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Old Wine in New Bottles

Old Wine in New Bottles – Business of Doing Business – The Journal of Antiques and Collectibles – January 2005
By Ed Welch
In the 70’s and 80’s, I taught a course, The Business of Doing Business in Antiques. I wrote a book for student use. Recently, I came across a copy of the book while cleaning a cluttered nook in my office. Even though the course and the book pre-date computers and the Internet, all the business concepts are still relevant.
Good business practices are the same, whether one is selling from his or her garage, a storefront, a group shop, shows, or on the Internet. Not all twenty chapters of this book lend themselves easily to republication as trade paper articles. Many chapters are fodder for more than one article. Topics suitable for reprint begin with Chapter 8, Understanding The Secondary Marketplace.
The buying and selling of antiques takes place in that realm of business known as the Secondary Marketplace. Antique dealers doing business in the Secondary Marketplace must understand the forces and principles that power this sector of the commercial world.
Let us begin by reviewing the Primary Marketplace. Every material object that is sold for the first time is said to be sold on the Primary Marketplace. In order for this item to be sold, a series of events has to take place. The series of events is as follows:

  1. Someone comes up with an idea.
  2. Materials are gathered to change this idea into a reality.
  3. An item is manufactured from the gathered material.
  4. The finished product leaves the manufacturing plant and is shipped to regional warehouses.
  5. Regional warehouses redistribute this product to local warehouses.
  6. Local warehouses sell this product to retail stores.
  7. Retail stores sell this product to (us) the consumers.

It matters NOT whether the product is an automobile, a watch, a refrigerator, an item of food, a pair of sneakers, or whatever. When an item is created and sold for the first time, it must follow the principles and marketing path dictated by the Primary Marketplace.
My personal introduction to the Primary Marketplace occurred in 1959 when I, as a high school sophomore, got a job as stock boy at a local automotive parts supply store. As it turned out, my job consisted of loading and unloading, piling and un-piling number 902 mufflers. During the 1950’s, General Motors made one muffler design that fit most Chevrolets, Oldsmobile, Buick, and Pontiacs. Since the automotive parts store I worked for was the largest in Central Maine, they sold thousands and thousands of number 902 mufflers. These mufflers came in by the truck and boxcar load. I personally unloaded every forty foot truck and every boxcar load. I hauled these mufflers to our warehouse and piled them in stacks that were more than ten feet high. Finally, I rearranged and loaded smaller stacks of these mufflers as they were sold to repair shops and garages. After several years of handling thousands of these mufflers, I began to HATE number 902 mufflers!
All my sweat and all my labor were not spent in vain. The number 902 muffler taught me a valuable lesson about the inner workings of the Primary Marketplace. We paid $8.00 for this muffler. We sold it for $12.00 to garages and repair shops who sold it retail for $18.00. What I have just related was only a part of my lesson. Another part came when the company I worked for decided that since they owned nine (9) automotive stores they should combine the buying power of all these stores by starting their own regional warehouse. To my surprise, I learned that the cost of the number 902 muffler to us, as a regional warehouse, was $4.00. Several months after our warehouse opened, I learned that the total cost to the factory to produce one number 902 muffler was $1.50.
Some folks may think that a muffler that cost $1.50 to produce is overpriced when it sells to the consumer at $18. Before you make that judgment, look at what the $18 is paying for:

  1. Transporting the muffler three to four times.
  2. Piling, un-piling, and re-piling the muffler three to four times
  3. Part of the truck driver’s salary, the railroad worker’s salary, the warehouse crew’s salary, the salary of the man at the parts store, as well as the mechanic who installs it.
  4. Heat, lights, and rent for warehouse space.

Operating a business in the Primary Marketplace has many advantages. The supply of merchandise is consistent and stable. The selling price is, more or less, preset by market conditions. The quality of the product can be selected and, once selected, can be controlled.
Operating a business on the Secondary Marketplace presents the owner with many challenges. Quality cannot be controlled and re-supply and the cost of re-supply cannot be controlled. Dealers have no control over the cost of selling at auction and little control over the cost of selling at shows and group shops.
The only item that a dealer has complete control over is re-sale price. The skill at which a dealer manages re-sale pricing is the leading factor in business success or failure. Successful dealers develop the skills necessary to sort antiques and collectibles into one of the ten levels of the antique trade hierarchy. NOTE: At one time it was necessary to understand regional price differences. Today, because of the Internet, price fluctuation by region is less of a problem. However, the leveling of price worldwide deprives the knowledgeable dealer the opportunity of making profit by moving antiques to parts of the country in which they are more in demand.
In the Secondary Marketplace, we get all our merchandise from one source. That one source is the home. Let me rephrase and repeat what I just said. Everything that is sold in the Secondary Marketplace comes from one source – the home. This includes used furniture, used cars, used clothing, used houses, and very old items often referred to as antiques. The Secondary Marketplace has a well-defined system for utilizing everything that comes out of a home, even items of minimal value. When the contents of a home are liquidated, the items in that home tend to go where they have the most value. Serviceable used cars end up on a used car lot. Junk cars end up in a scrap yard. Used furniture goes to that type of business. Used clothing goes to a secondhand shop. Items that have a value as antique or collectible end up in the antique trade.
When items come into the antique trade, they tend to gravitate to the type and kinds of shops where they have the most value. My last statement, in a nutshell, describes the major economic force that drives the Secondary Marketplace.
To elaborate on this point, I would like to tell a story about a certain table that came up for auction at an estate sale in Northern Penobscot County in Maine. The table was small, well made, and looked different from any table seen by anyone at this auction. The used furniture dealers knew that they had little chance of owning this table. Several antique dealers had carefully inspected it at the preview. Since no one at the auction knew what the table was or how much it was worth, each bidder had to make up his or her mind as to just how much to pay. A right guess and there was money to be made; a wrong guess and money was lost.
I know that the dealer who bought the table made the right choice because she later sold the table to me for a substantial profit. I resold this Queen Anne table for a fine profit. The dealer to whom I sold this table placed it in an auction and received so much money for it that if I had not seen it with my own eyes, I would not have believed the selling price. As I said before, in the Secondary Marketplace items gravitate to where they are worth the most money. As these items advance step-by-step, dealers make money.
The Secondary Marketplace in antiques needs three things in order to operate. They are:

  1. Something to sell
  2. Dealers or an auction service to gather up and present the merchandise to buyers
  3. The buyers

The antique trade, as a whole, can be divided into ten levels based on price. Level one sells inexpensive items, usually things that sell for less than fifty dollars. Level ten dealers sell the most expensive items. Antique shops can be divided into these ten levels; antique shows can be divided into these ten levels; antique auction houses can be divided into these ten levels.
The amount of money made by a given antique business is not related to the level at which that business operates. I personally know of level one, two and three businesses that have made the owners of these businesses rich.
It is NOT the purpose of this chapter to repeat the discussion about the ten levels of the antique trade. I brought up the ten levels to help make a point. The trade is powered by the fact that higher-level dealers buy from lower-level dealers. Some dealer’s function so well at the low end of the price structure that they become known as WHOLESALERS.
It is impossible to compare wholesaling in the Secondary Marketplace with wholesaling in the Primary Marketplace. In the Primary Marketplace, one type of item is sold in volume at a discounted price. That item can be ordered in very large quantity (remember the 902 muffler). Wholesaling in the Secondary Marketplace is based on a dealer’s willingness to sell, in volume, items of similar or close to similar price at a cost that is recognized to be less than the market value.
Wholesaling in the antique sector of the Secondary Marketplace, as with wholesaling in the Primary Marketplace, is based on volume. A dealer needs to make enough money to live either by making a lot of money on each item or a little money on many items.
True wholesaling at low prices does exist in the antique marketplace, but only for the kinds and types of items that are numerous enough to allow a volume trade to exist. No one does a wholesale business in VAN GOGH paintings. No one does a wholesale business in signed Philadelphia Period furniture. Should a true, dyed-in-the-wool, wholesale dealer acquire a signed piece of Period furniture or a painting by an artist whose work is in high demand, that person would be foolish to sell such an item for less than the market value. Would you sell to me a painting by Norman Rockwell for half what it is worth, or even three quarters of what it is worth? If anyone out there will, please contact me. I would be a willing buyer.
A person who makes a lucky find does not buy that item wholesale. Many dealers sell to other dealers. Ninety nine percent of these dealers are not wholesaling. They are simply selling items to other dealers who work in a higher price bracket. True wholesaling means that a dealer sells in volume, that each item that makes up the said volume is priced below market value, and that wholesaling is done by the dealer to create repeat volume business.
In the Primary Marketplace, the business relationship between the seller and the buyer means little or even nothing. How much do you know about the owner of the store where you buy your weekly groceries? How much do you know about the people who sell you your clothing, your household furniture, your automobile? It is possible to spend hundreds, even thousands of dollars, repairing your family car. Most people have never been introduced to the mechanic who is responsible for the cost of these repairs.
In the Secondary Marketplace, business runs smoother and more is accomplished when the buyer and the seller know each other and have established a working relationship. The business relationship between the sellers and buyers of antiques means a great deal to both parties. To help illustrate the above statement, I would like to share with you things that I have noticed regarding my buying and selling habits.
I, as a seller of antiques, have established a strong personal relationship with nearly three-dozen dealers and collectors who buy from me. I, of course, sell to many other dealers and collectors, but as I review my sales records of years past, I cannot help but notice that a few of my best customers get the major portion of my antiques.
I buy antiques from all over the Northeast. I visit all the major New England shows, antique areas, and shops. When I see an item that I would like to own, I buy it; however, my buying records reveal that I tend to purchase many antiques from a relatively small number of dealers.
My conversations with hundreds of antique dealers regarding buying and selling patterns confirm that my buying and selling habits are typical.
Dealers buy and sell wherever they can, but each dealer forms personal business relationships with a small number of buyers and sellers. This small number of individuals then becomes the nucleus of that dealer’s antique business.
In the world of Real Estate, the secret is location, location, and location. It is nearly impossible to make a bad real estate purchase if the property is in a desirable location.
In the antique marketplace, the secret is price, price, and price. It is nearly impossible to make a buying mistake if you buy cheap. Buy low-end merchandise at 10 cents on the dollar. Avoid mid-level merchandise until you have many years experience in the antique trade. There is simply too much mid-level merchandise on the marketplace and too many dealers willing to handle this level of merchandise for a 10 percent profit.
Experienced dealers can pay 80 to 150 percent of current value to buy high-end merchandise. In fact, it is often necessary to pay two or three times the current perceived value to buy the best.
There is no top re-sale price on high-end merchandise. However, the pool of potential buyers becomes smaller as the price increases.
Remember, the only controllable factor available to the antique dealer in the Secondary Marketplace is re-sale price. Therefore, purchase price must be a consideration in every buying decision.

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