Presentation for PEW Charitable Trusts and the Nonprofit Finance Fund
Presenter: Joan Doyle, principal, doyle + associates
When PEW and the NFF first contacted me about this presentation, they emphasized that they wanted me to detail the “true hard facts”- the pro’s and con’s of earned revenue operations for non-profits. A reality check, if you will. And I am thrilled to be here today to help you better understand the business issues you should address when consider starting or expanding your museum store.
Everybody shops. Some people love to shop, some people hate to shop. But everybody shops. You go to the grocery store, you need a new lawn mower, you have to get a gift for that birthday party next week, you need a new navy suit, etc. etc. etc. We are a nation of consumers. And, because every body shops, most people think they have a pretty good idea of what the retail business is about. You buy some merchandise at one price, put it in a store, people come into the store and buy the merchandise for more than you paid for it, and you make a nice profit. How difficult could that be?
I’ll tell you how difficult that can be. Two out of every three independent retailers (defined as non-mass market/retail chains) that open for business each year will close within a year. By the second year fifty percent of the remaining business will close. And by the end of the third year less than 12 percent of the original retail business will still be open and making a profit. If it’s not that difficult to operate a retail business, then why don’t those stores succeed?
They don’t succeed because they don’t do a realistic business assessment or feasibility study of their business potential. They don’t create a business plan; they miscalculated what the start up cost would be and what the on going operational costs would be. They miscalculated their market, their market potential and capture rate of that market. They misjudged and/or ignored their store location, store size and store access to the desired market (some times something as simple as parking convenience can make or break a retail business).
Aaahh, but you’re thinking right now “but I’m a museum, I’m an historic site, I’m a performing arts center, I’m an art gallery- It’s different for me-I don’t need to worry about those things, we have parking and the customers are already there, I don’t need to consider these issues. Well, your right it is different for you-it’s even harder for you to make a retail business successful and here’s why:
Unlike for-profit retailers, one of the first things you need to identify and define is the purpose of your museum store?
Is it a visitor amenity?
Is it public relations?
Is it organizational brand building?
Is it an educational/programming component?
Is it a revenue source?
Is it all of these things? If so, which is most important to you? To your visitor?
I can assure that these are not questions that the Gap, or Target, or Borders Books has ever asked themselves. But you must, because your core product serves a higher purpose than just making money or making the stockholders happy.
There are some fundamental critical issues you need to consider before and or when you have a museum store:
Should you have a museum store? I want to be very clear here-THIS IS A CHOICE-your primary mission is not operating a museum store. It’s collecting, preserving, interpreting, or presenting specific artifacts, knowledge or skills. And, for some of you a store would be a bad idea, but for others, it is an idea that is long overdue.
Fact-over 73% of museum visitors expect to make a trip to the museum store part of their museum experience. That means the market is “primed and predisposed” to visit your store and consider making a purchase. That BIG-your 50% of the way to a sale! That’s a pretty good place to start from. So what are the qualifiers to get those visitors to make a purchase?
Qualifiers: 1. Are visitation levels sufficient-is there enough museum traffic to provide sufficient retail traffic?
The MSA reports that typical store capture rates of museum visitors to museum stores range from 10-30%. First thing you need to notice-73 % were predisposed to visit the museum store, but on average only 20% make a purchase. That’s a big discrepancy-what happened? How did they lose 50% of the “primed and predisposed market”? We’re going to come back to that again.
Twenty percent of 30,000 annual visitors equates to a potential of 6,000 sales. Is that enough? It depends on the type of museum, the type of merchandise sold, type of customer and average purchase. What visitors spend in art museum stores is very different than what visitors spend at Aquariums, Zoos, History Museums, etc.
2. Are visitation demographics conducive to purchasing?
Who is your customer really? Visitation demographics plays a major role in store profitability. If your visitation is primarily school groups, ages 7-16, then the average purchase will likely range from $1 -$5. So, for a museum with 30,000 visitors and a 20% capture rate it would translate into approximately $18,000 in retail sales. But, if your visitors were older, middle or upper income levels, than the average purchase would increase to a range of $8- $20. So, that same museum with 30,000 visitors and a 20% capture rate now have retail sales of approx $90,000. Big difference.
The likely hood is that your visitation is a mix of different markets-school groups, families, affluent adults, tourists, collectors, educators, etc. Before you start or expand your store you need to identify who your market is, and how much they are likely to spend in your store.
3. Is store size and location conducive to attracting shopper activity?
The first rule of retail applies also applies to museum stores. Location, Location, Location. Where your store is located will have a major impact on its ability to capture museum visitors. And the store’s success will ALWAYS be tied to how many visitors it captures and turns into customers.
That said, the best location is ALWAYS at the museum’s main entrance/exit. However it is not a failsafe solution to retail success. Other things can impact success just as much as location. For example, your store is ideally located in the in the main entrance, by the ticket desk, but there are no windows into the store- only a small doorway-no one really sees it. Now-how smart is that?
4. Is there competition? If so, who and how do you differentiate?
As we noted before people shop all the time. Other museums are not so much your competition as all other retail is your competition. Can they buy your merchandise at Target for less? Can they buy that book from Amazon for less and have it shipped for free? How do you make purchasing in your museum store stand out among the global competition? Do you promote that purchasing in the store helps fund museum programs? Do you promote specific educational benefits to your merchandise (BCM example here)? Do you promote any merchandise exclusivity (only available here, made by local artisans, etc.)? Do you continue the museum story into the store with explanations as to why this product is in the store-this scarf pattern, is inspired by,, the pin is an example —–., etc. Is your staff knowledgeable about the merchandise, how it works, and how it relates to the museum. Do you gift wrap? Do you have a gift registry? How do you encourage members to keep coming back to the store?
5. Is administration/management committed to the operation?
What is your organizational culture and is it committed to the retail operations success. If the big guns aren’t behind it will always be an uphill struggle to get the necessary monies, support, and resources to make it work.
6. Is there dedicated staff for implementation?
You get what you pay for. If you want a well run, efficient and profitable store, then you need the dedicated staff to make that happen. Running the museum store cannot be “added” to someone” already overloaded job description. Non-profits are notorious for this. You need to have someone with professional retail experience, or someone with a true willingness to learn the retail business and lead the retail program. And then you need to supply them with the right resources to make it workable. These resources will vary, but it might something like a point of sale system, or professional coaching, or new store fixtures, etc.
7. What are the specific business challenges?
In all my years of consulting I have yet to come across one project exactly like any other project. You will all have business challenges, but they will be specific to your situation.
You have the right location, the right staff-but no money to move the store forward.
You have the right location, right staff, but the store is too small to handle the customer traffic.
You have lots of money, and a world famous architect, and lots and lots of windows, but a terrible location in the building and the visitors only come between the hours of 5-11PM.
You have the right location, the right store size, a big market base, but your director only wants you to sell high end merchandise and your dominant market base is school kids.
For your museum store to succeed you must address your specific business challenges and develop strategies to overcome them. Do Not ignore them-they will not go away.
8. What is the likelihood of success (profitability)?
Forewarned is forearmed. You MUST develop financial pro-formas on what is likely to happen once your store is operating. (Show example’s here). You must consider all the real costs of business to have a true clear picture of what to expect in the years ahead.
Expect a 10% -25% net return for a well run museum store (for profit averages 8-15%).
If your situation meets most of these qualifiers then you are probably in a good position to operate a museum store.
Business Planning: What are the “real” start up or expansion costs to consider?
Here are some general numbers to begin working with:
1. Business/Merchandise Plan $10,000-$20,000
2. Construction, Fixtures, Lighting $150-$250 per square foot
3. Design Fees 12-16% of construction total costs
4. POS (point of sale) $10,000-$75,000
1. Start with approx 1/3-1/2 of projected first year sales
($500,000 in projected annual sales = $100,000-$150,000 start up inventory)
2. Custom Merchandise: can average out to approx 1-2 years selling supply
3. Consignment Merchandise (good and bad)
1. Averages 4-8% of gross sales and includes selling supplies, trade shows, travel, advertising, events, etc.)
2. Will you charge yourself rent?
1. Averages 15-20% of gross sales.
(Outside of inventory this is your biggest business expense-but success hinges on this critical role)
Who? Existing staff, new hire, consultant? One from column A and one from column B?
What? Are your business and merchandising plans in place? Are they realistic?
How? Do you have the funds in place? Will you need to apply for grants/loans? If so, how will this affect the schedule? Will you need to issue RFP for competitive bids or qualifications?
When? Does it coordinate with other master planning strategies?
By now, I’ve probably succeeded in scaring all of you away from having a museum store. I hope not (especially for my sake). But I do hope that I have opened your eyes a bit and helped you look at planning issues that you may not have considered before this presentation. A successful museum store is not impossible. And, if planned well can be a vital part of the visitor experience and your institutions ongoing financial health.
I’ll close with the statistic that started with: Fact-over 73% of museum visitors expect to make a trip to the museum store part of their museum experience. That means the market is “primed and predisposed” to visit your store and consider making a purchase. Are you going to meet their expectation or disappoint them?