FDD Talk 2021: 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 2021 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 2021 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 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Music Go Round’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, high, and low gross sales and average and median gross profit for the 34 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 26, 2020, grouped by year opened (2019, 2018, 2017, 2015, 2014, and 2013 and prior)

• 2020 average, median, high, and low gross sales and average and median gross profit for the first, second, third, and fourth quartiles of the 34 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 26, 2020

• 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 26, 2020, 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

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

A Recession-Proof Business Model

1.  In mid-February 2021, Winmark’s blog highlighted how Music Go Round is a recession-proof business. While 2020 brought worldwide venue closures and the cancellation of live music events, live music is set to make a comeback in 2021. With vaccines now readily available and accessible, there’s optimism that live music will return, which is great news for those in search of a music franchise opportunity.

2.  Last year, the money generated by live music ticket sales and sponsorships fell 64%, while the value of the international concert industry dropped nearly $18 billion, according to a music industry revenue report by Goldman Sachs. However, as government restrictions ease up and mass gatherings slowly make a comeback, good news is on the horizon. Goldman Sachs researchers expect the music industry to recover fairly quickly in the coming years, specifically with the projected return of live concerts this year.

3.  Driven by live shows and music streaming, Goldman Sachs estimates global industry revenues to increase to about $140 billion by 2030. The report also suggests that the music industry is likely to return to its pre-COVID-19 level by 2022, prompting musicians to gear up for their return to the stage. While there are many unknowns, the projections are showing a positive path forward, which presents a unique opportunity for those looking to open a music store franchise to get ahead of the curve.

4.  The resumption of live concerts, no matter the size, will inevitably drive music equipment and instrument sales. Music Go Round has been a leader in the retail space, even amidst a global pandemic, thanks to its resale retail business model. Along with the other Winmark retail brands, Music Go Round has continued to thrive despite the effects of the coronavirus and its accompanying shift in consumer habits.

5.  As today’s consumers are hesitant to spend more than they can afford, Music Go Round allows them to find in-demand products at a lower price point compared to traditional retailers. The brand’s unique buy-and-sell business model provides musicians a way to buy high-quality used equipment and also sell the gear they aren’t using anymore for payment on the spot.

6.  As the music scene returns to its pre-COVID norms, local musicians will begin to prepare for their upcoming shows and events. Whether they need a small addition to their music setup or they’re looking for the latest piece of equipment, musicians everywhere can rely on Music Go Round for all their used and new music gear and equipment needs.

7.  Music Go Round franchisees have established the brand as the world’s largest seller of used musical equipment and gear, allowing it to occupy a unique space in an $8 billion dollar industry and become a staple for musicians within their communities.

Parent Company Announces Management Changes

8.  At the end of February 2020, Winmark Corporation announced the following promotions and changes to its management team:

• Renae M. Gaudette, the company’s then-vice president of franchising, was named president of franchising;
• Bradley W. Spencer, the company’s then-director for Plato’s Closet and Once Upon A Child, was named vice president of franchise operations; and
• Alan R. Majerko, the company’s vice president of corporate development, assumed the additional responsibility of vice president of franchise development.

9.  Brett D. Heffes, chief executive officer of Winmark Corporation, stated, “These changes recognize the efforts of our senior management team over the past several years and solidifies the management structure for our franchising business. I want to congratulate Renae, Brad and Alan on their many accomplishments and for a job well done.”

10.  Additionally, Winmark announced that Steven A. Murphy, then-president of franchising, has resigned. “Over the past eighteen years, Steve has been a key contributor to the growth and success of our franchise operations. He is a talented professional that on a daily basis has demonstrated his energy, passion and enthusiasm for Winmark and our franchisees. We wish him well.”

Parent Company Appoints New Board Member

11.  In mid-January 2021, Winmark Corporation announced that it had named Gina De Caro Sprenger to its board of directors. Sprenger has over 30 years of successful leadership experience in traditional retail, direct marketing, and ecommerce. Currently, Sprenger is the chief strategic retail officer for Fanatics, Inc., the global leader for licensed sports merchandise. Previously, Sprenger was the executive vice president of merchandising for Bluestem Brands. She also spent 25 years at Target, most recently as senior vice president of merchandising.

12.  Brett D. Heffes, chairman and chief executive officer of Winmark Brands, stated “We are pleased to have someone of Gina’s caliber join our Board of Directors. She has extensive experience in merchandising, retail management and ecommerce and has successfully operated in both large company and fast growth environments. Her expertise will be highly valuable as we continue to execute our business plan.”

Company History

13.  Music Go Round was founded as Hi-Tech Consignments in 1986 by Bill Shell in Minneapolis, Minnesota. As people often start and abandon their interest in musical instruments, Shell saw an opportunity to buy and resell these musical instruments, gear, and equipment. Shell ran the business for the next seven years, before selling it to the Winmark Corporation in 1993.

14.  Winmark changed the brand’s name to Music Go Round and immediately launched national franchising. Although Music Go Round is one of Winmark’s smaller brands, it was the first of its brands to launch an ecommerce platform in the early 2010s. While there aren’t that many brick and mortar locations of Music Go Round, franchisees ship goods across the United States.

Entrepreneur’s Franchise 500

15.  Music Go Round did not rank on Entrepreneur’s 2021 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 2021 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 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2020

• Outlets at the Start of the Year:  37
• Outlets at the End of the Year:  37
• Net Change:  0

Company-Owned

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

2020

• 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, 2021 FDD) and Analysis

• This Item 19 contains financial performance representations based on information from franchised Music Go Round Stores entitled “2020 Music Go Round Unaudited Statement of Average Annual Sales and Gross Profit.”

• The gross profit figures in this Item 19 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 sales and gross profits includes annual gross sales and gross profits as reported by the 34 franchised Music Go Round Stores located in the United States that commenced operations during the years 1996 through 2019.

• 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 26, 2020, with the understanding that some of these Stores had temporary closures as a result of COVID-19 as further described below.

• 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 26, 2020 or transferred during this period).

• The financial statements Winmark 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 34 franchised Music Go Round Stores which had been in operation by the same franchisee or owners for the 12-month period ended December 26, 2020. All 34 Stores are reflected in the average.

• This financial performance representation does not include information for the 3 Music Go Round Stores that transferred in 2020. No Stores closed in 2020 after being opened for less than 12 months.

• Due to governmental regulations and other restrictions related to COVID-19 in many jurisdictions during 2020, many Music Go Round Stores were forced to temporarily close for extended periods of time during the year. The temporary closures and COVID-19 regulations and restrictions negatively impacted the Stores’ sales, as reflected below.

• During the temporary in-store closures, some Stores continued to operate by offering curbside and/or online sales.

• Despite these temporary closures, as of the date of the 2021 Disclosure Document, Music Go Round does not anticipate that COVID-19 has or will significantly change its business model or the way its Business System operates.

• For purposes of clarification, the 34 Stores includes all Stores that were temporarily closed as a result of COVID-19.

Part 1 – Statement of Average Gross Sales and Gross Profit of the 34 Franchised Music Go Round Stores for the Fiscal Year Ended December 26, 2020

Year Opened – 2019