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Is It Time for a Rate Hike?

5 Oct, 2003 By: Kurt Indvik

A number of areas of opportunity for business and profit growth for rentailers were discussed during last week's East Coast Video Show, including ways that smaller retailers can expand their Web sites into more transactional vehicles. The simplest and most obvious was raising rental rates.

The just-released benchmarking study by the Video Software Dealers Association shows that average rental rates in 2002 rose to $3.29, up from $3.05 in 2001. Combine that with the lower cost of goods in the DVD era, and effective operational cost controls in employee salaries and rent, and it helps to explain why, according to the study, the average “contributing margin” (gross margin minus operating expenses) of those retailers surveyed rose 44 percent in 2002 over 2001.

It seems like a simple concept, yet many retailers at the show said they have been hesitant to raise rates because of the competitive nature of the business. However, it's the nature of things in retail that prices always tend to grow at least some every year due to the inexorable rising cost of doing business. Add to this the fairly stable higher perceived value of DVD over VHS, and it's plain that, for many retailers, there is room to grow their bottom line through judicious rate hikes.

“I have never had anyone complain about rate changes,” said Halsey Blake Scott of C'Ville Video, during one session.

“Don't sweat it, just do it,” added Ken McLeer of Video Headquarters.

Some retailers in other panels also talked of how they have kept their catalog rate pricing the same as that of new releases. The thinking there is that when someone comes into the store looking for a specific title, they are not going to quibble over the fact that it's priced the same as a new release, although typically, catalog pricing is almost universally priced lower. The benchmarking study also reported that between 2001 and 2002, average adult rental rates rose from $3.50 to $3.98.

To be sure, not every retailer in every market has room to raise rates, and most everyone at ECVS agreed independent retailers have to be competitive with the big chains when it comes to rates. But the message was clear: If you haven't increased your rates in some time, you're probably leaving some money on the table. If that's the case, and you're looking to improve your bottom line (as you should always be), then, in the words of Mr. McLeer …

“Don't sweat it, just do it.”

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