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The Ultimate Retail Business Model

10/04/2012

HalfPrice books has an intriguing business model – buying inventory from the public and overstocks from publishers, then selling at a discount. Could this model work for other retailers?

Tuesday I found myself with two boxes of mostly hard cover books at the “buying” counter of a HalfPrice Books store. I didn’t count them but there were approximately 50 books on a variety of topics no longer of interest.

The “buyer” carefully inspected each book, looking at the title, author, subject, condition and appearance. After about 15 minutes my name was called. I hustled up to the counter to hear the buyer, “We’ll give you $12”. I didn’t have a pre-set value in mind but $12 seemed amusingly low.

Then it dawned on me. This store, which looks a bit in disarray and smells a bit like an attic, is a cash-making machine.

Buying an inventory at rock-bottom prices gives HalfPrice Books the potential for huge margin dollars on every transaction it makes. In my case, 50/$12 = $.24 cost. Retail prices range from $4.99 to $19.99 – for this exercise let’s assume every one of my books sold for $10. Assuming other costs (people, rent, marketing, insurance, etc.) rolls up to $1.50 per book – the retailers cost per book sold is $1.74. With a profit of over $8 per book, HalfPrice Books is printing money!

Yes the book market is tough (ask the folks at Borders) and evolving (ask the folks at Barnes & Noble) but HalfPrice Books, with 115 stores in 16 states, may be on to something.

Applying the HalfPrice Books model to other retail sectors is intriguing. In sporting goods Play It Again and Second Wind  have similar set ups. But what about apparel, jewelry & luxury items, art? I think there’s an opportunity there.

So I took my $12 and left without buying anything – which is part of why the “buyer” takes his/her time going through my inventory…hoping I’ll find a CD, book or game to leave the store with (while leaving more of my money behind).

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