Thursday, May 19, 2005

On The Road

Amazing what you learn on the road.

Anybody want to guess what the single biggest selling item for Interline Brands, a large distributor of over 45,000 different maintenance, repair and remodeling products for the apartment and institutional markets, happens to be?

Toilet seats.

That's right. In a 300,000 square foot warehouse on the outskirts of Nashville, Tennessee stands a two-story high stack of them near the loading dock, ready for quick turnaround to all parts of the country.

The reason being that by law toilet seats have to be changed when apartments are remodeled.

Otherwise, the most interesting observations after two days of visiting companies and stores in that part of the country are these:

Best Buy stores seem awfully big, now that the contents of the entire middle of the store--music, movies and software--are being electronically distributed. The only parts of the store that look like Best Buy stores used to look like--i.e. crowded--were the satellite radio, iPod, and digital tv sections. Now I understand why the company wants to open smaller stores.

Speaking of satellite radio, I learned that Sirius requires new users to sign a one-year contract, with a $75 cancellation penalty. XM does not, although it offers a one-year plan if the customer wants it. I am wondering if this helps Sirius boost its revenue recognition. In any event, XM outsells Sirius 3 or 4 to 1.

Finally, those new Pep Boy stores, with all their newly merchandised scooters and race-cars sitting around gathering dust, look like an inventory write-off waiting to happen.

Jeff Matthews
I Am Not Making This Up

P.S. Tomorrow I will sum up the question and answer session--both the one our readers would like to have with Patrick Byrne, as well as the real thing that took place earlier this week in San Francisco. Those of you hoping to hear some tough questions for Doctor Byrne from the J.P. Morgan guests...well, don't hold your breath.

1 comment:

Chug-A-Bug said...

Sirius not only charges a cancellation penalty on these one year contracts, it also tends to have its OEM trial subs last ONE YEAR v. typically 3 months for XM.

What does this mean?

Well, there are always three quarters' worth of SIRI OEM subs being carried on the books that, over at XM, would have had to become self paying or they would have been dropped.

XM reports a take rate around 60%. That is, when you see how many subs XM has in a promotional OEM period, you know that next quarter, 60% will go self paying AND 40% WILL GO AWAY.

SIRI does not disclose its take rate. This may be due to lack of data, given that they havent really had much of an OEM program that's older than a year. However, if they were to see the same take rate, then you can see the games they're playing.

Now, when all is said and done, SIRI's churn rate is usually higher than XM's churn (and I'm using the self-paying churn rate, which is the only one that counts -- the measure of how many paying subs decide to stop paying, nothing diluted with promotions that don't take).

Considering SIRI's contractual and other gimmicks, the inescapable mathematical conclusion is that SIRI's true churn is alot higher than XM's.