Music Magpie, the specialist online website chaired by retail veteran Allan Leighton that buys second-hand CDs, DVDs and games, has more than doubled operating profit as greater numbers of consumers converted unwanted technology into hard cash.

The group, which trades as Entertainment Magpie, also nearly tripled its turnover to £31m in the year to May 31, according to figures due to be filed in Companies House this week.

Reporting earnings before interest, tax, depreciation and amortisation of £4m in the period, this represents a 150 per cent increase on the previous year, although retail analysts question how long the fledgling company’s phenomenal growth can continue.
“Typically, we will buy between 100,000 and 200,000 units a day, which is a number some people struggle to comprehend,” says Steve Oliver, chief executive of Entertainment Magpie, which he set up in 2007.

In the last week of January, the retailer bought a record-breaking 500,000 items in a single day, which Mr Oliver attributes to “new year resolutions to de-clutter and get rid of unwanted Christmas gifts”.

Paying an average of less than £1 per item, these are spruced up and resold via sister website That’s Entertainment, undercutting the high street or iTunes price.

The retailer also trades from 26 high street stores of the same name, negotiating cheap rents in the weak property market. But about 70 per cent of goods it buys are resold to individuals online.

Mr Oliver says half of the buyers come from overseas and are often keen to purchase UK-released versions. “We’ve sold DVDs to the Vatican City and CDs in North Korea,” he says.

Music Magpie’s model works as it is able to buy much more cheaply than high street chains HMV and Game Group, which face a structural battle against digital downloads and cheaper online competitors.

The low profitability of selling entertainment means WH Smith has stopped selling CDs and DVDs at all but a handful of stores.

Although consumers may be able to command more for individual items by selling through Ebay or second-hand sections of high street stores, this raises the “hassle factor”, says Mr Oliver, who says the typical punter sells an average of 50 items at one time.

He forecasts that Entertainment Magpie’s turnover will surpass £100m in the current financial year.

“While high street retailers have needed support from suppliers to give them a chance of survival, Music Magpie switches this round, with the UK consumer becoming, in effect, a cut-price supplier,” says Andy Wade, retail analyst at Numis.

“Ultimately, the supply side of the equation is somewhat limited but as the pawnbrokers have seen with gold purchasing, well-run businesses can capitalise on these sorts of opportunities.”

Mr Oliver argues that, while “many eulogies have been written for the death of the CD and DVD”, 75 per cent of all albums sold in the UK last year were still on CD.

“Singles tend to get downloaded but the album market is more robust,” he argues.

Music Magpie does not buy VHS tapes or vinyl records as “these can’t be refurbished”.

Although older forms of technology will ultimately slide into obsolescence, it is impossible to forecast when consumers will stop buying them altogether.

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