Abob Teff

OK guys, as you know I am trying to open my own business (a used home entertainment store, along the model lines of a Gamestop/exchange/crazy). I need to develop a basic formula for buying and selling. This formula has to be something concrete in place for times when I am not working. Tell me what you think of this formula:

I would buy used DVDs at 40% of the lowest price on dvdpricesearch.com. For example, Sopranos Season 1's lowest price is $68.95, so $68.95 X .4 = $27.58. Last Samurai is $15.89, so $15.89 X .4 = $6.36 (that one takes a little hit, I'd be inclined to add a few bucks for the newness of the title).

My selling price will then be 50% of MSRP. Sopranos Season 1's MSRP is $99.98, so $99.98 X .5 = $49.99. Last Samurai's MSRP is $29.95 (gosh that seems high!), so $29.95 X .5 = $14.98.

Bare in mind that I would reserve the authority to personally override this policy (in case of price drops, too much stock on hand, etc.). Also remember that we tend to be very prudent buyers here, WE are not the target customer in a retail environment, the average consumer is.

Please play with this formula, try it out and give me any feedback!

milo bloom

Have you considered what your overhead is going to be? Things like rent, water, trash, electric, shelving, office supplies? Your profit margin needs to be higher than just "profit". You'll also need liquid cash to get started cause you'll be buying a lot before you start selling.

littlefuzzy

Most used places I have seen generally MAX at buying for 25% of the retail price, and sell for half or more.

EDIT:

You also might want to rethink the extra couple of bucks for a new title, as you will get tons of them coming in after release.

I would consider setting a cap on number of titles, as well, since you don't want to end up with 300 copies of The Last Samurai, and sell off 40 of them over the next 3 years...

Abob Teff

OK, we've been through this before. While this is my first time starting a business there are many things that I do not know and am working on learning. However, I am not some guy who just wandered in here and found the miracle of DVD and am now convinced that I'm going to be a millionaire. I have a long background in retail management as well as the entertainment industry.

I'm asking you guys to test out this formula and see if it is feasible. Is it so much to ask? I've been at DVDTalk for a long time now and have always felt that this is a community that likes to help eachother out. I also consider this to be a community of people who know a thing or two about the DVD industry. When I bring concepts and ideas in here to pitch them or try them out I am always met with the same things, "Don't open up near a Blockbuster or Hollywood Video", "You probably didn't realize that you are going to have to spend money", none of which do anything to help. I'm beginning to get the feeling that this isn't the place I've always felt that it was.

If I have totally misconstrued your statement I apologize. But I am looking for input, not just base lectures. If you feel that the margins are not high enough then please give me some feedback such as "Try 30% for purchase, it is still a reasonable amount to the customer considering what other places pay" or "Your selling price should move to 60% to help improve your bottom line. It is still an enticing deal to the customer."

Abob Teff

THANK YOU littlefuzzy! This is the help I am looking for!

I'm trying to avoid basing my buying price off of MSRP. MSRP is tossed out the window by major retailers, so I'm trying to keep my "buy line" in check with actualy retail prices. We'll keep using "Last Samurai" as an example: MSRP is $29.95. However we all know that you could pick it up at ANY retailer for $15.99. So wouldn't it be more prudent to keep that buy line in accordance with actual retail value? Most of the places that I have seen don't take the title into account too much (unless it is something very new), they just simply say "DVDs, $3."

I am definitely going to take my current inventory level into account. So I may give an extra few $$'s to encourage the new titles to come in, but would cut it off (and potentially lower the buy line) if I started to get an abundance. Again, let's use "Last Samurai." I calculated a buy price of $6.36 because it could be found fairly cheap at retail. If I made it an even $8 to encourage the title to come in during the first two weeks I would also be encouraging shoppers to come to me instead of waiting 4 weeks and buying it PV at the chain across the street. The 2nd week that the title is out is when the trade is more likely to come in, and at that point the title is off sale at the discount retailers. However, if I had 6 people come in the door with "LS" on the first day, I would definitely eliminate the "kicker" and probably drop my buy line, if not cut it off all together.

DVD Josh

Abob, your comment to Milo *was* offbase, it was a valid point and question. I also think you are right about this being a community that wants to help, but I think you are expecting very specific advice that a general interest group like this does not possess.

To your questions - 40% is WAY too high to pay out. I wouldn't even consider going higher than 20-25% of MSRP, and your 50% MSRP price is a good baseline. I'd also consider offering a "store credit" bonus to get people to take that route. Frequent buyer's clubs also seem to work well - as I've seen that people buy into them and never really use them. I'd offer frequent promotions that "seem" better than they are - for instance, offer a trade in promotion of any three DVDs for a new release. Not only will this help you build stock, but it will minimize your payout.

Also, figure out a way to offload stock that is not and will not move, whether it is flat out donating it, or having a $1 sale, or whatever.

freudguy

A used book/DVD/CD/VHS store near me has this policy:

They give 60% of their selling price in trade credit and approximately 50% of their selling price if you want cash.

They generally sell brand new releases for $12.50 so they would pay out $7.50 for trade-in credit or $6.25 in cash, recent releases for $8-10 (I'll let you do the math for these) and catalog items for $5 ($3 trade-in, $2.50 cash). If the DVD is obviously a previously viewed one from Blockbuster, Hollywood, Movie Gallery, etc., they will only give $1.80 in trade credit or $1.50 in cash. They sell these DVD's for $3 (I got The Hunted for this price).

The trade-in & cash payout amounts seem low but they do pretty good business with a LOT of turnaround. If you don't pick up a title you see today, it won't be there tomorrow unless it's a really bad movie. They are also pretty strict about scratches. I tried to trade a few in a while back, they had very minute scratches and they refused them (even though they know me and assured them that the discs played fine).

Abob Teff

I apologize for misreading it. I failed to see the question in his post. I am not asking for general advice (though I do appreciate it if it is constructive). When I bring concepts and questions here they are very specific for a reason. While you consider this a general interest group, I think that this group is more knowledgeable than the "average consumer." If there is a flaw in my thought process, I know that you guys will find it. With this buying formula question I am asking you guys to plug in some numbers and find if there is any crucial error in this, or is it a good starting point? What I am working on now is developing policies that define the manner in which I manage my inventory. I appreciate all the help that I can get.

The 40% is not based off of MSRP, I think that you guys might be mis-reading that. The 40% is based off of the lowest (online) retail price. I think that this calculates a fair price that would encourage customers to come to me as opposed to going to a pawn shop that is only going to give $3-4 or Blockbuster (if they roll out their program) who will give them $5.

The frequent buyer's club is a wonderful idea that I had intended to use. The business model is based off the video game trade-in places, and they ALL offer a "benefits card." These cards typically are $10-20 for a year and offer 10-20% discounts (either markup on trade-in or mark down on purchases) as well as specials throughout the year. What would be your suggestions here?

Trade-ins would get a higher value than selling me your product for cash. That is logical. However I do want the cash option there since it would be a competitive edge.

Thank you again, and I do apologize for my rant.

ukywyldcat

I didn't read all of this, but I agree, you don't want to buy used anything for too much money, and your formula seems a little high to me.

Also, don't provide your formula for pricing DVDs to your customers, ever. They will ask, and you need some line of bullshit that is consistent that they will understand and like, if that's possible.

Abob Teff

I like that! I've been trying to figure out a way to deal with previously-purchased-previously-viewed (does that make sense?) merchandise. I figure that I have a 3-4 week window on new releases before the chains flood the market with their PVs. This is an excellent way to compete though! Thank you freudguy!

Abob Teff

My selling price is based off of MSRP. However my buying price is based off of market conditions which do fluctuate. So because I am giving $7.50 for a title today doesn't mean that I will tomorrow. Perhaps a discount retailer throws a title into their discount bin, then my price drops accordingly. Say one of the rental chains PVs a title making its availablitity higher and its price lower, then my price drops as well (great formula from freudguy). Here is a chart example at 40% buy line (again, this is just the base to start from, other variables that we have discussed would be factored in later):

[SIZE=1]Title Low Retail Buying MSRP Selling

Sopranos Season 1 $68.95 $27.58 $99.98 $50

Master&Commander 1d $19.89 $7.96 $29.95 $15

Master&Commander 2d $25.89 $10.36 $39.95 $20

CSI Season 1 $55.78 $22.31 $89.95 $45

I can't get the darn thing to line up, hopefully you understand it! Do you guys think a 30% buy line is still reasonable?

milo bloom

I suppose I should have looked at your numbers more, but I'm only trying to help. I have a friend that owns a small business that's not in this field, but I have seen some of his numbers and his profit margin is frightningly thin. I know he has a very high overhead and seemingly only makes it on sheer volume which isn't that high either. I haven't read all of your previous posts, so I wasn't sure of your background.

Now, I do frequent used DVD places a lot, and something I can suggest is use MSRP only for new titles. You should adjust for OOP stuff and bargain basement junk people will try to pawn off on you. You don't want to be stuck with 50 copies of the public domain Night of the Living Dead DVDs when only the Elite ones are worth anything. I see a lot of titles that sit on the shelf for months at a time. Even big titles like Signs or T3 I see a lot of very soon after release.

And I wouldn't buy PV titles from Blockbuster or such at all because I know when I'm shopping used, I can spot those a mile away and don't even consider them. (Unless it was like, This Island Earth or something )

And many game stores sell used DVDs and often have a bunch that don't have the cover and are in a blank DVD or jewel case. I don't consider those either, so you might not want to buy those from sellers either.

freudguy

Hmm, the sell prices you have listed seem a little high. For example, take a DVD that I can get new for $20 at Wal-mart. I probably would not pay more that $10 for it used, possibly $12.50 for a brand new release (like the store prices I mentioned above). What has helped the store I mentioned is word of mouth, they are simply cheaper. There are other used media stores in the area but they are more expensive and their stock sits longer. This particular store I mentioned above may make less profit per DVD but they move greater quantities, taking care of the profit margin.

ukywyldcat

I've been in retail, and I know how tough it is, even when you love the product you are selling.

My advice is to buy real estate. And don't listen to the news about interest rates and all that other garbage. There is NEVER a bad time to buy real estate. NEVER.

And do this in addition to your DVD business, so as to hedge against worst case scenarios.

There are programs that offer up to 115% financing on real estate. I wouldn't borrow that much, but I borrow 100% all the time.

I only threadcrap with this info because I read your profile and have been there.

Best of luck...

Abob Teff

Sorry again about that Milo. I've been trying to avoid a lengthy introduction qualifying myself, but suppose that maybe I should do so.

Your ideas are right on track as far as adjusting prices. The formula that I'm trying to develop is basically a start point, something that can be used when I start hiring employees. Of course there will be adjustments made along the way based on my inventory level (I don't see any need to have more than 2-3 of anything at a time) and special circumstances (OOP, rare, overly common, public domain, etc.).

What do you think of fruedguy's concept for BB/HV/etc. PVs: drop the price through the floor?

Good point on the jewel cases/covers/etc. I don't plan on taking anything that is not in ORIGINAL manufacturer's packaging. There is one place here (a porn shop that carries used DVDs as well) that is constantly getting bootlegs pawned off on them. Places that take will take the discs with no covers only encourage thieves.

Abob Teff

Here is the hard part in asking for advice here: DVDTalkers are very prudent shopppers. I myself look at some of the numbers and say "no way would I buy it." However, we are talking, for the most part, about the general public who would jump at the chance to save $3 over Wal-mart (afterall, the general public knows that Wal-mart is the king when it comes to low prices ). However, like I said, there would be cases in which adjustments would have to be made.

Abob Teff

Maybe one day I can expand that way, but right now I am looking at a relatively low cost start-up. Do you have professional experience in this field? Could I e-mail you for more specific issues?

Dave C

You are absolutely correct here. I sell some stuff at work and people jump at paying prices I could never sell them for (even including shipping) to dvdtalk members (or myself for that matter).

ukywyldcat

Abob:

email me anytime.

jough

Your formula is far too complicated for a $5/hour clerk to process.

Would you have an employee look up EACH title on the internet to determine your price every time someone comes in with 20 titles? They'd be there for an hour.

You'd be better off giving fixed rates for titles - $6 for relatively new or better quality releases, $5 for non-special edition catalog titles, $3 for bargain stuff, etc.

You're not going to be able to sell discs for more than $8-9 used, so paying more than $6 for any disc is just pointless.

Blockbuster seems to top out at $5 so you only need to beat them by a buck a title.

You can also check to see what places like SecondSpin.com are paying.

I have a few years experience with the used CD market, and buying discs is mostly a value judgement. You just have to make sure your employee is familiar enough with DVD titles to know what would sell and for how much, then make a package offer. I've never seen a used DVD/CD store tell the customer how much they'd give for a single title. They usually bring in 10-20 titles and I'd give them a price for the package. You can also remove titles and say "I'll give you $45 for these and these three I can't use."

No hard feelings, there.

Also, offering *slightly* more in store credit is always a good idea - just make sure the offer is less than your margin in credit. So for $20 in cash, the credit offer would probably only be around $23-24. It's enough to make them want to take the credit if they're just looking to convert older titles they don't want into new discs they do.

So 20% more, TOPS, in store credit is a good offer.

littlefuzzy

Watch out, I have seen waaaay too many of the $5 bargain bin CDs at stores that do this, or at pawn shops that may offer a base fee for any CD.

Be on the lookout for bootlegs, especially anime titles.
http://www.digital.anime.org.uk/piratefaq.html#dvd
http://www.jazzmess.com/merch/bootlegfaq.html

Also, you want some cash coming in, as trade-ins aren't going to pay the bills...

Again, using The Last Samurai, I would feel that 40% (even of the lowest DVDPricesearch price) is probably a bit too high. That came out to about $6.35, while 35% would be $5.56, and 30% would be $4.76. I doubt if you would be able to sell them at the 50% of MSRP, as that would equal $15, which is pretty close to where they could get it at WallyWorld.

I would probably sell for 70-80% of the lowest price on DVDPricesearch, which would still be a lot cheaper than new, but without giving them away for free.

The only reason to buy used from people is to have a stock to sell, as you can't make any money just buying their used discs.

Abob Teff

Exactly. Trade-ins area cheap source of inventory. As far as buying discs (versus trade in credit) I would have a limit set, I haven't decided wether it would be a per person limit or say a weekly budget. Of course I'm not going to buy just anything that walks in the door. I am aware of what bargain bin material is and that is why I am tending to NOT go the direction of a set price. Flat out, some days I'll be buying and some days the cash flow won't be there.

You guys say that it would be too complicated for a minimum wage employee to figure out the trade/purchase value. I feel that it would be less damaging than allowing them to take anything at $5-$6 a pop.

At least initially I probably won't have too much other help. If I do, I have a couple of (trusted) former co-workers/employees that I can steal them away from their other job, or at least entice them into a second job.

Abob Teff

There is a variable that is encouraging me to stick to my guns here (but I am listening appreciatively): the prime location that I am looking at (and if I had to go to another location this may change) has two major video stores duking it out in a price battle. One is a Family Video that offers 2 movies/2nights/$2 (one new release, one older). They just altered their $1 any movie promotion. One is a Hollywood Video (that I ran for some time) that has 99 cent 5 day rentals on all product. That store pulls people from as far as 45 minutes away. (I know it is assinine, but it is true). These are the people who drive across town to save a penny on gas. So if I can beat Walmart by just a few dollars, I think I'm there. We aren't talking about people who come here and do price searches.

The market there is ripe for a store that can offer more than the 2 or 3 new releases each week, or can offer them sooner. Obviously, as I said before, when HV PVs the big new release 3-4 weeks after its release, I will have to drop my prices. However, I have that 3-4 week window that I can sell for a little more IF I can get the product in the door. How many people would be willing to sell me the newest release for $4? Not many. How many would be willing to sell it to me for $8? Now we're getting a few nibbles. Agreed, once HV PVs there's I will probably have to drop to $4. But I have a window to hit that provides opportunity.

Abob Teff

Need a contact please!