Owning a DVD Rental Store (1 Viewer)

[John Berggren]

I've lived in North Carolina for the last 7 years. I've lived in various parts of the Triangle. The availability of DVD rental has been spotty.

When I lived in Chapel Hill and Durham, I could go to an outlet called Visart that carried a large selection of widescreen DVD in addition to magazines and newspapers.

In Cary (near Raleigh) where I now live, the only player remaining is blockbuster, after the "cool" video store went out of business due to financial mismanagement or tax evasion... Some scandal.

Anyway, I've seen some here are small video store owners, and I want an idea of how it goes. After my friends brought over One Hour Photo in pan-and-scan from Blockbuster last week, I got to thinking that someone ought to open a video store that caters to us. I've often considerred opening a rental store or a comic shop, but have never actually persued it.

So for those of you who are at it, is the business healthy? Is it something I'd likely lose my shirt on? Basically I'd be going head-to-head with Blockbuster, and my main benefit would be people who were fed up with Blockbuster, but are they already using Netflix?

So any thoughts on the matter would be great. It's not something I would want to enter into lightly, and I'm not even sure that it would make sense for me to get out of Network Administration to get into this.

 

[Paul O]

I was reading about a succesful video rental store (yes..video's and dvd's as many obscure titles arent available on dvd) in L.A - it catered to the filmaker, student set even though it was across the street from a Blockbuster. I think if you can find a niche such as the above you could be succesful but most small businesses fail so the odds arent that great.

 

[Bruce Hedtke]

If this was VHS, I'd say never. Blockbuster became what it was because of the deals they had with the studios that put so many mom & pop outlets out of business. With DVD, the overhead is much smaller and the playing field is "level". Since, in the rental industry, DVD's are dirt cheap, you only need to rent a disc 4 or 5 times for it to be profitable, versus over 20 times for a VHS cassette ($4 per rental). As long as there is a good supply of DVD renters and Blockbuster is the only alternative, I wouldn't be afraid to take the chance.

but are they already using Netflix?

Despite it's popularity, Netflix is still vastly underused and many more people rent from a walk in outlet than through an internet site.

Bruce

 

[Don Black]

I would be careful about the "sell-through" nature of the DVD format. There are many parties lobbying the studios for a rental window similar to that of VHS. With Warren Liebfar (sp?) no longer at WB, such parties are growing in strength. If such a change does occur, then your business will be squeezed out like all of the other mom-n-pop stores by the BBs, HVs, and MGs of the world.

 

[Cees Alons]

First of all: I'm far away from the US and the US rental market. My remarks may simply miss the proper points and should be seen as an addendum anyway.

That said, I think you should not concentrate on rental alone, because of the uncertainties. Try selling as well, And furthermore, you may think about something "special" to attract the curiosity of the customers as well as offer something that cannot be copied too easily in your area, like an on-line service (for selling), or so.

Cees

 

[DavidMich]

Three Words:

Buy

Sell

Rent


Some new stores have cropped up lately that do this.
Their prices are kind of high if you buy....
But you can offset it with selling your old DVDs that you want to get rid of. (Or you can rent....)

I sure hope they give ButtBuster a run for their money..

 

[Lee L]

Hey John,

I would rent from you. I too lament the loss of all competition from BB. I can't remember the name of that store though, it was really cool being able to rent laser there in the 90's. Somehow I felt superior to all those VHS people.

Just remebered it was Carbonated Video.

 

[Howard Williams]

Netflix (no late fees, good selection, outstanding convenience) and a near-by Albertson's (up to 8 DVD's for $0.99 each on Mondays, selection not so great) is a tough combo to beat. I haven't stepped in a Block Buster or Hollywood Video in years, nor do I plan to. I think any new Mom & Pop rental place would fall into the latter category for me.

 

[Justin1]

CONS

The profit margin involved in video rental is awful. You have to diversify the business with other interests such as tanning booths. In addition, the chance of survival is much better with multiple stores, in order to spread costs and lower risk. If your lucky, one DVD will make probably make $40 in rentals (over initial 2-month period) and then $10 in pre-viewed purchase. This totals to $50 (at best) over a 2 month period, or $25 a month. The DVD from and offical supplier will run about $20 a pop for a profit of $30. This now comes to $15 a month.

PROS

A video rental store would be very easy to start up initially. All you need is the storefront and proper interior fixtures (Computer, displays, proper signage, etc.). Using a lease option, a store could be set up in a matter of days. The best part is that you don't have to buy a large stock of old inventory. Just start with the last month of movies and supply the new releases. Almost everyone rents the new releases. This is where the money will be initially. And, for a start-up business, a steady cash-flow is very important. Over time, if things work out, you can work on building a better back catalog.

 

[Joe Burch]

I'd have to agree with Justin from SD. I started a small record store in my area about 6 years ago with the idea that there were two places to get CD's - Wal-Mart in one nearby town, and the high-priced record store in the mall in another town about 30 miles away. We were dead smack in the middle between the two, in a coastal area with about 30,000 local people in it and no "town" to speak of, just strip development and small M&P shops along the ocean area.

My theory was:
A) you can't get everything everyone is looking for at Wal-Mart and
B) you can find it at the mall but who wants to pay these absurd mall prices.

The punch line: we failed. We managed it well, had very little debt, and a good customer base to begin with. But we failed for one simple reason:

There is no profitability in small business unless you have a niche or provide a service related item.

In other words, you have to sell a s**t-load of CD's to pay the rent each month.

When the M&P has to pay $14.98 for a new release CD, because they can only buy say 10 of them, then to make any money they have to sell it at $17.98, full retail. Wal-mart buys the same CD for $8.98 and can afford to sell it at $11.98.

Get my drift. Plus, the record shop at the mall has MUCH more impulse buying. You can go to the mall for A LOT OF THINGS! You ONLY come to my store to buy music.

Everything was great in our theory, but in reality you can't really compete with the Wal-Marts and Blockbusters of the world UNLESS you A) have a significant market base of clientele aka. metro area or college area and B) you offer a service or product that is niche.

The critical piece of having a niche business is that you MUST have SIGNIFICANT clientele to make it work so the two are really not mutually exclusive.

I'm not saying it wont work, but do your homework on the area first. Are there enough clients REALLY sick of Blockbuster? Why would they come to you? How much capital do you have to weather the dry month you will INEVITABLY get? There are a lot of questions to ask. Just because someone did it before doesn't mean it's still profitable now. Perhaps they eventually just couldn't compete with BB.

I've seen almost ALL of our M&P Video Rental places go under in the past 5 years, and I live in a major metro area. The only ones that I see surviving are those within walking distance of large population nodes, and that don't have a BB nearby. Chances are though, there will be a BB there soon.

Good luck if you decide to do it. I would recommend having 6 months of reserve on hand when you open. In other words, you need to be able to stay in business for 6 months if you don't rent a single thing that whole time. Sometimes the economic cycles are what get small businesses, not mismanagement. Most small business don't start with a reserve and when a bad month hits, they're done. Another thing I would do is really bust your butt to get the cheapest supplier you can. That could make or break it.

Anyway, I could go on forever about what NOT to do. The best thing is to try it if you have the dream. If it's just something you think you might like to do, but don't really have a burning desire to do it, then I'd think twice. Running a small business often takes 16 hours a day, 7 days a week for the first year and everything else in your life will suffer. You have to be dedicated and willing to give up most things to see it succeed. I'm on my second business now, and it's been going for 7 years so I can say it does pay off, not necessarily making me rich, but rewarding.

The best advice, find your niche and exploit it.

Nuff said

Joe