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Djangos Assists Video E-Commerce

20 Feb, 2004 By: Holly J. Wagner

Call it a peer-to-peer network for packaged media retailers. Or a wired retail network. Djangos president Steve Furst simply calls it an extranet, but some of the 300 retailers who use it to sell DVDs, VHS and CDs call it salvation.

“That 25 percent of our sales is what I think enables us to stay in business,” said Johnny Balmer, who owns five Second Hand Tunes stores in the Chicago area. “I can count 10 stores in the area that have closed in the last year. It enables us to stay in business when others have failed.”

Many of those failures owe to free music downloads and, while video specialty dealers have not yet felt that sting, participation is open to them. The network may offer a chance to weather difficult business conditions, including competition from mass merchants and downloading.

Two years ago, a small, Oregon-based music and movie retail chain called Djangos was in bankruptcy. Parent company Entertainment Supply was overcommitted to opening new stores just as free music downloading hit a fever pitch. Unable to absorb the shock, the company collapsed.

Now a killer software app that three former Entertainment Supply executives bought out of the bankruptcy is propelling the online company and its affiliates to more profitable fortunes.

“The bottom line is, what we did is rewrite the book. We went out to the world and said, ‘you need a Web presence,’ said company president Steve Furst, one of the entrepreneurs who salvaged the software originally intended to link the 20 stores under the Djangos shingle. He and his partners, Donie Treadaway and Alan Brown, rewrote the software to link struggling independent music retailers into a stronger, more profitable and resilient online retailer selling new and used movies, music and, soon, games.

“This has been a nice way of changing the slippery slope. It's not quite as slippery,” said Dave Sax, whose CD Warehouse store in West Palm Beach, Fla., is on the Djangos network. “Sales are down, but profitability is up and Djangos is helping with that. It has created a new source of income for me.”

The network aggregates independent retailers into one e-commerce site at djangos.com. Participating retailers install a simple desktop application onto their store computers, then feed POS information to the Djangos extranet at least twice a day. The software updates the available stock on the Web site according to what has been bought and sold at each retailer. It also matches consumer requests to listed store stock. As consumers order from the site, their orders are routed to a nearby retailer who ships the product.

“We wrote a piece of software that they just click on their desktops, and they see changes in inventory. Throughout the day, they simply go into their point of sale and print out a picklist. There is no more standing around talking. They are picking DVDs and CDs and games,” Furst said.

The program is free to retailer users, who pay 15 percent of each item's selling price to Djangos in exchange for the company handling the Web site, orders, payment processing, customer service and returns. Items listed on the Djangos site are also listed on Amazon sites in several countries as well as on eBay's soon-to-be-folded Half.com.

“The system is pretty easy to use, so as we are buying product from the public, there is just a couple of extra steps to scanning it and getting it up on the Internet,” Balmer said.

Although only one pure-play movie retailer has joined the network so far, music retailers who have joined are using the system to sell lots of movies and games as well as CDs.

“Internet sales account for roughly 25 percent of our sales. Of that 25 percent, video is pretty substantial,” Balmer said. “The video and DVD market has really increased, whereas CDs have been foundering for the last couple of years. I would say videos make up 30 to 40 percent of our Internet sales. Tapes especially — it's kind of surprising that there is still a market for those on the Internet. There are still a lot of things you can't get on DVD.”

“I was an early adopter of DVD; I've been doing it for five years. I started with 50 units,” said Dan Kealey, a CD Warehouse licensee with seven stores in the Minneapolis area. “It really took off three years ago. But once we got online with Djangos, it really took off.”

Kealey estimates his sales on the extranet are about 40 percent DVD, compared to about 35 percent in stores. The extranet has boosted his sales and bottom line.

“Initially, sales spiked at 25 percent. Now it has settled down to about 15 percent per week. When you first sign on, there is a lot of demand for your unique inventory,” he said. The fact that all the network's used product comes in from stores has also changed buying patterns.

“It has caused us to attempt to buy literally everything that comes in, because we ship to 210 countries around the world and quite frankly, our database has no experience with what sells around the world,” he said. “We are likely to buy at least one copy of everything that comes in. You really have to change your buying philosophy. It's much broader, because the sales opportunities are broader.”

For consumers, the value proposition is a vast selection of new and used product at reasonable prices, and inexpensive shipping -- $1.99 per item, anywhere in the world. They can shop at one site, even though items are often shipped from several locations.“If someone orders five or six DVDs and one of them was sold where we migrated the order, that order is cancelled, and the order is filled from the inventory of another store,” Furst said. If an item is not in stock, the site has a mechanism to take requests and notify the consumer as soon as the title becomes available.

“We have about 650,000 notify me requests from customers,” Furst said. “The moment it comes in stock, we notify the customer.” The backlog of requests accounts for the sales surge retailers get when they join the network. Its reach lets retailers clear out stock that that has been gathering dust in back rooms.

“We are selling things I have had in inventory for six months,” Sax said.

Music retailers believe the network could save video specialists as well as music retailers.

“It would be a great supplement to a traditional video store, if they are actually selling vs. renting. It's great exposure,” Balmer said.

“If you are here today, you have already survived the worst in this industry,” Kealey said. “I would have survived without it, but it could have saved some stores that have closed their doors over the last couple of years.”

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