Identity Crisis Has Led Wherehouse to Seek New Image
The nagging question isn’t where is the Wherehouse.
It’s what is the Wherehouse? The Torrance chain, which blankets the Southland, is trying to decide if it wants consumers to recognize it as a place to buy CDs--or to rent videos. Or both. To help it grapple with this marketing dilemma, the Wherehouse chain on Friday handed its estimated $6-million advertising business to the Los Angeles office of Foote, Cone & Belding.
Although Wherehouse has always had heavy competition in the Los Angeles market, for years it was regarded as the heavyweight champ. But along came powerful chains such as Blockbuster Video and Musicland Stores. Now, the 294-store Wherehouse is fighting the battle of its life.
How to fight that battle? Most industry analysts agree that selling CDs and renting videos at the same location is a good marketing match. But there are problems. “Selling both can cloud your mission,” said Dave O’Neil, analyst at Chicago-based William Blair & Co. “You’re talking about 14-year-olds who buy CDs, and a broader audience that rents videos.”
No one is more aware of that fact than Bruce Jesse, vice president of advertising at the Wherehouse. Because there are different markets for video rentals and music purchasing, “strategically we have to decide whether to do separate campaigns or combine them,” he said.
That problem will eventually fall into the hands of its new ad agency. But agency officials are reluctant to discuss their plans. “Our job is to make them the place to go for music and videos,” said Rich Edler, managing director of Foote, Cone & Belding’s Los Angeles office.
Why have chains such as Wherehouse--which once only sold records--gone into other areas? “We move with the demands of our customers,” Jesse said.
But industry executives say the chain also moved where the money was. The profit margins for video rentals and sales are much higher than for CD sales. Still, Wherehouse, which would not reveal its revenues, estimates that video rentals account for only 25% of its business.
Recently, Wherehouse also began renting books on tape. But not all of its experiments beyond record sales have been winners. Laser disc sales have been disappointing, Jesse said. And it has cut way back on its computer software sales because of low demand.
Like Wherehouse, the Music Plus chain also sells records and rents videos under the same roof. But unlike the Wherehouse, which sometimes has separate cash registers for the two, Music Plus draws no distinctions. “We do not segment our stores,” said Angie Diehl Jones, marketing director at Music Plus. “You don’t cross the state line to do one or the other.”
On the other hand, Tower Group draws a clear distinction between the two. Not only does it separate its video stores from its record stores, it also has separate ad campaigns. “We wanted to give our video stores their own identity,” said Chris Hopson, senior vice president of advertising for Sacramento-based Tower Group.
Meanwhile, Musicland Group does a little of both. Most of its 97 stores in Southern California are mall shops that specialize in selling records. After an acquisition, however, it suddenly owned more than 20 stores that also rented videos, said Arnie Bernstein, marketing vice president of the Musicland Group. “There is synergy in having them together.”
Spending Your Musical Dollar
The LP is on the skids, compact discs are on fire, and the tried-and-true cassette tape is just that. A look at consumer consumption, as a percentage of the dollar spent on music purchases.
Home Video Vitality
In the past five years, home video rentals have nearly doubled, cementing their importance to the music/movie retail outlets.
In billions of dollars
1990: 3.3 Billion
Source: Recording industry Assn. of America and Paul Kagan Inc.
Who, What, When, Wherehouse
Wherehouse Entertainment was founded in 1970 as Integrity Entertainment Corp. Headquartered in Torrance, the company operates 294 retail stores mostly in California; 40 are located in five nearby Western states. Some Wherehouse product high points:
* 1978: Sales of video movies and blank videotape began in select stores.
* 1981: The focus of the video movie business shifted from sales to rental.
* 1982: Sales of prerecorded music on compact discs began.
* 1989: Prerecorded LP sales began a substantial decline.
* 1990: Initial sale of laser disc videos began in five stores.
