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Rentailers Tempted by Mass-Merchant Prices

17 May, 2004 By: Erik Gruenwedel

Nolan Anaya, owner of Captain Video in Amherst, Mass., had a problem: He had forgotten to order copies of Master and Commander: The Far Side of the World prior to its street date last month.

Undeterred, Anaya went to Wal-Mart and found “tons” of copies priced at $13.88 — $5.16 below his cost from his distributor.

He bought 36 copies.

“Going to Wal-Mart, I could cut my movie budget by 27 percent on all ‘A' DVDs,” Anaya said on the VSDA discussion board. “If I do this eight times a month, I could go to Jamaica every month on Wal-Mart.”

Ed Reynolds, owner of Movies ‘n' More, uses a rebate card at Best Buy to purchase titles after checking prices at Wal-Mart.

“Will it soon become an indie thing to meet at the local Wally World?” said Reynolds on the same discussion board.

Faced with the reality that video retailers often can go to Wal-Mart, Sam's Club or Best Buy to find titles discounted below that of their distributors, it's not a big surprise that in a recent Video Store Magazine online poll more than 41 percent of respondents said they frequent mass merchants on a weekly basis for product.

“I know it's happening,” said Todd Zaganiacz, president of Video Zone, in South Deerfield, Mass. “Whether it is people who need extra product or buying to open the store in the morning, with [mass-merchant] pricing getting even more aggressive, it is probably happening even more.”

When the price difference between a mass merchant and the distributor is up to $7 on a given title, Zaganiacz said the incentive is high. “It adds up when you are buying a lot of copies,” he said.

Steve Scavelli, president of Flash Distributors, agrees the mass merchants can provide retailers with substantial savings on large-quantity orders. But he counters that hidden costs, paying COD instead of 60-day billing cycles, not having select titles in stores on release day, and the labor involved in physically locating and distributing titles among a retailer's stores are services only a distributor can supply.

“What is your time worth?” Scavelli said. “If retailers look at distribution as a source for product only and they don't look at the longterm picture, then they should probably go to a big box to buy.”

Some retailers confessed remorse for frequenting a mass merchant.

“We rarely, if ever, buy from Wal-Mart or Sam's Club,” said Russ Homer, president of Instant Replay, Pittsburgh. “That's simply because [distributors] are friends of ours. We feel some loyalty there.”

Homer said trips to mass merchants have only occurred when a popular title was underordered.

Ditto for Gala Schwab, co-owner of Casa Video in Tucson, Ariz.

Schwab said biweekly runs to a local Costco occur only on the occasional Tuesdays when select pre-booked titles are in short supply.

“It is just easier for us to get them on time from the distributor so we can process them,” Schwab said.

Bruce Herberger, president of Showtime USA Video in Loveland, Colo., believes the practice of buying from mass merchants is both widespread and underreported, but he doesn't often engage in the activity. “We believe in the distribution system and we are going to stay in it for as long as we can,” he said.

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