FDD Talk 2020: 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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Music Go Round’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average, median, high, and low gross sales and average and median gross profit for the 33 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 28, 2019, grouped by year opened (2018, 2017, 2016, 2015, 2014, and 2012 and prior)

• 2019 average, median, high, and low gross sales and average and median gross profit for the first, second, third, and fourth quartiles of the 33 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 28, 2019

• 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 28, 2019, 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

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

Former HBO Executive Becomes Franchisee

1.  In mid-December 2019, the Winmark Corporation blog featured one of Music Go Round’s newest franchisees, Matt Orenstein, a former HBO executive. When Orenstein left HBO after two decades of employment, he wasn’t actually looking to start a new business. He was just looking for a place where his band could rehearse.

2.  After Orenstein failed to find a good location, he decided he was just going to open his own studio. However, his friend mentioned Music Go Round and after doing some research, Orenstein attended a Winmark Discovery Day.

3.  Music Go Round turned out to be exactly what Matt wanted all along – the opportunity to be an entrepreneur in an industry he’s passionate about and could take part in shaping. “To be my own boss, do my own thing and be in the music world that I really love just made sense,” Orenstein said.

4.  When Orenstein began to look for a location to open his Music Go Round, he wanted to find a vibrant, exciting community of like-minded music lovers. He found exactly that in San Antonio. Known for its rich but unorthodox blend of all musical genres – from heavy metal to country to salsa – San Antonio has proven to be the perfect spot for Orenstein’s Music Go Round.

5.  A member of a blues, country, and rock-and-roll cover band for the past three years, Orenstein has always had a passion for music. This love for music and the arts stems from his upbringing. His mother was a professional ballerina for the American Ballet Theatre in New York City, while his father had a profound interest in music, theater, and culture – taking Orenstein to every museum in the city. “My mom and dad exposed me to classical, Broadway and music from the ‘30s and ‘40s,” Orenstein said. “My brothers opened me up to music from the ‘50s, ‘60s and ‘70s.”

6.  If there’s one aspect of being a business owner that’s most important to Orenstein, it’s the role his store plays in his community. He has already seen San Antonio embrace his business, even when it hadn’t yet opened.

7.  According to Orenstein, “The community is impressed that the store isn’t just already stocked, but also that we have great, quality gear available. We had people come in multiple times to sell us gear, because we pay fair prices and make it easy for them. Some people even tried putting ‘dibs’ on some gear they had seen we have.”

8.  While working in the TV industry, Orenstein gained experience communicating and establishing relationships with distributors he’d work with repeatedly. To Orenstein, those skills translate directly to owning his Music Go Round. “You need people to keep coming to your store and selling and buying your gear,” Orenstein said. “Hopefully a lot of those same customers are going to be with you for years.”

9.  Music stores are different than many other retailers. They’re more than just a place to pick up some extra gear or upgrade your music equipment. Music Go Round is a community hub for local musicians to spend time, talk, and network. The announcement of a new music store in a neighborhood is a big deal to the musicians in the surrounding community.

10.  Orenstein added, “We want to be a place for musicians to come and hang out and rub elbows with other musicians, whether it’s new bands just starting out, lawyers in a band doing it for fun or local mariachi groups. We want to be a place for people to meet and talk about music.”

Meets Growing Demand in the Musical Instrument Retail Market

11.  According to a Winmark Corporation blog post from late July 2019, the musical instrument retail market currently pulls in $6 billion annually and has grown 2.7 percent each year between 2014 and 2019. Stringed and percussive instruments occupy the largest amount of sales in the market. This includes guitars, pianos, drum sets, and violins among others. As the musical instrument retail market grows, so does the resale market. Music Go Round is perfectly poised to benefit from the upward market trend.

12.  Millennials are turning the world digital and they’re bringing music with them. Reports show that one of the quickest-growing segments of the musical instrument market is digital instruments, such as synthesizers or DJ controllers. With hip-hop and pop topping the charts as the most popular genres of music in 2019, there’s a correlation to the demand for the digital instruments behind millennials’ favorite songs.

13.  A growing number of musical instrument buyers are hobbyists. Sixty-three percent of the market’s consumers pick up an instrument for fun rather than for professional or academic reasons, and that percentile is expected to drive industry demand into the future.

14.  Technology has made learning an instrument easier than ever before. Millennials are known for turning to search engines to learn new information before they refer to anything else, which means they may feel less intimidated by the idea of learning a new skill as a hobby. There is a plethora of online tutors, downloadable sheet music, and YouTube tutorials that make the learning curve with a new musical instrument a bit smoother. With the younger generation driving the musical instrument retail market, Music Go Round is perfectly positioned for growth.

15.  Brand-new musical instruments are expensive. They are a tricky item for parents to buy for their children because kids usually are not sure whether they will pursue the hobby or not. For young adults looking to find their own hobby, it’s difficult to know how much to spend on their first instrument. Trying to learn guitar on a cheaply made instrument can add unneeded difficulty and deter amateurs from continuing the craft, whereas an overly expensive instrument can be a waste if beginners realize the guitar isn’t for them.

16.  A Music Go Round franchisee has the advantage of being able to satisfy this huge demand for quality used instruments in the market. By carrying high-quality and affordable musical instruments, Music Go Round franchisees are able to match aspiring musicians with the perfect equipment. From hobbyists and band students to professional musicians looking for an instrument with a backstory, Music Go Round has something for everyone. Music Go Round franchisees carry everything from the latest digital instruments to the classic acoustic guitar.

Company History

17.  Music Go Round was originally founded as Hi-Tech Consignments in 1986 by Bill Shell in Minneapolis, Minnesota. Shell bought and sold used musical instruments, gear, and equipment
in the Minneapolis area.

18.  After seven years, Winmark Corporation purchased Hi-Tech Consignments from Shell to add to its growing portfolio of resale brands, which now includes Plato’s Closet, Play It Again Sports, Once Upon A Child, and Style Encore. Winmark changed the company’s name to Music Go Round and began franchising right away.

19.  Music Go Round is one of Winmark’s smaller brands and there are stores in a handful of states.

Entrepreneur’s Franchise 500

20.  Music Go Round did not rank on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2019

• Outlets at the Start of the Year:  34
• Outlets at the End of the Year:  37
• Net Change:  +3

Company-Owned

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

2019

• 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, 2020 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 the 33 franchised Music Go Round Stores located in the United States that commenced operations during the years 1996 through 2018.

• 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 28, 2019.

• 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 28, 2019 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 33 franchised Music Go Round Stores that had been in operation by the same franchisee or owners for the 12-month period ended December 28, 2019. All 33 Stores are reflected in the average.

• This financial performance representation does not include information for the 4 Music Go Round Stores that opened or transferred in 2019. No Stores closed in 2019 after being opened for less than 12 months.

Part 1 – Statement of Average Gross Sales and Gross Profit of the 33 Franchised Music Go Round Stores for the Fiscal Year Ended December 28, 2019

Year Opened – 2018