Mass retail faces low margins on hot titles - pre-recorded video tapes

Discount Store News, May 15, 1995 by Dan Wilensky

NATIONWIDE DSN REPORT -- The $16 billion sell-through industry continues to experience explosive growth, yet mass retailers and manufacturers are reaping less of the rewards due to mounting competition and eroding margins.

Today's retail climate dictates that retailers get the hot titles on the shelf first and blow them out at the lowest price. This pressure has caused many to use these much-in-demand releases as a way of luring consumers into the stores with little or no hope of making any margins.

To prevent prices from going down too low, safeguards like a "minimum ad price" have been imposed on certain titles by companies like The Lyons Group and Disney, which require that retailers maintain a certain retail price in order to utilize co-op funds.

"It's a tragedy to sell 300,000 titles and not make a dime. If the video department does not make money, then that square footage will go to something else," said Dan Merrell, marketing manager of The Lyons Group.

"Most retailers are either breaking even or losing money on big hits," agreed Jeffrey Baker, senior vice president, GoodTimes. "They believe that if consumers flip through the circulars and see one of the hot titles advertised at a great value, they will drive down to buy it. They also believe that these same consumers will buy something else while they're there."

The idea of one-stop shopping is particularly attractive to today's time-stressed consumers, and video is no exception.

The right merchandise mix is essential to succeed, yet it shouldn't be limited only to the most popular titles, but should consist of a wide-reaching line that includes the classics, special interest titles and value lines, which often deliver full margin potential.

"The special interest genre represents something that consumers can't find everywhere. It is also beneficial for retailers because in the long run they make higher profits vs. the mass-appeal item that they have to sell either for a few cents on the dollar or many times as a loss leader," said Dwight Krizman, vice president, sales of Bennett Video Group, distributors of educational, marine and aviation videos.

But uniqueness alone won't sell a title. Retailers must also be smart marketers and create excitement at the store level through point-of-purchase displays, signage, promotions and advertising. In addition, these efforts must encompass not only the most popular titles but must support the diversified library of titles in the video department.

"The reality out there is that there are a lot of products and a lot of competition," said Kelley Avery, senior vice president, retail marketing and merchandising for Buena Vista Home Video. "A couple of years ago you could put something out in the market, and it could be a hit or miss. Today, it takes the right product that makes people want to own it. It also takes the right marketing, packaging, promotion, advertising and in-store support.

Mass merchandisers have reacted with expanded departments, updated fixturing and cross-merchandising programs.

Jamesway installed new fixturing for its video assortment in its new prototypes and surrounds its sight and sound department with posters (changed every three months) from the top-selling releases.

Target recently used an opportunity cart (a wheeled fixture complete with a TV monitor), which ran a continuous loop of the new "Barney Safety" title. Venture did the same with an opportunity cart featuring several Disney titles like "D2 The Mighty Ducks," "Winnie the Pooh" and "The Return of Jafar," which it merchandised both in the toys department and in girls' apparel.

"These are the kind of things the mass merchandiser needs to do to get around the entrapment of merchandising restrictions. These special programs can compensate for not presenting product in very exciting ways," Merrell said.

These also help mass merchandisers fend off competition from other channels of distribution and maintain the position as the leader in the sell-through market.

"Mass merchandisers will continue to be an important outlet for video because consumers frequent these stores looking for reasonably priced products," said Wendy Moss, senior vice president, marketing for Sony Wonder. "The consumer wants to do as much one-stop shopping as possible and wants to be able to find a large selection at these stores."

The concept of one-stop shopping was also important to Wal-Mart and Kmart, which each teamed up with Supercenter Entertainment and installed video stores called The Video Center at the front end of the supercenters.

To date, Wal-Mart has 42 of these outlets in its supercenters with 56 planned by yearend and Kmart has 24 in its Super Kmart Centers with 28 scheduled by yearend.

"With Wal-Mart committed to opening 100 supercenters per year, there is no doubt that the supercenter concept will grow," said Jack Silverman, founder of Supercenter Entertainment. "The question is to what extent will it be accepted by consumers who shop those stores."

Shoppers have definitely accepted the idea of video in supermarkets, and these outlets, which rely primarily on sharply priced in-and-out promotions, are experiencing major growth and have begun to devote more space for both rental and sell-through titles.