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Video Rental Outlets Realize It’s Time to Sell

SPECIAL TO THE TIMES

A prototype Blockbuster Video store in Fort Lauderdale, Fla., features racks of new videos for sale at the ends of each rental aisle. Also going up are special displays with budget-priced tapes selling for as little as $1.99--less than the mighty chain charges to rent a video.

West Coast Video, a 531-store chain based in Philadelphia, is offering 5,000 movies for sale in each new store it opens, more than twice as many as in older locations.

And Planet Video of Waukesha, Wis., is in the process of reconfiguring its 25 stores in Wisconsin and Chicago, moving the videos-for-sale section to the front and adding colorful signs, posters and cardboard displays.

“We have a lot of foot traffic coming in the door for rental, and with the growing sell-through business we want to make sure we satisfy all our customer needs so they don’t go somewhere else,” said Steve Lavoie, Planet’s senior vice president of operations.

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All around the country, the video store, it is a-changin’.

For years, it was one of life’s little ironies that you could buy a video almost everywhere--Wal-Mart, the record store, the book store, even the supermarket--except the nation’s 30,000-plus video specialty stores.

Video stores, those ubiquitous icons of pop culture that began springing up in the early 1980s, were set up to rent rather than sell videos, offering customers bored with television the chance to take home a little slice of Hollywood for a few bucks a night. And that was fine with the studios, which released hit movies at a high price, generally around $80 or $90.

Then Walt Disney Co. broke open the market with children’s fare priced low for direct sale to consumers. While rental stores dallied, mass merchants like Wal-Mart, Kmart and Target Stores dove headfirst into the lucrative new product line.

Today, the video industry is in flux. After years of explosive growth, the rental market has been flat in recent years and this year is running behind last year, according to most estimates. The video sales, or sell-through, market last year grew by about $1 billion, according to Adams Media Research, though a weak slate of 1997 theatrical releases has led to a year-to-date decline in sales of 4%, according to VideoScan.

Even so, most observers predict a sell-through rebound by the end of the year driven by a strong fall slate.

And video stores, whose share of the sell-through business now stands at a meager 12% to the mass merchants’ 51%, according to Cambridge Associates, a research firm based in Stamford, Conn., are taking heed.

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“Many video specialty stores saw the intrusion into the video market from the mass merchants, but resisted getting into the sell-through business themselves because the margins are not nearly as attractive as they are in the rental business,” said Jeffrey P. Eves, president of the Video Software Dealers Assn., a national trade group headquartered in Encino.

“However, as the sell-through market grew, retailers became increasingly aware of the need to satisfy not only the rental needs of their customers, but also the ownership requirements. And while it has taken some time to get accustomed to a different type of business, specialty retailers are becoming increasingly engaged in sell-through.”

Bill Burton, executive director with the National Assn. of Video Distributors, whose members service video specialty stores, has also seen the shift. He says sell-through now accounts for between 35% and 40% of the NAVD’s 13 member companies’ business, which last year totaled $3.81 billion.

At Blockbuster, which at 5,035 stores is America’s largest video specialty chain, 20% of gross revenue now comes from sell-through, up from 16% two years ago, according to figures provided by the company. Last year each store earned an average of $112,000 from video sales, up from $98,000 in 1994.

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Despite the chain’s recent announcement that it intends to curtail the broad product expansion envisioned by former Chairman Bill Fields, who abruptly resigned in April, and put more emphasis on rental, sell-through remains a priority.

“We feel good about the product and some of the history we have with it, and we’re looking at different ways of exploding it, just as any business would of increasing the volume of a growing segment,” said Chris McClain, Blockbuster’s vice president of retail.

Steve Apple, West Coast Video’s vice president of corporate development, said his company, too, is determined to increase the percentage of revenue generated from video sales, which now stands at about 12%. To accomplish this, he said, sell-through sections in West Coast’s new stores have more than doubled in size, accounting for 25% of total inventory.

Despite the new commitment to sell-through, video specialty retailers say they are still facing the same problems that kept them out of the business for so long--specifically, lower profit margins that are reduced further by the heavy discounting that goes on at mass merchants. A Disney video with a suggested list price of $26.98, for example, will generally sell for around $15 at Wal-Mart--less than the wholesale cost to the average specialist, who has far less buying clout.

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Even so, some retailers, like Jim Salzer, owner of single-store Salzer’s Video in Ventura, try to match the mass merchants in price, just to build business.

“The only way you can compete is to have promotional prices on titles,” Salzer said. “I have a loyal customer base that buys movies from me, and most of them are also regular renters.”

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Other retailers capitalize on the fact that they also rent videos and offer tie-ins that effectively reduce the purchase price. Planet Video, for example, is selling Disney’s hot new “101 Dalmatians,” along with a coupon book for 10 free rentals, at $24.98.

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“We’re not going to be so bold as to try to compete with Best Buy or Wal-Mart or Sam’s Club,” Lavoie said. “If we matched their price, we’d lose money. But by offering value-added programs like the coupon book, we’re able to keep our customers shopping here.”

Many video rental stores also make a bundle selling off used copies of videos once the rental demand dies down. Since most movies that are initially released on video at a higher rental price don’t get repriced for sell-through until six months later, rental dealers in effect have an exclusive sales window.

Salzer said 25% of his sell-through business comes from the sale of used tapes, particularly at his quarterly outdoor “tent sales.”

Thomas K. Arnold is a freelance writer based in Carlsbad, Calif. He is editor of Video Store magazine.

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