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BRAVE USED WORLD: Trading Tips and Travails

14 May, 2004 By: Holly J. Wagner

Taking discs in trade from consumers can be a great customer loyalty tool and, for at least some businesses, a good profit opportunity. But it's not for every specialty dealer.

Dealers must comply with whatever secondary-seller law governs in their markets. “Texas law would probably treat us the same as a pawn shop,” said Al Welch, owner-operator of Video Village in Rockwall, Texas. “We would be required to hold onto the goods for a couple of weeks. The practical point is that you don't hold onto it.”

Others eschew buying from consumers because the economics and logistics don't make sense.

“Not a lot of members are buying from consumers,” said Ted Engen, head of the Video Buyers Group, which claims to represent 2,000 stores. “We did a survey with some of the people who were doing this, but the only things they were getting back from the customers were the same titles, and [they] couldn't get rid of them.”

Still, many see buying from consumers as a great loyalty builder. “It opens up a whole new marketplace. It keeps people coming into your store,” said Halsey Blake-Scott, owner operator of C-Ville Video and Sneak Reviews in Charlottesville, Va. “The customers I am talking to are more aware of the pitfalls of keeping a big library in their house because of VHS. They get rid of the stuff they don't want.”

Blake-Scott and many of his peers are considering getting deeper into consumer trades within the next year.

“That is a very hot subject with us,” he said. “More and more, I get customers asking me if I do it.”

Loyalty seems to be the first goal, but many dealers see profit in consumer trades, too.

“I would agree 100 percent that it is a loyalty program, but it can be profitable. There have been cases where we have bought DVDs in the morning and sold them that night,” said Todd Zaganiacz, owner operator of Video Zone in Deerfield, Mass., and leader of the New England Buying Group.

Once they decide to buy used product, dealers must address issues like pricing, merchandising, inventory mix and what and when to buy.

“There are so many factors. It starts with ‘how much do you pay?' I know some people who simply pay the price of one movie rental and that is all they pay for anything,” Welch said. “You have issues of being able to check it out properly. We may refinish it, but that doesn't mean it will look good. There are always going to be judgments of the moment.”

Most dealers who buy from consumers use some of their purchases to supplement their rental stock.

“Recently we had a customer sell us some movies, including Spider-Man and Shrek. With sequels coming out, it seemed like a good idea to put them into the rental stock,” Zaganiacz said.

One dealer even admitted swapping off titles in Blockbuster's Big DVD Trade-In last year. “I got rid of a number of unmovable DVDs at Blockbuster in November and December,” he said.

Since most of Johnny Balmer's business at his five Second Hand Tunes Stores in the Chicago area is in used product, about 80 percent CDs and 20 percent DVDs, he has learned what to buy and what to pass on. “If we have titles that frequently come in used that we always have on hand, that is probably not a title that I would stock new in the store unless someone special ordered it to have it new,” he said.

Most dealers who trade with consumers find it useful to have some sort of disc cleaning or resurfacing machine, which may blossom into a business itself.

“If they come in to buy used discs and [the discs] look good, they will come back,” Zaganiacz said. “I would say it is virtually a must that you have to have some type of resurfacing machine.”

“I have two machines,” Blake-Scott said. “I don't even look at the disc. I pop it into the machine, and since it only takes 30 seconds to do, if any of my better customers come in, I will just do it for free. As a result, I am not only building good customer service, but I am getting more business where people come in and pay me to clean their discs.”

How to display and merchandise used product is also a challenge. Some merchants have separate displays for new and used sellthrough, others mix the two by title.

Zaganiacz has been buying from good customers for a couple of years. “We do have three or four people that sell us DVDs, but 90 percent of the time they are not walking out with any cash; they buy other DVDs,” he said.

Whether to pay cash or give store credit only — the path many dealers have chosen — is a critical decision.

“Many people say, ‘I don't want to try and encourage the clientele that is only coming in for money.’ Blake-Scott said. “And from a customer loyalty standpoint, I want them back in my store.”

“We offer 25 percent more in store credit than we do in cash,” Balmer said.

The dealers agreed, however, that used trade is becoming an essential service to customers.

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