Promos play big part in home video niche; discounters to grab year-round profits with merchandising outposts, displays, pricing - Video Sell-Through

Discount Store News, June 1, 1992

Discounters to Grab Year-Round Profits With Merchandising Outposts, Displays, Pricing

The story of a cannibalistic psychologist who helps an FBI agent nab a transvestite serial killer who, among other things, skins his victims, is just one of the exciting home video releases coming out this summer and fall.

Besides the Oscar-winning Best Picture "Silence of the Lambs," other hit movies that promise to make discount store cash registers jingle include: * The $100 million-plus box office hit "Wayne's World"; * Disney's award-winning animated feature "Beauty and the Beast" ($120 million-plus at the box office)"; * Last summer's block-buster action film "Terminator 2: Judgement Day"; * Kevin Costner's Oscar-winning feature "Dances with Wolves"; and * Steven Spielberg's adult fairy tale, "Hook."

Most of those movies will hit stores at the sell-through price of $24.95, according to sources.

Less spectacular releases, but more likely to build discounter's year-round everyday video business, are also on tape. Those include: * The September release of "The Chipmunks," from Buena Vista Home Video, which distributes Walt Disney, Touchstone, Hollywood Pictures and Buena Vista videocassettes. Through an agreement with Bagdasarian Productions, Buena Vista will market "The Chipmunks" as a separate video line at the sell-through price of $12.99 each; * The 50th anniversary release of "Casablanca" by MGM/UA Home Video, in conjunction with a major sponsorship agreement; and, * Two sports entertainment videos from ESPN Home Video, "The Best of SportsCenter with Chris Berman" at $14.95 and "Practical Jokes on the Pros" at $9.95; * Two new "Nonsense and Lullabyes" videos from Family Home Entertainment at $9.98 each, as well as a repricing of its animated classics line, including such titles as "The Adventures of Tom Sawyer," "Peter Pan," and "Black Beauty" to $9.98, from $14.95 each.

"The industry has gotten very good at selling the hit movies," commented Disney Worldwide Home Video chief Bill Mechanic. "Now it's time to get better at selling year-round.

Supporting Mechanic's contention that retailers should pay more attention to building their year-round video business are figures from software jobber Handleman, which show that 34% of holiday 1991 home video sales were of product priced at under $10. Another 22% of prerecorded videocassettes sold during the 1991 holiday season were priced between $10 and $15, while the big hits are generally priced at $20 and higher.

Home video is one of the fastest growing product categories in mass merchant outlets. Discounters who have devoted the necessary space to present a wide assortment of product, like ShopKo, Kmart and Wal-Mart, have reported sales gains of between 20% and 46% in home video this year.

"We're a business that happened in spite of itself," observed Mechanic of Disney. Richard Cohen, executive vice president of home video for Disney, added, "For retailers who have made the inventory commitment, we've seen same store sales increases of 300% to 900%."

Generally, margins for retailers are better on the basic, everyday product because there's not as much price competition on the lower, priced videos as there is on the monster hits. One way to build the overall business, suggested Mechanic in an interview with DSN, was to create video outposts through the store.

"You can put high-volume, best-seller videos in the main aisle to give the customer a taste of what they'll find in your full video department," said the Disney executive. "Then, you can create other opportunities, such as an outpost in the toy doll department for the "Dance Workout with Barbie" exercise video, "Ed Sullivan Show" videos in the TV department and "Chipmunks" videos in toys or apparel."

Industry figures reveal that nearly half (47%) of all home video customers buy their videos at mass merchant outlets, compared to only 20% at video specialty stores, 11% via direct mail, and 9% from supermarket and convenience stores. With VCR penetration growing from just 25.9% of households in 1985 to 90.2% of households by 1995, the total market is expected to keep growing strong. Almost 12 million VCRs were sold in 1991, 45% to first-time buyers, 24% for replacement, and 31% to multi-unit homes.

"The home video industry is Hollywood's largest customer," said Wayne Huizenga, chairman and chief executive officer of Blockbuster Entertainment, the largest video specialty chain, in a talk to analysts. "In fact, [home video] is as large as movie theaters."

Blockbuster is by far the largest of video specialty chains and is still growing even as the sell-through business continues to shift to mass merchants. Its newest store prototype, being rolled out to all 2,000 stores, features new freestanding fixtures holding up to 450 tapes each. These new fixtures enable the store to more effectively display sell-through and previously-viewed products in mass presentation.

Following the lead of mass merchants like Target and Shopko, Blockbuster is testing preview machines that enable to customer to see a trailer for up to 100 different titles stocked by the stores. To preview a movie, a customer punches a number of the selected title on the screen.