Brad Kugler, 40, has been awash in DVDs, CDs and VHS tapes for nearly half his life, thanks to his family-owned business in Palm Harbor. As CEO of Distribution Video and Audio, more commonly known as DVA, Kugler buys millions of excess DVDs from Hollywood studios in bulk and resells them over the Internet and to retailers, from the dollar chains to the big box stores. (Think of those bins of price-slashed DVDs at your local Wal-Mart.)
He's now presiding over the latest growth niche, one nurtured by people out of work and eager to make money off the Internet from home. Individual entrepreneurs buy small batches of the close-out inventory DVDs from Kugler's company and then resell them on the Internet, sometimes doubling their investment. Sales in that business slice, which DVA calls its special units division, are up 60 percent in the first quarter compared with a year ago.
How has your company kept evolving?
This business was bought by my father in 1988. Blockbuster franchises were growing tremendously in the '80s. We'd buy up the extra VHS tapes and resell them to others, to those who were starting Blockbuster franchises. That business dried up in the late 1990s completely. Blockbuster stopped granting new franchises. My brother and I started hitting up the major retailers, the major distributors. It was the same model but on a larger scale.
So it's truly a family business.
It's me and my brother, Ryan. He's our sales guru. He's in L.A. with eight of our staff working with seven major Hollywood studios. We're located across from Disney, down the block from Warner Brothers and Universal. It's all about those relationships.
How many DVDs do you have warehoused here?
About 3 million units. We've got 25,000 square feet here and another location in Clearwater with 17,000 square feet.
How are sales going?
We had about $22 million in sales in '07; about $20 million last year. But we've had a really strong first quarter, so we'll be back. … Bulk retailers are down, but (the special units division) and Internet resellers are both up.
So the recession's been good to you?
I know. What happens when the economy takes off? Does that mean I start getting worse?
How much is driven by selling to individual buyers who are reselling on the Internet?
It's doubled since September. We have hundreds, probably well over 1,000 of these customers now. We've got 38 (employees) and a little less than half of the company is working on this. … For both Internet resellers and our online sales in March … we had our best month ever in eight years in the height of the worst economy. So we're strategizing, "How do we do it again?"
Walk me through how it works with the small buyer.
They'll buy a case or two or 10. Each case has about 30 items in it. … They'll buy it for $2 (per DVD) here and see it's going for $5 on the Internet.
What's your markup?
The stuff out (in the warehouse) that goes for $2 usually costs us about a dollar.
Don't you have to be careful about what titles you get in the shipments to make sure it moves?
It doesn't' matter what you buy as long as it's at the right price. Everything sells eventually.
But couldn't that small entrepreneur get stuck buying 50 copies of The Parent Trap from you that they can't re-sell online?
They absolutely can, and it does happen. They get stuck for product and we offer to buy it back, though at less than they bought it for.
It's the exception … but it happens to us, too. Two years ago, we bought 79,000 copies of The Man with Two Brains. Horrible movie. I should've known it would be a problem. Here we are, two years later, and I still have 39,000 of them. I bought it for 77 cents (a unit). Selling it now for a dollar, for 50 cents. I can't give them away.
What's your next evolution?
People say, "What's going to happen to you with digital downloading?" I think there will always be people who want this, even if it's collectors. There will always be another format that comes out. … They can't download some high-end features (available on DVDs). There will always be that chase.
I don't see this as a buggy whip industry. It's buying and selling goods — as long as you know how to buy low and sell high.