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By FBNews.net

JetDVD.com began as a chain of retail stores in Hudson, New York, but over the last two years, it has transitioned into a strictly online video sales shop. Although many businesses falter during the rough transition from bricks and mortar to pure-play web shops, JetDVD has solidified its position—and its profitability-- in a competitive market.

As a recent college grad, Tom worked for a manufacturing company in New Jersey. His brother was practicing law on Wall Street and managing the firm´s branch in Hong Kong. They had entered business ventures together while growing up, and decided they wanted to continue to work together - finding the right business came next.

"Previously, we had worked together at an organic beef company where we´d raise cattle and custom cut the meats for customers. It was literally on the same road we had grown up on in upstate New York. We decided we were tired of chasing steers around, so we basically decided that we wanted a new venue for our business interests."

Since they both had full-time jobs, they needed to find a venue that would allow them to maneuver around the time constraints imposed by their other work. They found the concept for video rental business in Entrepreneur magazine in 1982, and subsequently, they got involved.

"I would come up during the weekend and add stores. Ed was working in Hong Kong at the time and I was still working during the week in New Jersey, so our mother ran the first storefront we opened."

"On my lunch break, I´d call her up and she´d say `Well, we sold this many VCR´s today!´ At that point, business was really slow, and we had to sell Commodore 64´s and Atari video games just to stay in business!"

"In 1983, business started to accelerate, and we began to make some changes. We had originally offered video club memberships, but we did away with them because we felt that they were an unnecessary entry barrier—it kept people from spending money in the store. That´s when it started to take off."

In the mid-80´s, Tom began to work with the stores full-time and extended the chain to ten stores in three counties. By the mid-1990´s, however, he unfortunately discovered that, due to film industry factors (such as revenue sharing between the studios and the larger, corporate-owned video rental chains) the studios were essentially pulling the rug out from under the independent video stores. And with the advent of pay-per-view, satellite television and the Internet, the rental patterns of the customers began to change and decline.

"We felt that we still wanted to remain in the video entertainment business, however we needed to change, we needed to find new venues to pursue while still building on our old relationships."

That new venue would be the DVD. And, taking their combined experience in sales, management, and even software development, they decided to leave the video rental arena and become a purely web-oriented sales business.

"From a management standpoint, I feel that there´s a world of difference in the stress levels [compared with a bricks and mortar business]. For one, inventory control is much, much easier."

Early on, Tom and Ed developed and created their own proprietary multi-store software programs that allowed them to coordinate activity between all of their retail locations. For customers, this meant the ability to rent and return videos to any of the stores. But while this made shopping convenient for the customer, it made inventory control a real challenge. In addition, their youthful staff often gave free rentals to friends—and friends of friends—only adding to the serious issue of inventory shrinkage.

"Over the years, as the margins slipped in the video rental business, shrinkage remained constant, and our profits grew smaller and smaller. We felt that we couldn´t subsidize that shrinkage any longer, and meanwhile, the industry was shrinking in overall rentals. That´s why we moved into sales. The whole modus operandi is different."

"About a year prior to the advent of the DVD release, we had decided that we would pursue that format, partially in the store with rentals, but we felt that to reach a broader market, we would have to go online. We were actually among the first few players that had a site selling DVDs online."

"That happened in 1997. DVD (as a format) just had its fifth birthday, and we´ve been involved with them literally since before they started. In fact, at one point early on, Warner Brothers wasn´t distributing DVDs through any traditional channels, they were simply selling them out of a few stores in 5 major US cities. We would go to New York and buy the product so we could offer it to our customers online."

Tom describes those early days of the DVD as having "sort of a cloud hanging over them," similar to the early days of video rental in the early 1980s. No one was really sure if the new format would take off: copyright issues were as unclear as they had been at the dawn of the video rental age, and while some studios favored the DVD format, others backed another competitive digital format.

It took some time before DVD became the accepted standard, not only among the studios, but among the producers of electronic equipment— and anyone who owned a Betamax machine back in the 80´s is fully familiar with the frustration of jumping on the bandwagon of an emerging technology only to discover a year later that a competing technology has become the new standard!

"Now, of course, it´s become an incredibly competitive business with companies like Amazon and some of the other larger players getting into DVD sales. We really had to minimize our costs as much as possible, but we´re still standing."

"We feel that the reason we´re still in the business, in addition to the fact that we´ve built on long-standing relationships, is that we´re offering service and a personal relationship with our customers. That has really, I think, allowed us to hold on to our customer base in the face of ever-increasing competition."

"For us, it was important to get in the game early and develop a high level of service that really spoke for itself. That has been the main thrust of our marketing campaign, not a giant advertising budget. We grow our business through customer referrals."

And they fully intend to maintain their customer base: They´ve recently introduced a new program that will, they hope, create even more customer loyalty. The program, called "GetFreeDVDs," allows customers to accrue "DVDollars" with their purchases, and their DVDollars can be used to get other DVDs for free.

"We feel it will keep customers coming back to our site rather than purchasing from another site. It also improves their interaction with the site because they´re checking on their credit balance on the site."

"In order to keep the business alive, we´ve decided to go to a bare-bones, highly efficient structure. We´ve basically carved away all unnecessary overhead, and because of that, I can pretty much run the company alone now."

Keeping up with the changes in technology has proven to be one of the most difficult aspects of the business.

"It took a couple of years for us to decide on the best software platform for our storefront, software that would really allow us to expand on our database without incurring huge costs. We experimented with some different packages and went through all these different permutations before we actually came up with a solid, operational platform for our online business (Intershop software). We even had difficulty with the approved local vendors of the software because they weren´t as technically savvy as we hoped they would be in relation to this product."

"We finally have a happy marriage between the software we use and the technical support we require at a cost we can live with, but I think that a lot of companies getting into [online sales] can find themselves in deep water very quickly. And the real cost of that - is in having to redo a lot of work."

"What we´ve done to keep our head above water in an extremely large and competitive marketplace with deep pockets is to focus on a niche, one that we can handle, and one that we can do well. We decided early on to focus on one specific area and one specific product line, and not to lose our focus."

And this is no small task—they´re up against some of the biggest national players. Tom points out, however, that while the major corporate players like Amazon have entered the DVD sales business, and do an incredible amount of volume, they haven´t, to his knowledge, made a profit in this area.

"I feel that their basic problem is that they´ve added too many lines. They´ve added CDs and games as well as DVDs, and they´re not the only ones pursuing those different venues."

"I really feel as though our success has been in concentrating only on DVDs. We may eventually add [other lines], but only insofar as we can control it without a lot of incremental costs. We want to maintain a high level of customer interaction. We feel like we really need to keep our eye on the ball when it comes to the customers. They really appreciate having a one-on-one relationship with us, the speed of turnaround on orders, and the customer assistance we provide."

He says the company developed an overseas audience early on, which they have maintained over the years and continue to heavily support. To a certain degree, they eschew the US domestic market because the larger players dominate it. Companies who can sink big money into a marketing budget, and who place their emphasis on a market share rather than a profit margin.

"I think that it´s important for people to realize that sometimes you have to take a laser beam approach to things because there are so many things offered to consumers. We feel that we have a better chance of maintaining volume if we focus on a specific niche. That´s how we´ve become a profitable online business."

"What brings a customer to a particular boutique or niche? And what keeps them there? These are the questions you have to ask yourself."

Business profile courtesy of Family Business Strategies.

Tom Benton can be reached via email or at http://www.jarboedirect.com.

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