiast companies ranked on the Top 100 Dealers list were each evaluated for effectiveness in marketing, customer engagement, and innovation in retail by a panel of judges.

2.  Each retailer on the list demonstrates exceptional commitment to its stores, neighborhoods, and customers, and shares the collective vision of creating a more musical world through its local communities. Awards were formally distributed among the retailers at the Summer NAMM Show, which took place on June 28-30 in Nashville.

3.  According to Joe Lamond, NAMM president and CEO, “While there are thousands of great NAMM member retail stores out there, a theme that emerges with this year’s Top 100 is an unwavering commitment to helping people of all ages begin their musical journey and then keep them actively engaged in music making for the long haul. We look forward to an exciting evening in Nashville to honor and celebrate the Top 100 Dealers as well as pay tribute to all music retailers who sit in the heart of their communities, inspiring and creating more music makers through their efforts.”

4.  Music Go Round’s impact at the local level is credited to the independent franchise owners who have taken their passion for music and channeled that energy into being a reliable music retailer in their own neighborhoods across the U.S. to support the arts. Music Go Round franchisees understand the value in experience-based retail and continue to see significant growth and consumer demand through the e-commerce site.

5.  Tim Kletti, brand director for Music Go Round, said, “Every year this ranking speaks volumes to the work and dedication level of our franchisees and I’m proud to say it never goes unnoticed. We have seen the impact music has on people’s lives and that is why we created a welcoming atmosphere that appeals to all musicians, whether they are beginners or professionals. We strive to provide our customers with the best value in used musical gear and enjoy using the business platform to support local music scenes.”

Eyes Toronto as Perfect Market

6.  Since 2017, Music Go Round has been trying to move into Canada, but so far the brand has been unsuccessful. However, Music Go Round has identified Toronto as the perfect market for the brand. Music Go Round noted that Toronto is one of the most concentrated music sectors in North America. Overall, the Canadian live music market has grown at an average annual rate of 6.4 percent since 2010, and Ontario’s live music scene generates 80 percent of total national revenues.

7.  The Canadian recording industry had a total economic impact of more than $455 million in 2010, with nearly 80 percent of Canada’s recording industry expenditures taking place in the Toronto region. Employing tens of thousands of Canadians, and with projections of additional growth, Toronto’s music scene creates the optimal market for Music Go Round locations.

8.  According to Music Go Round, Canadian consumer behavior is also very promising for retailers in the resale segment. Canadians value sustainability, with 80 percent saying they prioritize the environment in their lifestyle and shopping habits. Another 79 percent said they value getting a good deal, making them the perfect buyer persona for Music Go Round. Additionally, Music Go Round says that there are daily inquiries from Canadian consumers interested in buying from Music Go Round.

Company History

9.  Music Go Round started out as Hi-Tech Consignments, which was founded in 1986 by Bill Shell in Minneapolis, Minnesota. Shell grew Hi-Tech Consignments over the next seven years and decided to sell the company to the Winmark Corporation in 1993. At this time, Winmark renamed the brand to Music Go Round and started franchising the concept.

10.  Music Go Round purchases, sells, and exchanges used musical instruments and paraphernalia. Also, a large amount of the musical instruments are purchased new. Of all of Winmark’s brands, Music Go Round has grown the slowest and by 2011, there were only 35 locations across the United States. In 2017, Music Go Round announced that it was ready to expand into Canada.

Entrepreneur’s Franchise 500

11.  Music Go Round did not rank on Entrepreneur’s 2019 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 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2018

• Outlets at the Start of the Year:  33
• Outlets at the End of the Year:  34
• Net Change:  +1

Company-Owned

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

2018

• 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, 2019 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 30 of the 31 franchised Music Go Round Stores located in the United States that commenced operations during the years 1996 through 2017.

• 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 29, 2018. 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 29, 2018 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 31 franchised Music Go Round Stores that had been in operation by the same franchisee or owners for the 12-month period ended December 29, 2018. Only 30 of the 31 Stores are reflected in the average, however, because one Store was temporarily closed for several months.

• This financial performance representation does not include information for the 3 Music Go Round Stores that opened or transferred in 2018. No Stores closed in 2018 after being opened for less than 12 months.

Part 1 – Statement of Average Gross Sales and Gross Profit of the 30 Franchised Music Go Round Stores for the Fiscal Year Ended December 29, 2018

Year Opened – 2017