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"Your customer's favorite video didn't come out last week." Barry Blechman, president of Movies U Buy, a Morgantown, Pa.-based distributor of previously viewed videos, has been saying this for 17 years. In fact, his company is based on this premise. SQS Video, the parent company of Movies U Buy, sources VHS and DVD movies from all over the country to sell to mass retailers and convenience stores.
His value proposition is simple: Take DVDs that were new releases six months to a year ago, put 500 of them in a huge yellow bin delivered right to your sales floor, and sell them at $9.99. "Right now DVDs under $10 are selling like crazy," he says.
The problems supermarkets are having with DVDs, according to Blechman, are due to following Wal-Mart, Target, and Circuit City by merchandising new releases that everybody else is selling -- albeit at a lower price -- and making very little margin on them. "Five months later I'm putting the same DVD out there for $9.99," he says.
Tony Kirsch, s.v.p., sales and marketing at Dart Distributing in Chaska, Minn., a full-service distributor of home entertainment products, has seen the same thing with his grocery customers. "When "Finding Nemo" came out, Wal-Mart, Target, and Best Buy sold the DVDs for $5 less than the minimum advertised price, so why would someone buy them at the supermarket?" he says. "The mass retailers are using these videos as loss leaders to drive store traffic. But they can do that because these customers are buying high-margin items while they're in the store, such as consumer electronics. Most food retailers don't sell such high-margin items."
Plus new releases are a large capital investment. "You're paying $19 for a $20 DVD," Kirsch says. "There's a lot of theft in the category, and if you lock them up, it's a hassle for the customer."
Because of this, Kirsch recommends that grocers find other ways to compete that show consumers the grocers offer value. One of the ways they can do this is by offering value categories of DVDs that the big-box retailers don't carry and with which supermarkets can make good margins.
Dart offers a DVD program under its own label, called Timeless TV, in which four to six hours of films and television series that are in the public domain -- such as John Wayne movies, "Bonanza," and "The Beverly Hillbillies" -- are put on DVDs that sell for $5.99. "We pack as much content on a DVD as possible and offer a 42 percent margin on a guaranteed program," Kirsch says. "There's no risk associated with it."
Impulse is critical when it comes to supermarket video sales, distributors say. "Almost every consumer will stop and look at a bargain," says Bill Bryant, v.p. of sales for La Vergne, Tenn.-based Ingram Entertainment. "Budget DVD and closeout VHS are selling well everywhere, as long as the product is displayed in a high-visibility area. Supermarkets with rental departments can reduce inventory at the end of the new release rental period by selling the videos as previously viewed titles."
Ingram offers budget product from all studios, in both VHS and DVD formats. "VHS sells very well in children's titles," Bryant says. "Parents prefer their children to handle VHS cassettes vs. DVDs, which can easily be scratched."
But it's not only with children's titles that opportunities in VHS exist. With the major consumer electronics chains moving to exclusively DVD sales, grocers selling catalog videocassettes at impulse prices have an opportunity to drive tremendous volume. "While the industry has forced VHS off the shelves, the demand hasn't waned at all, at least proportionately," Movies U Buy's Blechman says. "It's been removed completely from Best Buy and Circuit City, and reduced tremendously at Wal-Mart. Meanwhile more than 90 percent of U.S. households own a VCR, compared to 50 percent DVD penetration."
Also, the sheer volume of titles available on VHS as opposed to DVD means there are many opportunities for impulse sales in the format. "There are 136,000 titles available on VHS, compared to only 21,000 on DVD," Blechman says. "'Schindler's List,' for example, just came out in DVD, and it's been around for 10 years in VHS. That's the case for about 100,000 films. And if you're selling them for $4.99, who's not going to buy one? And you make 25 percent to 30 percent margin on it. When you look at the combination of margin and velocity -- especially with our bargain bins that hold 400 VHS tapes --the dollars per square foot are through the roof."
Just because the videos and DVDs are value items, that doesn't mean that they're titles nobody would want. Distributors pay close attention to POS data to determine what gets sold where. Each video in every Movies U Buy bargain bin is there for a reason. "I know exactly what goes into it," Blechman says. "We study the sales data and the market demographics very closely. For example, Woody Allen titles will sell well in New York and New Jersey, but I would never put them in a bin that's headed for Biloxi, Miss. Our parent company buys specific titles; I source only what I know will sell. We don't buy by liquidation or by deal of the week, we buy what the customer tells us to buy."
Indeed, the SQS Video Web site, www.sqsvideo.net, demonstrates how specific Blechman is in his sourcing. On the site he lists thousands of titles and the price he'll pay for each in VHS and DVD formats.
Grocers should also pay more attention to the video department than they have been, says Blechman, who likens a well-run category to a produce department. "You know you have to keep the produce fresh and work on it every day. The same goes for video. Keep it fresh, keep it interesting, and offer a great value. The customer's hunger for entertainment will take care of the rest."