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Does any store *really* sell DVDs at a lost?


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#1 of 13 OFFLINE   Frank@N

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Posted November 26 2003 - 02:22 AM

I'm sure everyone has heard the term 'loss leader' in reference to retail chains that slash prices to the bone.

But can any store continuously sell products at a loss?

I've heard that WalMart losses money on CD sales just to drive foot traffic.

Could this be true of DVD as well?

I only go to WalMart for week one sales and to check 'the bin'.

Does anyone know what studios are typically charging retailers for product?

Despite week one sales, I still don't think we're getting anywhere near cost.

#2 of 13 OFFLINE   John Millers

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Posted November 26 2003 - 02:37 AM

Yes retailers lose money on DVDs.

Eveyweek a list is posted showing the manufaturer price changes. For those with inventory a $29.99 to $9.99 drop has a little sting to it.

While the true cost of producing the dvd doesn't cost $9.99 everyone has to get their cut.

I work in purchasing for a larger retailer, On average we average cost at about $12 a dvd & $8 a cd.
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#3 of 13 OFFLINE   David Lambert

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Posted November 26 2003 - 03:04 AM

John, don't most studios offer "price protection" for markdowns, especially to the biggest retailers?

In other words, if there's a drop in the SRP, unsold inventory is reported by the retailer to the studio, and a credit is issued for the proper wholesale amount difference.

This is the case in most entertainment-type specialty retailers (books, CDs, videogames, computer software), so I don't see why home video (DVD or VHS) would be different. In fact, I've been told in the past that this happens with DVDs.


I would venture to guess that the biggest potential loss leaders come from those items that are put on sale below MAP (identifiable as items in sales flyers that only say "Great Price", "Hot Price", "Low Price", etc.). And even those are probably not actually loss leaders, as they tend to come through from giant chains which can easily buy a high enough volume to qualify for the lowest possible wholesale prices.

Even thought we're used to referring to these as "loss leaders", I really doubt that the sale prices are lower than their wholesale cost. It may end up being a net loss when you take into account costs for freight, marketing, overhead (salaries, rent, electricity, etc.), and everything I'm probably forgetting. But the per-copy loss is certainly negligible, and is easily made up with on multiple sale transactions (i.e., you buy another, more profitable item to go along with the "loss leader").
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#4 of 13 OFFLINE   Malcolm R

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Posted November 26 2003 - 03:42 AM

I don't believe any store actually sells items for a loss. They may sell for only 1 cent over their cost, but I don't think any of them actually sell for less than they paid (some clearance-type sales excluded).

When you have the buying power of Wal-Mart or other big chain stores, you can get much better deals than smaller stores and can price your merchandise accordingly. I doubt Wal-Mart paid more than $2-$3 for the titles they sell at $5.88. They probably pay $10-$12 each for new release DVD title.
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#5 of 13 OFFLINE   Nick T Robot

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Posted November 26 2003 - 03:59 AM

Yes stores do sell items at a loss. But they do structure things so that overall they make as much profit as possible. Most people who are on this forum are informed shoppers, but they count on impulse-type buyers who come in to get a DVD at a great price (a loss to the store) but may end up buying a Plasma TV with that Christmas bonus check they just recieved. That's the perfect situation for the store, in most cases it's not that great of a purchase, but they do lose money on certain items.

#6 of 13 OFFLINE   Frank@N

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Posted November 26 2003 - 08:15 AM

Quote:
On average we average cost at about $12 a dvd


While we're on this subject, does anyone know if rental chains pay more per copy that retailers?

When I'm buying ex-rentals for $8-$10, I wonder how much money the company made off that disc (in general).

#7 of 13 OFFLINE   RolandM

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Posted November 26 2003 - 05:32 PM

I don't believe any store actually sells items for a loss. They may sell for only 1 cent over their cost, but I don't think any of them actually sell for less than they paid (some clearance-type sales excluded).


No I can't agree with that... I know for a fact that many stores do indeed sell things below cost. "Loss-leader" applies to every big store from electronics retailers, to drug marts to supermarkets.

My friend works at (CDN retailer) Future Shop (and I'm sure any electronics store employee will tell you the same as I am). Because of the employee discount he gets (he gets anything in store for cost + 10% + tax) he gets to see the cost prices. Often there are products (mostly DVDs and CDs but sometimes the "big sale" TVs and DVD players, etc.) that he would have to pay more for if he used his "discount".

But of the DVDs and CDs, the new releases mainly, lots of them are definitely priced below cost. Not much anywhere from a few cents to a dollar but still below cost. In big stores like Futile Shop, the loss-leader usually works because people go in and buy more than just the one DVD or CD, enough people at least for them to keep doing it, that's for sure.

At stores like Shoppers Drug Mart (sorry another CDN retailer), they almost always sell pop (soda I think many Americans call it Posted Image ) below cost alternating Pepsi products and Coke products to be on sale every week. They also have other items they sell below cost every week or so because the know people are going to come in and buy other reg. priced items that have a good mark up on them.

Grocery stores do it too especially the big chain ones. Out of all the retailers that do loss-leaders, I think it works out best for them. A sale on cheap ice cream or toilet paper is sure to get people into store and who is going to a store and not buy something in addition to the loss leader?

Loss-leaders are indeed real and it is the big retailers that do it most because they can afford to. Firstly they get the items cheaper because they buy such a quantity and secondly they can get customers in the store and then they have a huge selection of product to "add to their basket" before checking out. Getting the customers in the door is definitely a good thing.

#8 of 13 OFFLINE   RolandM

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Posted November 26 2003 - 05:40 PM

While we're on this subject, does anyone know if rental chains pay more per copy that retailers?


I dunno if you remember from the VHS days but sometimes a movie would be available for rental before it was available for sale. If you wanted to buy a copy of the movie it would cost you a few hundred dollars (!) so anyone in their right mind would just rent it and wait for it to be available for sale...

The reason it would have cost so much? Because the high price also included a rental license. Ever take a look at the copyright warnings that warn of "unauthorised" lending, renting, copying, and broadcast/public display of the movie? Well that is why the movies that video stores rent cost more than conusmer copies. You'd never have noticed it if you never wanted to buy one of those rare movies that wasn't for sale but was for rent, but the premium price was definitely there.

Nowadays, since the advent DVD, movie companies seem not to delay the consumer purchase availability--ever. You can always buy the DVD the same day it becomes available to rent...

I don't know if rental stores/companies still pay high prices "per" DVD but I'm sure they still have to pay license fees to the movie companies. You can't just start up a rental store from your house, well at least not if the authorities catch you!

After you figure in the license cost, whether it be applied per disc or as a cost added on to the price of all the DVDs purchased it is probably more than you'd expect I would imagine. In any case, they ARE indeed making money on renting movies but how much they pay "per" DVD, just for the movies themselves, I'm not sure...

All I know is for the consumer PV DVDs are a deal! Posted Image

#9 of 13 OFFLINE   John Millers

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Posted November 28 2003 - 04:22 AM

Dave,

Quote
"don't most studios offer "price protection" for markdowns, especially to the biggest retailers?"

The answer is yes, however that is if you are a larger retail and you purchase directly from a larger Manufacturer.

Stores will often purchase from secondary distribuitors, rather from each of the smaller manufacturers. The distribuitors also offer services such as preping the items (price,promos,securtity, unique packaging) for your stores.

When this happens the price changes are managed as more of an account with a running balance. A portion of the change will be credited to the account but the is credit never fully realized. Everybody gets a cut.

Because the task of managing and maintaining actual cost to the individual inventory item in each individual store it is easier to manage the average costs of the commodity. This makes estimated sales projections and promotions a much easier task to calculate. Don't get me wrong each penny is accounted for but not all returns, its the cost of doing business.
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#10 of 13 OFFLINE   John Millers

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Posted November 28 2003 - 04:27 AM

quote:

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While we're on this subject, does anyone know if rental chains pay more per copy that retailers?
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I think RolandM is spot on. There used to be that Rental Window. I was reading that BlockBuster was pushing to reinstate a Rental Window for DVDs. Based on the amount of double dipping these days it might help my impulse shopping problem
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#11 of 13 OFFLINE   Kenneth Harden

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Posted November 30 2003 - 07:49 AM

Yes stores do sell items at a loss. But they do structure things so that overall they make as much profit as possible. Most people who are on this forum are informed shoppers, but they count on impulse-type buyers who come in to get a DVD at a great price (a loss to the store) but may end up buying a Plasma TV with that Christmas bonus check they just recieved. That's the perfect situation for the store, in most cases it's not that great of a purchase, but they do lose money on certain items.

I agree. I know I am a dangerous shopper. I am out for the best deal, and I am NOT going to be buying a plasma TV with a $10 DVD. I will buy a handful of the $10 DVD's and come back when something else goes on sale.

If every shopper was like me, and I am sure the majority of you guys, everyone would be out of business Posted Image

#12 of 13 OFFLINE   Brett Sw

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Posted December 08 2003 - 06:56 AM

As for Wal-Mart...They sold $1.52 Billion dollars worth of goods the Friday after Thanksgiving. Compare that to the entire retail sector that did a Total of $7.2 billion and a guy (or gal) can realize just how huge they are. I may be from Missouri, but by my cipherin' that's 21% of all sales in the United States that day. I'd say that's enough to use the pricing model of their choice. Of course, I'm at work so what do I know...
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#13 of 13 OFFLINE   Mark Hamilton

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Posted December 12 2003 - 01:49 PM

Most of the major electronics chains in Canada that sell catalogue and new release DVDs sell the brand new releases at a loss. The loss is anywhere from $1-4 a peice in most cases.

As for catalogue, stores don't expect more than an 8-12% GM return which is obviously to small for tiny retailers and can only be profitable for places like Best Buy, Wal-Mart, Future Shop, and A&B Sound, which have a large number of stores.

Those $5-10 dumpbins that you see at retailers now are huge hits and typically maintain 10%+ GM so the stores love them!