I knew a couple guys who owned hobby shops--both tanked. The main reason was with competion from the wholesalers and suppliers, who also sell directly, and at a discount--to the public. folks wold come in, scrutinize a kit, then order it online. Prices, which used to be reasonable--have skyrocketed...even accountig for inflation, kits that used to cost well under a dollar in my youth, are now budget busters.
Another reason is that kid's don't build models much anymore. The average customer in both stores was around 60--retired folks, with time and money to spare. This leads to the next part--customer saturation. You can only build and display so many models, before the spouse starts getting tired of seeing them or the house fills up. And, there is only a small segment of the population who enjoys building kits--the trend is toward complete--right from the box--especially in rail models and the populatrity of the new, high quality die cast models.
The only hobbby shop in our town that has lasted (and it goes back nearly fifty years, that I remember) carries a little bit of everything, including lots (3/4 of the store) of art and craft supplies. They also offer classes, mainly for women, in all the different crafts, like oil painting, scrapboking, stained glass, etc. One corner is devoted to 'guy things'--but good stuff--they used to sell Unimats, for example, back when--and a good, although limited selection of planes, RC, ships, armor, you name it. If they had to depend on that quarter of the store, they'd have tanked long ago, too. I make it a point to stop in and buy books, glues, paints, brass--whatever I need-- often. It's a serious resource I'd hate to lose. Support your local hobby shop.
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