February 7, 2007, 12:00 AM

DVD Empire says the force is not with the game business

DVDEmpire.com is dropping video games from its product line citing faulty pricing policies and an inefficient distribution system that delays deliveries to smaller online retailers.

DVDEmpire.com is exiting the video game business citing unbalanced pricing policies set by manufacturers and an inefficient distribution system that delays timely delivery of stock to smaller online retailers.

In a posting on DVDEmpire.com’s web site, the company describes key reasons why it can no longer compete in the sale of new video games. For one, DVD Empire is bound to honor manufacturer’s suggested retail price, which the retailer says prohibits price mark-ups that improve upon its thin 8.3% average gross margin.

For another, the lack of price protection because of its size means DVD Empire’s slim profit margins can be undercut if a manufacturer reduces the MSRP on an unpopular game. That means taking a loss on each game.

In addition, the distribution and return processes are stacked against the small online supplier, says DVD Empire, No. 200 in the Internet Retailer Top 500 Guide to Retail Web Sites.. The company must eat the cost of non-moving video games because they can’t return unsold inventory. And because of its size, DVD Empire says it must buy through distributors, adding a layer of cost and ensuring they receive new video games three to four days after “street” release date to physical stores. That puts a damper on pre-orders and customer satisfaction.

Many of the limits on DVD Empire’s ability to get products or sell at a profit reflect badly on its customer service, which the company cites as a key reason for getting out of the video game business. “We do not want to lose potential long-term customers due to a poor experience with a video game that is outside of our control. We attempted for the past five years to make it work but decided to call it quits,” company executives say.

DVD Empire`s director of operations Alicia Berry is speaking at the Internet Retailer Conference & Exhibition, June 4-7 in San Jose, in a workshop June 4, 9:00 a.m. to 10:30 a.m., titled Beyond Credit Cards: E-Checks, PayPal, Google Checkout & Much More.

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