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VSDA Study: Retailers Raising Rental Prices as Transactions Slide

22 Sep, 2004 By: Kurt Indvik

BALTIMORE — The average video store generated about 9 percent in net profits after taxes in 2003, according to the Video Software Dealers Association's sixth annual benchmarking study unveiled during the Home Entertainment Retail Expo here. That profit level is on a par with last year's study results.

One-quarter of study respondents posted a 17 percent or higher profit; one-quarter tallied between 9 percent and 17 percent in profit; one-quarter made between 2 percent and 9 percent in profit; and the final quarter showed 2 percent or less in profits for 2003.

The average store gets about 66 percent of its revenue from rental activity, and the remaining one-third of revenue from such categories as extended viewing fees (11.5 percent), previously viewed sales (7.8 percent), new-release sales (5.3 percent) and other products.

Retailers were looking to capture greater ROI through price increases it appears, even as they struggled with fewer rental transactions brought on by the growing sellthrough market, survey results showed. Retailers charged on average $3.49 for a new-release rental, up from $3.29 in 2002. Catalog rentals were going for $1.99 on average in 2003, up from $1.75 in 2002.

Meanwhile, the average rentailer rented 72,272 videos during the year, down almost 25 percent from 2002's 96,026 videos rented. Annual rental transactions averaged 63,922, compared to 66,206 in 2002, according to the study. Because fewer videos appear to have been rented during each transaction, the average transaction in 2003 was $4.39, down from $5.79 in 2002.

David Benish, VP at Gerke & Associates, which conducted the survey for the VSDA, noted that “top-performing” stores, which generated better-than-average profits, did so by controlling labor costs — the biggest cost category at more than 27 percent of revenue — and maximizing sales of concessions (15.3 percent of revenue vs. the average 9.2 percent); collection of extended-viewing fees (13.2 percent vs. 11.5 percent); and previously viewed sales (9.7 percent vs. 7.8 percent). Top performers generated gross profits of 68.7 percent compared to 62.5 percent for the average store.

The VSDA will post the complete results of its benchmarking study for members on its Web site, www.vsda.org.

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