ENCINO, Calif. -- Video stores do not have to be big to be profitable, according to a study released this month by the Video Software Dealers Association, here. The Benchmarking Study was conducted for VSDA by Arthur Andersen, Chicago.
"The results of this data will enable retailers to measure their own store's performance against the video retail industry at large, as well as against the high-profit performing group," said VSDA president Bo Andersen. "We believe this study now offers retailers a valuable business tool that will take some of the guesswork out of operating a profitable video store. We encourage all of our retail members to utilize this resource to [its] maximum advantage."
Supermarkets with video-rental programs should take note of the results as well because, in many cases, the operating results from smaller video stores parallel those of supermarket departments, industry observers noted.
The study found that while the average revenue in a "typical video store" is insignificantly different from the average revenue in the "highest profit" group stores, stores do not have to do big sales numbers to attain high margins. A sales volume in the upper $200,000s can result in a healthy bottom line, noted Mark Fisher, vice president of membership. "Most video retailers will be able to profitably survive on lower revenues in the years ahead, if they operate cost efficiently," he said.
The study said there is a significant gap between the rental gross margin in the high profit store group and that of the typical store group, despite the fact that revenues are equal and buying conditions should be similar. Consequently, it seems that the more profitable retailers either more effectively negotiate price, more effectively select product mix and quantity, or charge higher rental rates, according to the report.
The most profitable stores plan for the future and the study found they have made the heaviest commitment to building DVD inventory. This is in spite of numbers that show investing in DVD inventory is currently a drag on gross margins.
The study also found that stores that best control operating expenses were more likely to be high-profit stores. "High-profit stores spend almost 10% less of their income on operating expenses than the typical store," said the report. These stores kept costs down in both personnel and other expenses. For example, typical stores averaged 23.7% compensation compared to 19.5% compensation for the higher-profit stores.
"The difference in compensation expenses is based on the number of man-hours scheduled and spent in each store as well as the full-time/part-time employee mix. It could also be a reflection of the amount of time the owner/operator spends in the store," Fisher said.
The study recommended several "Best Practices" and operating procedures that have been implemented by the high-profit stores in the study. Among these are: