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Indies Now Sideways Trading

13 Dec, 2004 By: Holly J. Wagner


Some independent retailers have developed a new stock management tool: sideways trading.

Sideways buying is nothing new, but with consumers' acceptance of pre-viewed DVD and the expansion of disc trading at chain retail and rental stores like Blockbuster, some indies are using the trading programs to balance their stock, dumping the dust collectors in exchange for product they can rent or sell.

“You have to admit the independents are resourceful,” said Tom Adams, principal analyst at Adams Media Research.

“I know there are people out there doing it. The people that I know who are doing it have a high success rate because of stock balancing. You can use it for rental or put it out and resell it,” said Todd Zaganiacz, president of the National Entertainment Buyers Group (NEBG).

“I've heard of retailers taking every ‘B' movie in the world in and trading them,” he said. “This week you had two major titles, then you had Maria Full of Grace. Wal-Mart and Costco aren't even carrying it. They will have Dodgeball and The Bourne Supremacy, but they aren't going to have that [one]. I think it will be not only a hot item at rental, but in used sales it is going to be a very high-priced title.”

Mass merchants have long limited the number of copies of entertainment software customers can buy at sale prices to keep independent rentailers from using them as distributors, although store personnel may not always follow corporate limits. And those are cash transactions, not trades.

Indies Getting Creative
Texas independent Mike Belt said he traded several discs to freshen up rental stock during Blockbuster's 2003 holiday season Big DVD Trade-In, when the chain offered select new-release DVDs for $12.99 with a trade. He traded games during the promotion as well.

“When we were trading those games, I was getting gift cards left and right. I'm a small businessman, I have to do what I can to survive. You have to be creative,” he said.

“We were doing a deal where we would trade two games and get a pre-viewed game for $9.99. We must have done about 40 games” he said. “We traded Nintendo 64 to get PS2 and Xbox,” he said. “I was probably the most active in our group. Lately, I haven't been in a Blockbuster in a while. What they ended up doing is raising their price. I used to be down there every week. I was on a first-name basis with the manager.”

Blockbuster did not respond to requests for comment by press time. But the new Web site for the chain's smaller Movie Trading Company lists an e-mail contact for anyone who wants to trade more than 99 discs, so it does not appear that quantity is an issue.

John Sarantakis, owner of People's Choice Video Express in Waukegan, Ill., made a killing trading off his “dust collectors” at Blockbuster in October when the chain was offering a promotional payout of $8 in store credit for any title it would buy.

“If everybody had bombarded them, we could have put a big hurtin' on Blockbuster. It would have hit their financials,” he said. “We went to all their stores around here and cleaned 'em out.”

Sarantakis has typically paid his customers between $2 and $3 cash for used discs, which he then sells to consumers at tent sales or other special events.

“We're paying cash and people want cash, so we pay about $2 for them. We used to pay $5 a year ago, then our inventory started to grow too much and we started paying $2 and $1,” he said.

Some of that inventory went to Blockbuster in trade for $8 store credits, which he used to balance his stock and get titles to resell to consumers.

“I had a list of things we needed,” he said. “We got used or new and put it into rental. We sent some gift cards to our store in Arizona, and they got some stuff that they needed.”

$6,000 in Just Three Days
When Blockbuster stores blackballed Sarantakis and his employee — a mere day after he began trading off his snoozers — he came up with another approach. He put his stock of PVTs out for sale at $5 each and told customers, via in-store coupons, to take their $5 titles to Blockbuster and trade them for credit. In just three days, he said, he made more than $6,000 profit.

“It was nice to be able to get some cash in, because otherwise they would have been sitting there until spring. The bad thing about it is that I didn't catch onto it until near the end [of the promotion],” Sarantakis said. “We didn't mind sending customers elsewhere because there is no real profit in new DVDs. Our big profit is in pre-viewed.”

“If he's doing it, I would think there are lots of others doing it,” said Ted Engen, president of the Video Buying Group. “I know some of that goes on, but I don't think it is a huge thing so far. PVT is so hot right now. We have more retailers who are going to Blockbuster 30 days after street date and buying pre-viewed for $10 to sell to their customers for $13.95. Sixty days out, they have a budget bin, titles for $5. Our guys go out and buy them and sell them for $9.95. We also have guys who go to Wal-Mart and buy catalog titles for $4.99 and then open them up, make them look used and sell them for $7.95.”

Members of Engen's buying group, including Sarantakis, have been buying deeper to meet street-date demand, but selling off much sooner to maximize profits on PVT.

“A lot of these guys have doubled and tripled their orders. They are pushing to get as many out and sold as they can before Blockbuster and the rest, who mostly do rev-share,” he said.

But Sarantakis wonders how long that will last, with Blockbuster and Hollywood Video offering PVTs to consumers at ever-lower prices.

“We are decreasing our rental purchases because we aren't selling them as much. It has already backfired on us,” he said. “If we brought in 100 copies of something, you put them out for rent, and by the second weekend they are not renting. We would put them out for $14.99. Because of Blockbuster and Hollywood, we have had to go to two for $20.

With the dollar stores (selling discs), it's really killing the value. I don't know what it is going to be after the New Year, but I am afraid that soon we will have to sell them for $5. I don't want to kill my market, but I might have to do that.”

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