videostore

A DVD Industry Insider Comments on the Video Rental Business and Netflix' Advantage (BBI, MOVI, NFLX)

There are a few ways to determine if high SG&A is natural/structural or ornamental.

Looking at retailers with lower rings and even higher variable transaction costs (McDonald's SG&A 35%, Starbucks SG&A 42%) it appears that they have managed to keep SG&A 20 to 30% lower than video stores.

Since low ring transactions would manifest themselves through higher hourly employment requirements, one could look at hourly employment deltas for peak hours and extrapolate their additional costs. Video stores typically require peak staffing for a 4 hour band on Friday and Saturday. Since management costs and real estate costs are fixed and these peak hours only represent about 7% of operating hours and hourly labor represents about 15% of costs then the lower rings probably increase SG&A by about 2%.

One can also look at the SG&A costs in video stores and determine if there are ways they can be reduced. If a store needs to operate 96 hours a week, needs 11 FTE's, needs 6,000 square feet, etc. then one could make an argument that the higher SG&A are required. If it can be demonstrated that the store can make improvements in any of these areas, one might suggest that SG&A can be reduced.