The LFS business model...

JasonC

Members
So with the announced closing of Exotic Aquatics, I have been able to witness 3 of my 4 favorite LFS's close since getting into this hobby. Know others have probably seen way more, but I have also only been in for 2 going on 3 years.

So something I have been thinking about for a while, and thought I would share here to see if I can spark some discussion, and perhaps action: "Is the LFS business model outdated, and completely unable to co-exist with big box pet stores?"

The main discussion that I see occurring over and over is a dialogue that goes something like:

"Shame on you for not buying product/fish X from your LFS! They need our business to stay open!"

"But its so much more expensive there then at BigBox/Internet.com/ClubAuction!"

"So what! Is that place going to be there late one evening when you need medicine/emergency filter/food/whatever? What are you going to do when you are in the weeds and your LFS's are all gone??"

"But I still cant afford to shop there!"

"Harumph!"

"Bah! Crumudgeon!!"
Okay... oversimplification, but the spirit is still there. Bottom line, is that the internet sites, and big boxes are here to stay, and they are always going to have the leverage to be able to provide a huge selection at very low prices... its just sheer buying power on their part. But what have LFS's done to counteract this? I dont know the answer to this... so would love to hear opinions.

The way I see it, there is possibly a way to start to stem the tide and give the LFS's somewhat of an edge again. I point to 2 different sectors of retail... Hardware and Drugstores.

Both of these sectors have the same tradition of Local, privately owned businesses being outdone by the "Big Box" phenomenon... Lowes, Home Depot, CVS, Wallgreens, RiteAid, and every grocery store with a pharmacy department. Both have suffered huge losses as far as these private, local stores going out of business, and both countered in somewhat the same way: Banding together in a loosely (or not so loosely) formed co-operative to give them the customer base and buying power to compete with the big boys.

Two examples... Ace Hardware, and Epic pharmacies. Both are comprised of local owned stores that have teamed together in one way or another. Ace hardware tends to be a lot more corporate centric in that they are given inventory to shelve, sales, advertising, etc. Epic, for what I know of them, is a lot less structured, and more focused on the local level.

Both stores are much more known for their customer service than anything else. My sister-in-law works for a hardware store that bought into the Ace family a good while ago. Ask any of their loyal customers, and the number 1 reason they go to an Ace store is because they have employees that are trained, knowledgeable, and actually give a crap about what they do for a living. All things considered, might this be a potential path for LFS's?

Now I know that most LFS's would never buy into changing their name and turn over stocking decisions to a corporate headquarters, but is there a middleground somewhere between that and totally disjointed stores? Could deals be made with Tetra, for instance, to buy multiple pallates of food at a price comparable to what PetSmart/Co can buy at which can then be disseminated through a (potentially nationwide) network of LFS's that all want to get their hands on the product? Why should each LFS enter into negotiations separately to buy product instead of teaming up to create strength in numbers? Same for livestock. If 10 LFS's are buying 100 Neon Tetras at a time, would a wholesaler be willing to sell 1000 for a smaller per fish price, knowing that they will be sold, and, maybe wholesaler x could grab business from stores that may have been in wholesaler Y's domain before? I cant imagine that the prospect of access to a large number of stores wouldnt be enough to spur some competition. For that matter, isn't that exactly what we do with our group buys? Negotiate a discount and combine shipping with the promise of a large sale so that we can lower our per fish cost?

Or maybe I am totally off my rocker? I don't have any formal business training, nor do I really know how the fish industry works, but these are my frustrated observations. I would LOVE to see some responses and opinions come from this post. I know there are former/current LFS owners/workers on this forum, and I would especially like to hear their opinions on whether or not the independant LFS model is still feasable in todays market?

Thanks for letting me pollute your eyes for a few seconds!
 

longstocking

Members
In all honesty, IMO it's knowing who your are marketing to and location that makes a fish store work. Hiring people that know what they are doing and not kids in high school helps as well. I know I work at HOT and I am biased but before I even worked there I had these opinions. They are easily accessed to the metro, close to foot traffic ( Fast Food ), central to DC and Baltimore and in an area that doesn't cost a fortune. They listen to their customers and bring in fish they request.... know who they are marketing to etc... They do have a couple young kids at the moment but they are willing to learn. No, we don't know everything about every fish in the store... but there are a couple salt water guys, two cichlid people, discus etc guy, betta guy... etc. We all have our specialties.

The reason they are successful IMO.... are location and knowing who they are selling to. Also, the owners are hands on and will trade/ work out deals/ and in general are very fun and friendly to their customers.

If you don't have those things... location, and marketing... you are not going to succeed.

It's not a thing of the past because even your advanced hobbyists need certain supplies etc. I buy black worms for instance.... and other oddball things. No, I don't buy fish but I support them in other ways ( Heck I rarely buy fish at auctions :lol: )

On another level it's havin long time good relationships with the wholesalers... if you don't have that you will have problems. I know of one of the best stores around here that closed due to a lack of this ( wasn't their fault... someone else's ) ( It was one of the reasons, not all ).

Originally EA's major market was salt water. They moved to an area where salt water wasn't selling... that was one of the biggest problems.
 

dogofwar

CCA Members
Some stores are actually franchises (e.g. Aquarium Adventure and Petland...although their focus is selling puppies).

The downsizing of the LFS marketplace / big box stores caused the fish/supply wholesale marketplace to contract as well. That local infrastructure, for the most part, no longer exists. I remember when there were at least two wholesalers competing to supply all of the LFS in (my hometown) of Dayton, OH with fish. Now there are none. And there has, of course, been massive consolidation in the companies who make aquariums and supplies (2 main companies).

I don't believe that running an LFS has ever been a hugely profitable enterprise. The family who ran Capitol Aquarium in Sac'to lived above it. And what you propose only addresses part of the equation (lowering supply costs). What about growing revenue...margins?

I think that the bottom line is that more advanced hobbyists enjoy decent service but aren't willing to pay for it.

A side effect of all of the financial pressure on the remaining LFS is to cut: Cut staff overall, cut staff who want more than minimum wage (i.e. people who know what they're talking about), cut selection, etc, etc. A downward spiral...

My concern is that whole generations of people won't have the foundational knowledge that (in the past) they'd get from an LFS to become successful hobbyists (or to even want to keep fish). They're not gonna get that from Petsmart or Wal-Mart. And that kills the hobby.

I'd like to think about how clubs like ours can make a difference...

Matt
 

Hawkman2000

Members
It almost sounds like the end is coming to the true aquaronuaght. Its very similar to what happened to the computer hobbyist. Local computer stores, and even companies like CompUSA are gone. 12 years ago, most of the people I knew that had computers either built them themselves, or had a friend or family member build it for them at a lower cost than one from dell or HP. Even having one built from a local comp shop was cheaper. Now all the LCSs are gone, and all we have is DorkSquad at WorsteBuy.

IMO its the state of our economy. Its a problem in just about every field. People don't get paid enough to spend money - Businesses aren't selling enough to pay decent wages (or they are just greedy, importing *******s) - low wages means lower quality customer service and people don't have enough extra money to spend.

And round and round we go, swirling down the toilet.
 

dogofwar

CCA Members
Which speaks to the role that a club like ours could (does) play in facilitating commerce outside of traditional businesses.

I'm especially heartened with the amount of trading, sharing, cooperating, and other activities that aren't profit-motivated...in our club.

Matt


It almost sounds like the end is coming to the true aquaronuaght. Its very similar to what happened to the computer hobbyist. Local computer stores, and even companies like CompUSA are gone. 12 years ago, most of the people I knew that had computers either built them themselves, or had a friend or family member build it for them at a lower cost than one from dell or HP. Even having one built from a local comp shop was cheaper. Now all the LCSs are gone, and all we have is DorkSquad at WorsteBuy.

IMO its the state of our economy. Its a problem in just about every field. People don't get paid enough to spend money - Businesses aren't selling enough to pay decent wages (or they are just greedy, importing *******s) - low wages means lower quality customer service and people don't have enough extra money to spend.

And round and round we go, swirling down the toilet.
 

longstocking

Members
Unless you are all coming in and avoiding me during the hours I work :p :p :p (I do work during normal business hours though... off before dinner)

There are not enough CCA members coming in :p :p :p :p I get lonely!

HOT pays me more that I was expecting :lol: Now, I don't do it for the money or I would be VERY sad :lol: It's not every store... but I agree that most of the stores I have seen run do not have the correct model. Also, hobbyists do not make good busniess people in general... it just doesn't work. They think with their heart and not their brains.

If anyone is thinking about opening a store.... have 5 years of captital saved up before you do it. Most small busniesses do not succeed unless they have it. EA was a rare store. They made a good profit before they moved... In general ran things correctly, I think it was just location this time around.
 
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JasonC

Members
I don't think your opinion is biased at all... frankly, you were one of the people I was specifically hoping would respond. Its the insiders view that I would most like to understand.

I agree with your opinions on what makes a "successful" or "not successful" store, but more in a broad sense as these seem to be general to all retail businesses. The problem is that this doesn't have as much to do with what makes a "good" or "not good" store. So why is it that these terms have been decoupled... why is it that the "good" stores are the ones that are becoming "unsuccessful" and the "not good" stores somehow are able to retain at least enough success to keep their doors open and water in their tanks?


In all honesty, IMO it's knowing who your are marketing to and location that makes a fish store work. Hiring people that know what they are doing and not kids in high school helps as well. I know I work at HOT and I am biased but before I even worked there I had these opinions. They are easily accessed to the metro, close to foot traffic ( Fast Food ), central to DC and Baltimore and in an area that doesn't cost a fortune. They listen to their customers and bring in fish they request.... know who they are marketing to etc... They do have a couple young kids at the moment but they are willing to learn. No, we don't know everything about every fish in the store... but there are a couple salt water guys, two cichlid people, discus etc guy, betta guy... etc. We all have our specialties.

The reason they are successful IMO.... are location and knowing who they are selling to. Also, the owners are hands on and will trade/ work out deals/ and in general are very fun and friendly to their customers.

If you don't have those things... location, and marketing... you are not going to succeed.

It's not a thing of the past because even your advanced hobbyists need certain supplies etc. I buy black worms for instance.... and other oddball things. No, I don't buy fish but I support them in other ways ( Heck I rarely buy fish at auctions :lol: )

On another level it's havin long time good relationships with the wholesalers... if you don't have that you will have problems. I know of one of the best stores around here that closed due to a lack of this ( wasn't their fault... someone else's ) ( It was one of the reasons, not all ).

Originally EA's major market was salt water. They moved to an area where salt water wasn't selling... that was one of the biggest problems.
 

JasonC

Members
Didnt realize Petland was a franchise setup. That being said, I think that I was thinking something a little less associated.. I think that part of the charm of the LFS is its individual personality; and that should be retained.

Its problematic that the wholesalers are becoming more and more rare.. basic laws of supply and demand shows that is not going to help the situation at all... the less competitors, the more control over pricing the remaining wholesalers have. That being said, is there still room in the market for real competition to still occur, or are the conditions just not favorable for that anymore?

re: the profitability of LFS's, I would be interested in seeing what kind of profit margin a LFS can expect versus the big boxes fish sections. Are they equitable? Are big boxes carrying a fish section only to look complete, or have they been able to figure out a way to make fish/supplies profitable? What can we learn from this? Again, I have to wonder about buying power? do they just have the advantage with vendors because they are buying for a several hundred (thousand?) location chain versus one local store that only sees 20 or 30 people through their doors a day?

LFS's seem to be at such a disadvantage since it is a limited target market... but then again, it is a target market that is exceedingly loyal from what I have seen.. and is one who is willing to cross even state lines in order to visit the good stores.... you cant say that about too many sectors in retail.

How can clubs make a difference? I would hate to think that our only place is to guilt members into only buyig their goods from the current favorite LFS. What else can we do? How can we add value to LFS's that cannot be met by the big boxes? Volunteering to hold workshops for beginners *in store*? Other ideas? Just don't know how else a volunteer organization can/will help a for profit entity?

Some stores are actually franchises (e.g. Aquarium Adventure and Petland...although their focus is selling puppies).

The downsizing of the LFS marketplace / big box stores caused the fish/supply wholesale marketplace to contract as well. That local infrastructure, for the most part, no longer exists. I remember when there were at least two wholesalers competing to supply all of the LFS in (my hometown) of Dayton, OH with fish. Now there are none. And there has, of course, been massive consolidation in the companies who make aquariums and supplies (2 main companies).

I don't believe that running an LFS has ever been a hugely profitable enterprise. The family who ran Capitol Aquarium in Sac'to lived above it. And what you propose only addresses part of the equation (lowering supply costs). What about growing revenue...margins?

I think that the bottom line is that more advanced hobbyists enjoy decent service but aren't willing to pay for it.

A side effect of all of the financial pressure on the remaining LFS is to cut: Cut staff overall, cut staff who want more than minimum wage (i.e. people who know what they're talking about), cut selection, etc, etc. A downward spiral...

My concern is that whole generations of people won't have the foundational knowledge that (in the past) they'd get from an LFS to become successful hobbyists (or to even want to keep fish). They're not gonna get that from Petsmart or Wal-Mart. And that kills the hobby.

I'd like to think about how clubs like ours can make a difference...

Matt
 

JasonC

Members
And what do you all think about other business models? For instance, the Proflowers.com model (National sales distributed to local flowershops for fullfilment), or even the good ol' fashioned Hippy Mart food Co-op? What can we learn from these?

Would be interesting to see if the LFS market would support a major online retailer sending orders down the pipeline for local fulfilment/pickup?

Not sure if the Co-op model would work since it is not nessisarily a for-profit business model... but what can be learned from it? would it help or hinder a LFS to offer some of the features of a Co-op...IE: come in for a few hours to help dip fish and maybe be a field expert and earn some store credit for your next purchase?

Or what about consignment shops? would there be any benefit to reserving a bank of tanks for local breeders to sell their fish on consignment? Or would the costs of the LFS caring for the fish outweigh any comission that could be reasonably be asked for on the sale?
 
There are a lot of factors that are causing the demise of the brick and mortar LFS.

1. Many LFS were started by hobbyists who may be great hobbyists but aren't good businesspeople. (this was going on way before recent times).

2. Competition from online and big box stores has taken all the profitability out of selling dry goods. This used to be the lifeblood of a lfs and now it is a loss leader at best. A LFS does not have the buying power to buy direct like the big box and online stores can and must buy through a distributor. That distributor has to make money too so they have a margin on the products. In some cases the online dealers can sell for less than what the dealer can buy it for from their distributor. MAP pricing is very difficult to enforce for any manufacturer.

There are only two things where the lfs still maintains profitability and value to teh consumer over the big box and online. Aquariums and fish. And both of these are due to the high cost of freight for individual shipments. But both of these have problems that affect their volume.
Aquariums are generally sold at low margins in order to get the ancillary sales in high margin items (food, fish, water care) that go with them. It doesn't work if someone buys their tank from the lfs and then goes and buys all the high margin items from elsewhere. The store loses as it had to inventory the tank which takes up valuable floor space and their blended margin goes down as they sell more low margin items and less high margin ones.

Fish are the other big problem. It requires a high overhead to maintain the fish in the tanks compared to a can of food on the shelf. But because the freight on a large order is so much less than the individual can buy it for they can sell the fish at market prices and still have a good margin. The problem is that the LFS is no longer the destination for the new hobbyist and the big box stores are. As people advance in the hobby they tend to go from buying fish from stores to buying fish from breeders, swaps, auctions, online, etc... and the LFS gets left out. So the LFS is no longer seeing the beginner and they are not seeing the advanced hobbyist either. Kind of leaves them in the cold. It also doesn't help that 9 out of 10 aquariums purchased in the U.S. are no longer setup 12 months later. While online and BB stores have definitely gotten more people into the hobby, they have definitely contributed to the high attrition rate by not giving people the advice and knowledge required to be successful which is what the LFS used to be a resource for.

Lastly don't forget that an aquarium is a luxury item and in tough economic times people spend less on nonessentials. This makes business all that much harder for the LFS struggling to survive.

It's a shame as I enjoy shopping at LFS and I support several stores in my area with regular purchases but it may just be delaying the inevitable.

Andy
 

mchambers

Former CCA member
IMO its the state of our economy. Its a problem in just about every field. People don't get paid enough to spend money - Businesses aren't selling enough to pay decent wages (or they are just greedy, importing *******s) - low wages means lower quality customer service and people don't have enough extra money to spend.

And round and round we go, swirling down the toilet.
Although I agree that the current economy does not help, local fish stores have been closing since before our current economic problems. I think it is due to a number of factors beyond the economic situation.
 

dogofwar

CCA Members
Excellent analysis, Andy.

The question for them is: Where is the profit in the business model? I think the answer, incidentally, is maintenance services and having a parallel online business (so why even have a storefront?).

The question for us is: How can we (CCA) divert some fraction of the 90% of people who try to become aquarists and fail...into fish geeks...err...enthusiasts like us? Why is this important for us? It brings new members, energy and growth potential to the club...and the next generation of hobbyists.

I like Jason's idea of beginner classes...I just haven't thought of a good venue (I've done library classes and classes at Tropical Fish World in Gaithersburg...RIP). How about more beginner-focused speakers at our meetings? Other ideas? As an aside, I think we're all beginners at something so just because topics are basic doesn't mean that someone who's been keeping fish for 30 years wouldn't be interested...

Matt

There are a lot of factors that are causing the demise of the brick and mortar LFS.

1. Many LFS were started by hobbyists who may be great hobbyists but aren't good businesspeople. (this was going on way before recent times).

2. Competition from online and big box stores has taken all the profitability out of selling dry goods. This used to be the lifeblood of a lfs and now it is a loss leader at best. A LFS does not have the buying power to buy direct like the big box and online stores can and must buy through a distributor. That distributor has to make money too so they have a margin on the products. In some cases the online dealers can sell for less than what the dealer can buy it for from their distributor. MAP pricing is very difficult to enforce for any manufacturer.

There are only two things where the lfs still maintains profitability and value to teh consumer over the big box and online. Aquariums and fish. And both of these are due to the high cost of freight for individual shipments. But both of these have problems that affect their volume.
Aquariums are generally sold at low margins in order to get the ancillary sales in high margin items (food, fish, water care) that go with them. It doesn't work if someone buys their tank from the lfs and then goes and buys all the high margin items from elsewhere. The store loses as it had to inventory the tank which takes up valuable floor space and their blended margin goes down as they sell more low margin items and less high margin ones.

Fish are the other big problem. It requires a high overhead to maintain the fish in the tanks compared to a can of food on the shelf. But because the freight on a large order is so much less than the individual can buy it for they can sell the fish at market prices and still have a good margin. The problem is that the LFS is no longer the destination for the new hobbyist and the big box stores are. As people advance in the hobby they tend to go from buying fish from stores to buying fish from breeders, swaps, auctions, online, etc... and the LFS gets left out. So the LFS is no longer seeing the beginner and they are not seeing the advanced hobbyist either. Kind of leaves them in the cold. It also doesn't help that 9 out of 10 aquariums purchased in the U.S. are no longer setup 12 months later. While online and BB stores have definitely gotten more people into the hobby, they have definitely contributed to the high attrition rate by not giving people the advice and knowledge required to be successful which is what the LFS used to be a resource for.

Lastly don't forget that an aquarium is a luxury item and in tough economic times people spend less on nonessentials. This makes business all that much harder for the LFS struggling to survive.

It's a shame as I enjoy shopping at LFS and I support several stores in my area with regular purchases but it may just be delaying the inevitable.

Andy
 

JasonC

Members
Thanks for the analysis Andy, but I think this reinforces the central question I am asking... if the current business model is a no-win situation, what changes can be made to the model to effect a better result? Remember the lay-persons definition of insanity (gosh I hope that there are no psychologists reading this) is "performing the same acts but expecting different results". Maybe a bit of an exxageration, but is this what is going on in the LFS world? Expecting a business model that has been shown to be fatally flawed to net positive results?

There are a lot of factors that are causing the demise of the brick and mortar LFS.

<Really big snip>

Andy
 

JasonC

Members
As far as our responsibility, I wonder in other hobbies (fishing, classic cars, mountain climbing, motorcycles) how much the club has an impact on their stores? What is the local model airplane club doing for the local hobby shops (which are under the exact same pressures as the LFS), and what can we learn from them?

In regards to workshop location, I would think that it would be critical to make the activity in the store. Get the people in the store, start getting them meeting the employees and the regulars, maybe even get them to buy some product while they are there. I give an example... House of Tropicals. When I was just starting into the hobby and getting my first tank set up, my wife worked on Airport drive... which is literally spitting distance from HOT. I drove to HOT one day after having lunch with her, and decided to not even bother going in. It looked sketch, didn't look that big, couldn't see in the store, and I really didn't like the neighborhood. I passed it up and never went back til I started hearing about it from people on this forum... and I really regret not going in that day. While I wont even bother going into how important curb appeal is to drawing in new clientel, I will say that there needs to be a draw to get people into a store and get them hooked on it... if its a free workshop, great.. a huge sale, fine.. just do something to convince people that would not otherwise be connected to a club to walk in the door. BTW, HOT is my go-to LFS at this point, and I go just to at least walk the aisles whenever I can.

The question for us is: How can we (CCA) divert some fraction of the 90% of people who try to become aquarists and fail...into fish geeks...err...enthusiasts like us? Why is this important for us? It brings new members, energy and growth potential to the club...and the next generation of hobbyists.

I like Jason's idea of beginner classes...I just haven't thought of a good venue (I've done library classes and classes at Tropical Fish World in Gaithersburg...RIP). How about more beginner-focused speakers at our meetings? Other ideas? As an aside, I think we're all beginners at something so just because topics are basic doesn't mean that someone who's been keeping fish for 30 years wouldn't be interested...

Matt
 

dogofwar

CCA Members
Good questions...

And one more: What is the benefit to the hosting LFS?

You're lucky to have HOT as a neighborhood LFS. Just about every neighborhood had one (or two)... No longer.

As the vast majority of people now enter the hobby through a big box (and this isn't likely to decrease), doesn't it make sense to focus on them?

Matt


As far as our responsibility, I wonder in other hobbies (fishing, classic cars, mountain climbing, motorcycles) how much the club has an impact on their stores? What is the local model airplane club doing for the local hobby shops (which are under the exact same pressures as the LFS), and what can we learn from them?

In regards to workshop location, I would think that it would be critical to make the activity in the store. Get the people in the store, start getting them meeting the employees and the regulars, maybe even get them to buy some product while they are there. I give an example... House of Tropicals. When I was just starting into the hobby and getting my first tank set up, my wife worked on Airport drive... which is literally spitting distance from HOT. I drove to HOT one day after having lunch with her, and decided to not even bother going in. It looked sketch, didn't look that big, couldn't see in the store, and I really didn't like the neighborhood. I passed it up and never went back til I started hearing about it from people on this forum... and I really regret not going in that day. While I wont even bother going into how important curb appeal is to drawing in new clientel, I will say that there needs to be a draw to get people into a store and get them hooked on it... if its a free workshop, great.. a huge sale, fine.. just do something to convince people that would not otherwise be connected to a club to walk in the door. BTW, HOT is my go-to LFS at this point, and I go just to at least walk the aisles whenever I can.
 

JasonC

Members
barring protests infront of the big box, I am at a loss on how to intercept those entering into the market... remember that those who would enter into the hobby via the big box are also the ones who would rather go to best buy than the local electronics store... Home depot or Lowes rather than the local hardware store, Wegmans rather than the local green grocer or butcher. In many respects, big boxes are a fact of life for american suburban society. That is where they are naturally going to go first. How do we intercept pre or post buy? Part of me would like to say that maybe some of the classes/workshops in the local petsmart would help, but I *highly* doubt that corporate would condone that activity on liability basis alone... and then when they find out that we are trying to funnel clientel to the LFS instead? yeah... I just dont know.

As the vast majority of people now enter the hobby through a big box (and this isn't likely to decrease), doesn't it make sense to focus on them?

Matt
 

Nathan

Members
Why not look outside the hobby? advertise in print or radio. Hold workshops where large groups of people can be found. That kind of thing.
 

Hawkman2000

Members
Although I agree that the current economy does not help, local fish stores have been closing since before our current economic problems. I think it is due to a number of factors beyond the economic situation.

Could it possibly be the other way around. The increasing offset between general inflation and the cost of living keeps rising, while wages remained stagnant. People kept cutting costs at home, stress derived from the situation rises. then the household fish becomes more of a nuisance. So the aquarium hobby is one of the first to go. Try telling little Bobby in Suzy that you have to get rid of rover but you can keep fish.

One thought I had was if LFSs could group together. They could pull together and get a warehouse in a rural area and buy dry goods in bulk. They could even start breeding fish for themselves, at least the ones that sell the most. isn't that how big als started their online site?

I also agree with the advertising. Start the commercial with an idiot with bloodshot eyes feeding fish some of his sandwich, then show your own clean cut and knowledgeable crew.
 
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