We were at a dry goods store in PacMall on the weekend and the owner mentioned that she had to move since she could no longer afford the $6000/mth rent for the place. I assume that that cost includes all utilities, insurance, etc., but not inventory and of course salary. Adding a reasonable income of $4000/mth (which actually sucks for having to work 30 days in a month), that means a store has to clear $10k in profit a month in order to be sustainable. How do those clothing stores and hair salons do it?

It seems like they can’t really, and it feels as though a DVD store springs up every time one of them closes. There are so many that the competition has the price down to $2 a DVD! Are they profitable? Even at $2 a DVD, they are making a huge profit on each DVD sold. Here are some fermi calculations.

You can buy a 10-DVD duplicator for under $1000 at Canada Computers (hmm I wonder why there is a consumer market for these things?). Let’s say over the lifetime you market 20,000 discs so the average cost per disc is 5¢. You can probably duplicate in your spare time (i.e., over dinner or while watching TV) or get your lazy teenager/babysitter/housewife/cousin to switch around the discs when necessary. You’ll also need to somehow find the source copy of the movies and download them. Another monkey job that someone tangential can do. I’ll add another 5¢ overhead for the miscellaneous costs such as electricity. The DVD material itself should not be more than 20¢

You’ll also need some packaging, like a DVD case (10¢), a printed label, maybe a sticker on the DVD to identify what it is (for your benefit really since you will have piles of discs), and a little bag for your label and disc. 15¢ in total. Everything needs to get shipped so I’ll add 10¢ per disc. There are some other costs to running the store, you’ll need a DVD player, a TV and some shelves. I’d estimate your startup cost at $1000, or another 5¢ per DVD over the life of 20,000. The grand total comes to 65¢ in costs per DVD, which means over 200% profit even when selling for $2 a disc!

In order to make $10k a month, you’ll need to sell almost 7400 DVDs. That’s 740 customers that by $20 worth of DVDs each visit, or about 175 a week. On a weekend, I think they can sell (at least) $20 every 10 minutes, which is 48 customers in 8 hours. On the weekdays, let’s say they can find 1 customer every 30 minutes, which is another 16 customers per day. That’s enough to fill our quota and be sustainable!

Posted by Kevin in Blogs Tags: chinese, crime, economics, fermi, pacmall