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Running a Risky Business

Running a Risky Business – Business of Doing Business – The Journal of Antiques and Collectibles – June 2006
By Ed Welch
The antique trade is a risky business. The most basic form of capitalism. A dealer pays his or her money to buy an item with no guarantee of profit and no guarantee against loss. Some businesses, even large corporations, have a type of safety net provided by our government at no charge. If we have bad weather such as a lack of snow as we experienced this winter in the Northeast, businesses that depend on snow to sell their product or service look to the federal government for a bailout. Ski resorts, businesses that sell snowmobiles, businesses such as restaurants and motels that provide goods to snowmobilers and skiers have come to expect financial help from the government.
On Monday October 29, 1987, the Dow Jones Average fell 22.6 percent. In the days that followed, stock markets in Australia fell 41.8 percent, Canada 22.5 percent, Hong Kong 45.8 percent, and the UK 26.8 percent.
On that day, I owned 23 major pieces of antique furniture. Each piece cost thousands of dollars. It took five years for the market to rebound. As a full-time dealer, I must generate income to pay family living expenses. I was forced to sell, at a loss, all 23 pieces before the antique marketplace recovered. In total, I lost in the tens of thousands of dollars.
In 35 years as an active antique dealer, I have experienced three periods of low sales due to the state of the economy as a whole. I run an active antique business that generates substantial federal, state, and local taxes. During my three periods of depressed business, no federal, state, or local government offered to help me. To be frank, I like it this way.
When I buy an antique or you buy an antique, think of the risk we are taking. When we buy antiques, we are betting money that the item we are buying is not a copy or a clever fake. We are betting that the price we pay is low enough to allow us to cover all the cost of handling this item and provide a profit.
We are betting that the antique trade, as a whole, will remain stable or increase during the time we hold this item in inventory. We are betting that this item will not fall from favor while in our inventory. We are betting that potential buyers will not lose their jobs. We are betting that Country Living magazine or Martha Stewart will not recommend a completely different type of item.
In the early 1980s, Canadian bird traps made by the Indians of Quebec and northern Maine were all the rage. Prices soared from $2 each to nearly $100 each. Canadian bird traps are made from a round ash hoop laced in a checkerboard pattern with a rough twine. At the intersection of each square, a snare made of horsehair is attached. Canadian bird traps look good hanging on the wall. Dried herbs and flowers can he hung from the horsehair snares.
The bottom fell out of this market when people learned that the traps were used to catch songbirds for food. When Canadian bird traps were popular, I made many trips to northern Maine to buy, from Indian vendors, as many traps as possible. I also purchased as many Ash, Birch Bark, and Sweet Grass baskets as possible. I bought the baskets to help defray the cost of the buying trips.
When the bottom fell out of the bird trap market, I had nearly four-dozen in stock at an average cost of $35 each. I lost money on all but two of these Canadian bird traps. I kept the best two for my own personal collection.
Dealers who buy and hold merchandise from many months or years are taking a major gamble. I can think of hundreds of items that once sold for more money than they sell for today.
If you collect, chose the item carefully. If you collected Canadian bird traps in the 1980s, your collection would be worthless today.
The antique trade is money intensive and a gambling trade. It takes a lot of money to play this game.
I just returned from a two-week selling trip to North Carolina. On my way home, I visited shops in Virginia, West Virginia, and Pennsylvania. I spent a few thousand dollars in three days. All the items I purchased will take between three and five years to resell. When I buy items that I keep in inventory for more than 180 days, I pay only 10 cents on the dollar. My theory is that if I can make $9 for every $1 spent, I do not have to be correct 100 percent of the time. The odds are stacked in my favor.
Contrary to what you may think, it is relatively easy to buy items at 10 cents on the dollar. The current owners have tried to sell such items for a couple of years and are ready to bail out for any offer, even an offer that amounts to a loss.
In one shop, a shop that I visit several times each year, was a collection of one hundred similar items with an average price of $85. I had been watching this booth. My best guess is that the owners had sold just six items in the past year. I decided to make an offer on the entire lot. Full retail value was around $8,500. My standard offer on such lots is 10 percent, in this case, $850.
The shop owners called the dealer with my offer to buy the entire lot. I began my offer at $750 expecting some dickering. The dealer accepted my offer immediately. No doubt that he or she was ready to unload some dead stock.
Today, I spent nearly six hours cleaning 28 of these items. I took photographs of each item. My wife will make 28 web pages, one for each item. It will take a week of hard work for my wife and I to process the entire lot.
I expect to sell all the items in this lot for a gross income of $10,000. My cost was $750. I calculate my overhead expenses to be $1,800. I will spend $1,300 in advertising. My website receives two million hits each month for which I pay all the major search engines large sums of money.
My gross income, after expenses will be around $6,750. State and Federal income tax will be $2,100. Self-employment and FICA tax will be around $972. In my pocket profit will be $3,678.
Consider all the hours that my wife and I will spend cleaning each item, making web pages, answering emails, packing and shipping. The resale of this lot will require many hours of hard work. The reality is that this lot is typical of many lots that I purchase each year. Such lots provide us a good income, but they cannot be considered sleepers or even good deals. Had I paid half price, $4,000, for this lot, I would literally lose money reselling it.
All of the above assumptions are based on calculated risks. I am betting that the stock market will not crash in the next three to five years. I am betting that the demand for this item will remain constant or increase. I am betting that my customers will not lose their jobs. I am betting that terrorists will not succeed in their attempt to disrupt trade worldwide. I am betting that I will remain healthy and able to work. I will be more than 70 years of age when the last of this lot is sold.
Casinos and other gambling establishment have odds that favor the house as high as 35 to 1. This is the only way they can consistently make money. Operating a casino is not as risky as operated an antiques business.
Antique dealers must conduct their business in such a manner as to produce a profit margin of at least 6 to 1. If you gamble for a living, and the antique trade is gambling, the odds must be stacked in your favor.

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