Barnes & Noble Inc. (BKS) has started selling used CDs and DVDs through its website, looking to better compete against Amazon.com Inc. (AMZN) and other online retailers while also trying to capitalize on consumers' recent willingness to buy less-expensive, used products.
"We're always looking to grow the [web-based] Marketplace business because it's something existing customers show an interest in buying from," Michael Curro, director of Barnes & Noble Marketplace, told Dow Jones Newswires Tuesday. "We're also looking to show the guys at Amazon that we can do anything they can do."
While analysts said that offering used CDs and DVDs is good for Barnes & Noble, they doubted how much the move would actually help it compete with Amazon.
"I think right now everyone's kind of chasing Amazon, but no one is running as fast," said Pacific Crest analyst Steve Weinstein, who covers Amazon. "This certainly is a good move for Barnes & Noble, but Amazon is just really executing at a high level and has amazing momentum. It's going to take more than a 'me too' offering to knock Amazon down."
Barnes & Noble said in a press release that thousands of used and new titles are available "from a wide range of trusted sellers" through its Marketplace program, which now offers access to "tens of millions of new and used books, CDs and DVD titles." Barnes & Noble has been selling used books since about 1998, Curro said, and launched Marketplace--with third parties shipping directly to customers--in 2003.
While Curro declined to provide specific details about what the company expects financially from the CD and DVD sales, he said Barnes & Noble will receive a 15% commission for all items sold through Marketplace--in line with current industry standards, including at Amazon--and that the company will "most definitely" see an improvement in the overall Marketplace business.
"It's going to help our DVD and CD business because selling items from third parties brings in lower prices, and it's important to have a low-price option for customers," Curro said.
In recent trading, Barnes & Noble shares rose 7 cents to $20.12, still down 14% over the past 12 months.
Barnes & Noble, the biggest brick-and-mortar book retailer, has suffered from declining sales because retail traffic dropped during the economic downturn. Shoppers also have turned to online and discount booksellers, with sales of used media particularly strong in recent years.
Pacific Crest's Weinstein said selling used items online is appealing to companies because they can offer more product without being constrained by or investing in floor space, and the third-party sellers incur the costs of housing and shipping the products.
"It also improves the buyer experience because buyers are looking for a deal, and it allows them to compare value," Weinstein said.
Barnes & Noble's Curro said Barnes & Noble decided to expand its offerings due to interest from customers and sellers. Its recent investments in infrastructure--including updating its website--made the rollout more seamless than it would have been a few years ago.
While Curro said Barnes & Noble doesn't have any immediate plans to expand its marketplace offerings into areas such as videogames--it only sells items from third parties that Barnes & Noble also offers--its technology can allow it to expand in any direction it needs to.
C.L. King analyst William Armstrong said that while the news is positive for Barnes & Noble and there is "definitely" a market for used CDs and DVDs, Barnes & Noble is a little late to the game.
"I don't know why they didn't do it a long time ago," Armstrong said. "It seems an obvious way to leverage their website."
Morningstar analyst Peter Wahlstrom said the market for used CDs and DVDs is competitive, and the move likely won't be a game changer for Barnes & Noble as it's looking to stake a claim with current customers and gain a little more "wallet share."
"It's going to generate gross margin dollars, which is good, but it's not enough to move the needle," Wahlstrom said.
COMMENTARY: I traded in a bunch of dvd's in 2009 with a local music and video retailer located here where I live. I thought my used dvd's were worth something, but I was due for a rude awakening. The average value I received for my dvd's was about 50 cents. Most of these used dvd's are then resold at $5.95 to $7.95 each. This generates quite a profit margin.
The advantages to Barnes & Noble is "cheap" inventory with relatively high utility value to the average consumer. DVD's are not cheap. Blue-Ray formatted dvds are outrageously priced. Makes better sense to watch the movie on cable TV on-demand o download it from an online video rental site like NetFlix.
There is a stigma that used dvd's have. You don't know how many times they have been viewed or how they were handled or who handled them. If you buy used dvd's from a video rental chain like Blockbuster you can get them three or four for $19.95, but they were also viewed 100's of times. You take your chances, but that's where I bought most of mine. There is a market for used dvd's and music CD's, but you get what you pay for.
Whether this strategy will improve Barnes & Noble's revenues remains to be seen. With book margins running about 20% to 30% at best, selling used dvd's and music CD's offers the opportunity for much higher margins. However, they are going to have a lot of competition from Amazon.com, which sells both used books, dvd's and music cd's.
As I have pointed out previously, Barnes & Noble and Borders both should be planning for the future when most books will no longer be printed but available in digital format for reading on eBook readers, the Apple iPad and your home computer.
Courtesy of an article dated May 18, 2010 appearing in The Wall Street Journal's Business Blog
Serving as a director is an on the level activity
Posted by: Fred74 | 05/19/2010 at 11:15 AM