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The Mass Merchant as Distributor

2 May, 2004 By: Kurt Indvik

I got a call last week from a single-store retailer who was incredulous about the disparity in pricing between what he pays his distributors for a new release and what he can buy it for at Wal-Mart. “Isn’t this illegal?” he asked. "How can the studios and distributors get away with this?"

Indeed, the VSDA discussion board has been lit up lately with the same sort of discussion, some calling it the studios’ domestic version of the two-tiered pricing they have implemented in the United Kingdom. Retailers, for the most part, don’t seem to be buying the claim by studios and distributors that mass merchants are selling the high-profile hits at a loss to drive traffic into their stores as “loss leaders.” (Although it is interesting to note that the pricing of these titles at mass merchants does tend to rise after the first week or so.)

Over the past several years, it has been the practice of a large percentage of independent retailers to buy copies of new releases from big-box retailers. At first it started out as a way to fill-in copy depth on a title, but it seems that the practice has become a regular part of many retailers’ weekly buying habit. They buy what copies they need of one or two or more new-release titles from mass merchants as opposed to their regular distributor, since they can get those copies for anywhere from $1 to $5 cheaper.

As a matter of fact, Video Store Magazine is looking to find out just how often you buy inventory for your store from a mass merchant. Take a moment while you’re here to participate in our poll. We’re very interested in getting an idea of just how broad (and how deep) this practice has become.

One question that arises is, what is this doing to what is remaining of the industry’s distribution system as retailers question the value of their distributors? Besides getting terms and delivery, distributors have a much broader selection of titles to choose from than the mass merchants. That selection is an important element to every rental dealers’ business. Some retailers argue they have no sympathy for distributors and aren’t interested in buying from them for charity’s sake. But can they truly afford to see further erosion of their industry’s distribution system?

Many retailers have stated they certainly intend to stay with their distributors while continuing to buy from mass merchants either to fill in copy depth or maybe save some money by buying one or two titles at big-box stores as a hedge against what they feel they are losing in price difference for everything else they are buying.

A number of retailers are calling for some action to be taken by the iGroup or some other organization to try to rectify what they see as an injustice. Whatever form that action could take remains unclear. But what is clear is that independent retailers are taking the matter into their own hands to a certain degree, and that may lead to further challenges for the distributors left in this business.

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