Dean Magnussen of Sound Warehouse, UT, said the chain’s expenses are at least $1K more a month than the past and that doesn’t include spending more on theft prevention, which adds another $600/mo, not counting the equipment itself. “We have had a couple of break ins and we upgraded our entire alarm system. In just that one category we’re paying more and we don’t live in a high crime area,” said Magnussen.
The chain raised labor rates by 5 to 10 percent. Labor runs about 20 percent of Sound Warehouse’s sales. Product margins remain solid because while manufacturers have lowered their MAP (minimum average prices), they have also lowered the cost of goods, Magnussen said.
Tint World, with 140 stores, noted the cost of digital marketing went up between 20 and 40 percent for cost-per-lead advertising. What was $10 per lead is now $15. CEO Charles Bonfiglio said, “We do a lot of marketing. We’re actually doing some things to find other ways of marketing. You just can’t stick with one or two methods of marketing.”
Kartele, CT will raise its labor rate to $135 next year from $120/hour now. “That’s more on a par with dealerships in our area. We’re already above what other shops do. Guys around here are charging $70 or $80 an hour in labor. I don’t know how they stay in business,” said Mike Hungerford.
Floyd Seal of Empress Auto, MS, went shopping for new insurance to get better rates. When a couple of members of his staff left, he didn’t replace them given the slowdown from the past few years. “Most of my staff is [commission] based, so they are doing well, even though numbers are down overall. We haven’t replaced the folks who left, so the others are doing better.”
He added, “Personally, if I was going to give any advice to anyone, I would really pay attention to your operating expenses….I would shop everything, insurance, advertising….We’ve been doing a little bit of TV for the last two years and I’m cutting that out and going to Google and Facebook and spending our dollars there.”
The lesson from veteran dealers is to stay on top of expenses. Harvey Wright of Autosound. IN found that health insurance rates were climbing and decided the shop could no longer afford to provide it. “We took what we were paying the insurance companies and gave the guys a raise and explained we couldn’t go forward with coverage. Looking back that saved us a ton as I know health coverage is crazy, and I understand premiums have doubled just in the last renewal years. Fortunately, our guys are married, and I think everyone got on their wife’s plan way cheaper than we could ever get.”
Wright rotates the store insurance between carriers every 4-5 years. “I have found when you are a new customer, the rates are way less than old customers. ( like cable tv!) I think my last move saved us like $20k annually. We also pay salary and bonuses based on biz so it shelters our payroll when times are slow.”
He added, “When interest climbs, cash is king and shops that run on loans, lines of credit, or floor planning, are going to be hit hard as interest rates are high and probably will go way higher than we have now.”
One piece of good news is that gas prices are falling. Recently AAA said prices have dropped steadily since September 19 bringing the national average down to just below $3.25. That’s a a decline of 25 cents from a month ago and 30 cents less than this time last year. Experts point to a recent decline in oil prices and a seasonal dip in demand, as well as easing inflation.
source: https://www.ceoutlook.com/2023/12/15/12v-shops-face-higher-costs/
