VSDA Releases Retailer Benchmarking Study30 Sep, 2003 By: Kurt Indvik
Video rental stores are taking the opportunity to raise rates, even as their cost of goods has decreased and transactions increased. As a result, they have increased their contributing margin (gross margin minus store operating costs) by 44 percent from last year, to 9.1 percent, according to the annual retailer benchmarking study released today by the Video Software Dealers Association (VSDA) during the East Coast Video Show in Atlantic City.
To retailers who have resisted increasing their rental rates for fear of losing customers, “Don't sweat it, just do it,” said Ken McLeer, owner of Video Headquarters, who participated on a panel of retailers discussing the results during a session at the East Coast Video Show.
“I have never had anyone complain about rate changes,” said Halsey Blake Scott of C'Ville Video, in Charlottesville, N.C. Scott added that he works to “soften” rate increases by having specials during the transition to ease people's assimilation of the rate increases. Mark Fisher, VP of membership at VSDA, who moderated the session on the benchmarking study, added that employees, who are often the most resistant to rate changes since they are on the front lines with customers, can be given some coupons for special discounts during the introductory period to ease in the transition.
The study, which compared retailer metrics from 2001 to 2002, showed that the average rental price rose from $3.05 to $3.29. The average rental price was $3.37. Adult product rose from $3.5 to $3.98. Interestingly, catalog rental rates decreased from $1.99 to $1.75 in 2002. The revenue gain in rental rates was compounded by a 6 percent increase in rental transactions.
The typical store surveyed had revenue of $335,000 in 2002, with rentals accounting for 59 percent of a typical store's revenue. Sales of new video increased to 7.5 percent from 4.5 percent in 2001, while previously viewed sales increased from 5.6 percent to 6.4 percent, according to the survey, conducted for the VSDA by Gerke & Associates, a management-consulting firm.
Extended viewing fees constituted 10.7 percent of revenue; concessions, 7 percent; adult video rentals, 4.5 percent; and video game rentals, 4 percent.
The study shows that revenue per customer continues to grow, reaching $77.07 annually, compared with $57.11 in 1998.
Of the respondents representing 112 stores located in the United States and Canada, about 25 percent lost money in 2002, while one-quarter made between 0 percent - 9 percent, another quarter made 9 percent - 17 percent, and the final 25 percent made more than 17 percent on their contributing margin.
In looking at the high-profit stores, the key was not just in driving more revenue, but also in controlling operating costs. In revenue, the high-profit stores did more with a moderate growth in transactions, earning $6.27 per transaction as compared with the typical store's $5.74. But the high-profit stores paid less comparatively in both labor and rent than the typical stores. High-profit stores also had about 20 percent more in inventory than similarly sized typical store results.
“This just illustrates the opportunity that is there for all retailers,” Fisher said. “While we want to believe that higher-profit stores just do more revenue, this shows that that's not the case; it's a difference in operations.”The complete survey results are available for VSDA members to download on the association's Web site, www.vsda.org. Retailers can use interactive tools to input their own store numbers to see how those numbers compare to the benchmarking results.