Are “Basement Vendors” Ruining The Reefing Industry?

[Reefer Matt]

I am going to assume you have a business license. Wow things have really changed. I spoke to a very well-known wholesaler who will remain nameless. Called to ask about the rock situation. Told him I was setting up a tank for myself and understood he couldn't sell to me. This was less than three months ago. I was a distributor for many dry goods manufacturers. Twenty years ago and some of their minimum orders were $5000.00

Yes, I have an actual business, just very small. I only sell at local shows. Some of them definitely do require a store though, and I respect that. They are protecting their retail partners who they know will keep ordering regularly.

 

[BeanAnimal]

Basement vendors aren't the ones to be worried about. They are not direct competitors to LFSs. The LFS sells a much more varied set of goods, while the basement vendor only sells coral.

If vendors are worried about basement vendors, they have no one to blame but themselves. Coral naming and coral pricing have been out of control - and these are set by the big-name vendors themselves. If anything, basement vendors are making the prices come back down to baseline. I would rather buy a healthy, chunky frag from someone growing it out in their garage, than a big box coral store that sells a tiny nub of the same coral for twice the price.

A few notes - because you have it 100% backward.

Coral naming (mostly) started with Steve Tyree and Jason Fox. At that time LFS did not have named coral and people trading coral at home did not have "names" other than a few generics like "green slimer" or "pulsing sinularia". Both Steve and Jason were asking easily 10x more than the LFS for corals FRAGS while the LFS were still selling full colonies.

Your LFS was then talked into setting up a Tyree or Fox sales tank exclusive to their NAMED and VERY EXPENSIVE exotic corals.

From there the "basement coral" people started buying them and culturing them and naming corals for frag swaps which then turned the events from "swaps" into full blown traveling coral sales shows and the naming wars and prices exploded.

Your LFS was still selling full colonies and very few got into the "frag" business. Imports got more expensive, internet sales for hard goods exploded and your LFS found itself struggling to keep customers attention. So the LFS started selling frags too. They did not start the trend or set the prices, nor do they control it now. They are along for the ride trying to keep their heads above water and keep people coming with popular stuff.

Fish have become extremely expensive to import - so their prices have gone up and margins have disappeared. Dry goods prices have skyrocketed also and LFS are held to MAP pricing and competing with AMAZON and other places that get goods through backdoor distribution and undercut MAP. So dry goods and fish have smaller margins that ever, rent, utilities and labor have basically doubled in price so there is no margin. Coral frags are one of the few places they can make a little margin back. So no, some pressure from basement sellers is not going to drive coral prices down.

 

[BeanAnimal]

I will add this as well.

Those of you screaming about LFS prices... try actually shopping there and building a relationship. You would be amazed at what a business is willing to do for good customers.

And yes, there are certainly poorly run business out there and those that do not offer value-add or good customer service for their price (or any price). Most of those don't last too long though.

 

[miyags]

A few notes - because you have it 100% backward.

Coral naming (mostly) started with Steve Tyree and Jason Fox. At that time LFS did not have named coral and people trading coral at home did not have "names" other than a few generics like "green slimer" or "pulsing sinularia". Both Steve and Jason were asking easily 10x more than the LFS for corals FRAGS while the LFS were still selling full colonies.

Your LFS was then talked into setting up a Tyree or Fox sales tank exclusive to their NAMED and VERY EXPENSIVE exotic corals.

From there the "basement coral" people started buying them and culturing them and naming corals for frag swaps which then turned the events from "swaps" into full blown traveling coral sales shows and the naming wars and prices exploded.

Your LFS was still selling full colonies and very few got into the "frag" business. Imports got more expensive, internet sales for hard goods exploded and your LFS found itself struggling to keep customers attention. So the LFS started selling frags too. They did not start the trend or set the prices, nor do they control it now. They are along for the ride trying to keep their heads above water and keep people coming with popular stuff.

Fish have become extremely expensive to import - so their prices have gone up and margins have disappeared. Dry goods prices have skyrocketed also and LFS are held to MAP pricing and competing with AMAZON and other places that get goods through backdoor distribution and undercut MAP. So dry goods and fish have smaller margins that ever, rent, utilities and labor have basically doubled in price so there is no margin. Coral frags are one of the few places they can make a little margin back. So no, some pressure from basement sellers is not going to drive coral prices down.

I remember the days going to LFS to buy whole colonies or zoa rocks any color $30 first come first served..Jason Fox, the original basement seller, literally..LOL

 

[Reefer Matt]

I will add this as well.

Those of you screaming about LFS prices... try actually shopping there and building a relationship. You would be amazed at what a business is willing to do for good customers.

And yes, there are certainly poorly run business out there and those that do not offer value-add or good customer service for their price (or any price). Most of those don't last too long though.

I absolutely agree with this. I trade a lot of coral in to my lfs as well, and usually hang out for three hours every time I visit. But I can talk tanks with anyone.

 

[Derrick0580]

I don’t think lfs are necessarily “greedy” so much as their wholesalers are! I’ve seen my lfs wholesale lists and prices and it’s absurd what some corals wholesale at now vs retail when I first started this hobby! Equipment pretty much holds a steady cost across the board, yet certain wholesalers have a higher cost to the lfs which leaves very little room for profit. Obviously they only order from said wholesalers as a last resort. Maybe the sheer volume isn’t what it used to be? As with most major businesses they have to keep their shareholders happy and refuse to take a loss on anything even if it means raising prices on already over priced stuff! Look at mcdonalds, they are forced to pay some kid $15-$20 an hour to screw up a big mac, which in turn made the 99 cent cheeseburger now $2.99 because “we aren’t losing any profit!”

 

[Sumbub]

I absolutely agree with this. I trade a lot of coral in to my lfs as well, and usually hang out for three hours every time I visit. But I can talk tanks with anyone.

I still go into stores whenever I'm free to visit and see where the current state of how they're run and talking tanks for a long time. Building those relationships are really important and will get you a great working relationship when you're in need of something or a emergency arising.

 

[BrokenReefer]

Do people consider Jason Fox a basement vendor since he doesn’t have a brick and mortar? Or BattleCorals?

It may help to clarify the term basement vendor - is this to mean a legitimate business selling from a non-traditional retail location? Could be online only, could be auction site only, eBay only, FB marketplace only? If that is the case my opinion is below:

My opinion on this is simple. Supply and demand. LFS offer dry goods and services that a “basement” vendor may not offer. There is place in the market for both, what I have seen is more niche corals being offered from so-called basement vendors. Brick and mortar need to carry items that will turn over, a colony of slow growing finicky Tenius may fetch a high price per unit but the churn on that dollar is less as compared to GSP which are far cheaper but move much faster.

However; if the term is meant as a perjorative then I find it a bid disconcerting that this was even broached. And for what it’s worth I don’t believe this to be the case so I’m not going to expand on it.

Business’ need to make money, people are entitled to earn a living when they own a business. i think the younger generation misunderstands what it means to own a business and are beguiled by whomever is feeding them nonsense that all business owners are price gouging.

Inflation is real.

Things just cost MORE, including rent/insurance/utilities. Those are fixed expenses that are part of the overhead burden that gets passed along, nothing in life is free.

 

[Sumbub]

I don’t think lfs are necessarily “greedy” so much as their wholesalers are! I’ve seen my lfs wholesale lists and prices and it’s absurd what some corals wholesale at now vs retail when I first started this hobby! Equipment pretty much holds a steady cost across the board, yet certain wholesalers have a higher cost to the lfs which leaves very little room for profit. Obviously they only order from said wholesalers as a last resort. Maybe the sheer volume isn’t what it used to be? As with most major businesses they have to keep their shareholders happy and refuse to take a loss on anything even if it means raising prices on already over priced stuff! Look at mcdonalds, they are forced to pay some kid $15-$20 an hour to screw up a big mac, which in turn made the 99 cent cheeseburger now $2.99 because “we aren’t losing any profit!”

It's not necessarily losing profit compared to having a overhead rising above where your margins held to make a profit. We don't know where the red line is for Mcdonalds in your example but I'm certain that the margins were not built to handle a 50-100% pay raise to all employees on minimum wage. That's a whole different discussion here.

 

[HomebroodExotics]

Do people consider Jason Fox a basement vendor since he doesn’t have a brick and mortar? Or BattleCorals?

It may help to clarify the term basement vendor - is this to mean a legitimate business selling from a non-traditional retail location? Could be online only, could be auction site only, eBay only, FB marketplace only? If that is the case my opinion is below:

My opinion on this is simple. Supply and demand. LFS offer dry goods and services that a “basement” vendor may not offer. There is place in the market for both, what I have seen is more niche corals being offered from so-called basement vendors. Brick and mortar need to carry items that will turn over, a colony of slow growing finicky Tenius may fetch a high price per unit but the churn on that dollar is less as compared to GSP which are far cheaper but move much faster.

However; if the term is meant as a perjorative then I find it a bid disconcerting that this was even broached. And for what it’s worth I don’t believe this to be the case so I’m not going to expand on it.

Business’ need to make money, people are entitled to earn a living when they own a business. i think the younger generation misunderstands what it means to own a business and are beguiled by whomever is feeding them nonsense that all business owners are price gouging.

Inflation is real.

Things just cost MORE, including rent/insurance/utilities. Those are fixed expenses that are part of the overhead burden that gets passed along, nothing in life is free.

this is true. And it’s also true that just because someone has a business doesn’t mean that people will buy from them. Going out of business and getting another job is a fact of life that “business owners” refuse to accept.

 

[Reefer Matt]

Do people consider Jason Fox a basement vendor since he doesn’t have a brick and mortar? Or BattleCorals?

Pretty much, yes. But they are highly respected vendors, imo. To me, a vendor is someone who owns a legitimate business that doesn’t have a permanent, open to the public store. A LFS is a permanent location open to the public. Opinions may vary on that. But all vendors should be registered and licensed for sales taxes. Otherwise it’s an unregistered hobbyist selling their corals, which is an entirely different playing field.

 

[maroun.c]

Great topic,
I feel it should the other way around and basement sellers should be more expensive that LFSs if they really wanted to run a profitable side gig and rightfully....

Lfs while a great thing to have, can't maintain the level of scrutiny a basement seller (small to medium size at least ) can have at least in pest control and individual care for each frag. They've typically grown a colony from.a frag so they know anlot about it whereas LFS is typically about importing colonies and reselling directly typically multiplying the landed price by around 10 in my area to cover DOA and costs. You have to separate the frag selling part of LFS from it's normal LFS business and think of it as a basement seller in the lfs and most LFS have gone that way in US as u don't see much wild colonies being sold for 30 usd at least in LFS I visited when I visit the US (I could be totally wrong )

Another aspect for pricing why basement seller would need to more expensive is:
LFS gets an average priced colony for say 30 usd from origin, landed price is about 40ish now he goes and shops it into 30-40 frags and sells each for at least 40 usd imagine the profit. His DOA is covered by provider or at least made up for in coming shipment. I'm not sure if LFS declare taxes on all frags but let's assume decent business practice and that they do ...
A basement seller gets 10 frags, about 10 percent is lost in the first few days in QT (normal ratio I see with reefers buying frags and quarantining ) and another 20-30 percent is lost while growing to a Size they can frag. That basically adds 50 percent to their cost, add to that the cost of growing that coral as the overall.cost of running a tank with limited number of corals get higher and then all of a sudden that frag sold for 40 bucks months later isn't nearly profitable business at all. It's a quick buck yeah and many are happy to have it to offset the cost if running their tanks but I don't really think basement sellers are as profitable as LFS and if they review their pricing policy they should multiply their prices by 5-10.
An LFS get a load of business from aquarium setups (where I am we have more tanks built than ready made tanks )
They normally have large maintenance business, very very healthy margin and volume on lighting and other equipment.... crazy margin on fish and corals shipments on top.
I'm not saying LFS is easy to run or should sell cheap but at least they shouldn't be complaining of they're running their shop well.
One last thing I always say and many disagree with, this hobby should be a luxury hobby abd should be very expensive to limit people nottaking their utmost care ro have a perfect setup for that fish or coral we end up killing as our setup isn't there. We all have losses and buckets of dead corals for our walk of shame yet if they are expensive enough to replace we would definitely take more care, test more often and make sure all is in place before adding fish or corals so cheaper is definitely not better in or for this hobby IMHO.

 

[BrokenReefer]

Pretty much, yes. But they are highly respected vendors, imo. To me, a vendor is someone who owns a legitimate business that doesn’t have a permanent, open to the public store. A LFS is a permanent location open to the public. Opinions may vary on that. But all vendors should be registered and licensed for sales taxes. Otherwise it’s an unregistered hobbyist selling their corals, which is an entirely different playing field.

That definition is how I understood your intent, thanks for clarifying.

 

[BeanAnimal]

Do people consider Jason Fox a basement vendor since he doesn’t have a brick and mortar? Or BattleCorals?

That is where they started. Those two examples have certainly grown into full size operations. Well at least Battle Corals, I honestly have no Idea how big or small Jason is these days. But both are certainly different than some guy with a frag tank in his basement selling on tiktok or a swap or two or whatever.

Business’ need to make money, people are entitled to earn a living when they own a business. i think the younger generation misunderstands what it means to own a business and are beguiled by whomever is feeding them nonsense that all business owners are price gouging.

Inflation is real.

Things just cost MORE, including rent/insurance/utilities. Those are fixed expenses that are part of the overhead burden that gets passed along, nothing in life is free.

Yep - and the vast majority of the people that use the word "price gouging" have absolutely no idea what it really means.

And most people that complain about being overcharged by an LFS or a hardware vendor (GHL, EcoTech, whatever), don't own or have never owned a business to understand how little profit there really is when everything is said and done. Nor do they understand that "alibiba" pricing is not a realistic measuring stick against legitimate US or EU owned and operated business that follow wage, tax, environmental, IP, ethical and business standards. They are literally operated as an arm of the Chinese government and aimed at dominating the long term global market for goods by putting all competition out of business by any means necessary.

 

[HomebroodExotics]

That is where they started. Those two examples have certainly grown into full size operations. Well at least Battle Corals, I honestly have no Idea how big or small Jason is these days. But both are certainly different than some guy with a frag tank in his basement selling on tiktok or a swap or two or whatever.


Yep - and 99.9999999% of the people that use the word "price gouging" have absolutely no idea what it really means.

And most people that complain about being overcharged by an LFS or a hardware vendor (GHL, EcoTech, whatever), don't own or have never owned a business to understand how little profit there really is when everything is said and done. Nor do they understand that "alibiba" pricing is not a realistic measuring stick against legitimate US or EU owned and operated business that follow wage, tax, environmental, IP, ethical and business standards. They are literally operated as an arm of the Chinese government and aimed at dominating the long term global market for goods by putting all competition out of business by any means necessary.

You are completely correct about China. We’ve just done an absolute terrible job of handling everything. Business owners are not the good guys either though.

 

[Gregg @ ADP]

LFSs either adapted to the new marketplace, or were undercut by the boutique coral vendors. We were lucky and saw this coming many years ago, so were able to stay out in front of it.

We aren’t an LFS, but rather a design/install/manage service. As such, our overhead structure is much different. That allowed us to begin culturing coral at our facility that we then used to supply our customers. We initially had to pay supplier prices for colonies, but eventually had our own colonies. Then the coral did what coral does.

This allowed us to begin culturing coral to offer to our customers at far lower prices than they would find at an LFS, but still allow us make a profit. We’re also far enough ahead in the game where we can just give coral away to clients as a reward for their continued business. And when we get a new client, we can do things like throw in $500 or $1000 worth of free coral after the aquarium is set up.

I feel like that’s as close to ‘everybody wins’ as you can get in this business.

 

[BeanAnimal]

Thanks for the thoughtful response Gregg.

 

[PharmrJohn]

We can get into specifics if you wish and Whales is not the US but retail is relative.

A 1,500 retail fish store with (4) employees would cost $500,000 to $600,000 per year in overhead (rent, utilities, consumables, professional fees, etc.) Before any taxes, profits or losses (shrink) are accounted for and considering $20K or so loan repayment on a $100,000 loan used to open the business.

That is close to $1600 per day in gross sales just to break even.

The owner did this instead of having another 9to5 so let's assume he needs $100K a year (before taxes) out of the business. Add another $250 per day.

Account for shrink from theft, dead livestock, returns, expired or damaged good, etc. Livestock death is a huge factor, but let's lowball and go 5% total shrink.
That is another $80 per day.

So that business needs to do $1930 in business every day (assuming they are open 7 days a week) just to keep the doors open and we have certainly not covered all of the expenses.

So yes your $50 frag is more expensive at the LFS than it is from some guy living in his parents basement, or from an online vendor who pays lower overhead in non retail space using fewer resources.


Absolutely - most do custom work and maintenance. The maintenance is RMR that can be counted on with add on sales as things ore consumed and need to be replaced.

When I was about 8 years old, my buddy and I decided we were gonna open a coin shoppe. We drew up a business plan on a sheet of paper and figured out that we'd only have to sell something like $5 a day worth of coins. I remember thinking about the cost of rent, and I think we calculated that to about $100 per month. LOL, we kinda forgot about our income! Another thing I can remember was that SOMETHING was wrong with our math. Just couldn't figure it out!

 

[SanFernandoValleyAIOReef]

We can get into specifics if you wish and Whales is not the US but retail is relative.

A 1,500 retail fish store with (4) employees would cost $500,000 to $600,000 per year in overhead (rent, utilities, consumables, professional fees, etc.) Before any taxes, profits or losses (shrink) are accounted for and considering $20K or so loan repayment on a $100,000 loan used to open the business.

That is close to $1600 per day in gross sales just to break even.

The owner did this instead of having another 9to5 so let's assume he needs $100K a year (before taxes) out of the business. Add another $250 per day.

Account for shrink from theft, dead livestock, returns, expired or damaged good, etc. Livestock death is a huge factor, but let's lowball and go 5% total shrink.
That is another $80 per day.

So that business needs to do $1930 in business every day (assuming they are open 7 days a week) just to keep the doors open and we have certainly not covered all of the expenses.

So yes your $50 frag is more expensive at the LFS than it is from some guy living in his parents basement, or from an online vendor who pays lower overhead in non retail space using fewer resources.


Absolutely - most do custom work and maintenance. The maintenance is RMR that can be counted on with add on sales as things ore consumed and need to be replaced.

1500sq ft space in Los Angeles is about 5k a month plus insurance & electric, & misc another 5k so 10k a month, 4 employes, 2 a day @ 8hr a day for 30 days @18$a hour is 8640 a month. Let’s round that up to 10k
So far 20k plus another 5-10k for loans & nutrients & consumables .

So a small store like the one you’re talking about is about half the operating costs you mentioned.

Still high considering this is a smaller market than most

 

[polyppal]

I think any future growth of this hobby will depend on prices coming down to earth, both for equipment and livestock.

I remember when they were selling CSBs for $1000 a few years ago, and nowadays I can pick one up in CO for $200-250 all day.

I think it’s great when the price gatekeepers (who I believe hinder the hobby) are undercut.

Ultimately these corals are only worth what someone is willing to pay, let the market dictate the price - not some hypebeast seller.