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Non-Tech : CDWI CD Warehouse -- Ignore unavailable to you. Want to Upgrade?

To: TERRY MURPHY who wrote (53)	5/11/1998 6:59:00 PM
From: Art	Read Replies (1) \| Respond to of 550

Last Friday I had to go to Provo and got to the other store in northern Utah (one of two). The store is in a nicer location than the Salt Lake (Taylorsville) store. Talked to some of the customers. Talked to the guy behind the counter. They indicated that they broke a couple of monthly sales records for their store last winter. The people I talked with all looked college age. He indicated that they serve the college crowd (and offered as evidence, the music selection, "not much in here for guys over 45."). They slow down significantly in the summer (when school attendence dwindles) and reaffirmed that selling new releases was not very profitable. I did the math, and by my estimates, they virtually give new releases away after paying 5% to CDWI. (I find that somewhat troubling.) CDWI apparently requires them to buy from "authorized" middlemen. (The annual report indicates that part of their strategy is to build enough volume to get better prices in the future, so there is hope, providing they pass those savings along to retailers.) Apparently, Disc-go-round (a subsidiary of Grow-Biz, Nasdaq:GBIZ), gives about a buck more that CDWI gives for used titles, but apparently they are pretty picky. They don't buy as much as CDWI does. So, the kids looking for gas money, or a trade up to another CD typically go to disc-go-round first, on the off-chance that they will score a buck or two more, and they head to CDWarehouse if plan "A" fails. Disc-go-round is just one part of GBIZ (which is on a mission to provide a secondary market on all sorts of stuff, from CDs to sports equipment). I am told that they have smaller used selections than CDWI and they clearly do not have the same focus on the CD business (as a franchisor of multiple types of "sell it again" stores) that CDWI has. I've been to some of their stores and they do tend to have a marginally smaller selection. I do not believe that they have any kind of computerized method of valuing CD's. But, the annual report says that CDWI has sued a GBIZ guy posing as a potential franchisee. Apparently he was trying to steal as much data as he could about the company data base, and perhaps steal a copy of the code... who knows. The implications are clear. Expect others to try and put together similar programs. The people I talked to were courteous and the store had traffic. The guy behind the counter liked the fact that they could get used stuff from other stores and likewise, sell their used stuff to other stores where demand for certain music was higher. (For example, they send a lot of their country titles off to Texas.) I was unable to find out if the buying franchisee gets a mark-up for buying the product later sent off to another store, or if it is sort of "you scratch my back, and I'll scratch yours" kind of deal. The typical demographic of their customers are young men and women between 17 and 27. Being close to Starbucks Coffee, Einstein's Bagels, a Zuka Juice (which is much like California's Jamba Juice) were all good for business. They would do killer business next to Outback Steakhouse's (which always have an hour wait) if they would stay open late enough to get that traffic. They get a lot of walk-by, stroll around traffic. But once people know where they are, they tend to come back, especially if they have the kind of selection they like. I remain bullish on this stock. The internet implications are enormous. The growth is solid and appears assured looking forward. The concept allows a CD place to be profitable. No institutional following exists. The analysts have yet to appear. The float is small (which could turbo-charge any move in by big boys). All good things. Art