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The Catalog Response to Mass Merchants

11 Apr, 2004 By: Kurt Indvik

“You can't walk into a Virgin Megastore and not know we carry a large selection of DVD,” said Vince Szydlowski, senior director of product of Virgin Entertainment Group, in a cover story in this week's edition of Video Store Magazine. The article focuses on music chains' continued expansion into home video sales.

And indeed, as I toured a Virgin store in Costa Mesa, Calif., last week, it's clear that the chain is devoting, easily, 30 percent to 40 percent of its floor space to video. A wide freestanding display of discounted DVDs of near-current titles (buy four for $40, and a range in-between) is the first thing you see when you enter the store. Once you navigate among these displays for both discount DVDs and (on the flip side) CDs, then you see another large display of the top-selling new-release DVDs, and a matching stand for CDs. The rest of the huge store is then divided just about equally between CD and DVD catalog (and Virgin has a pretty strong selection in all categories, including anime and TV), with books, magazines, and other ancillary product lines.

The article looks at a variety of music stores that are all ratcheting up their video mix, some to a 50-50 split with music.

Whereas the big-box mass merchants have not appreciably expanded their floor space for home video in the past 12 to 18 months (although VHS space has been taken over by greater selection of DVD), it appears music retailers, rocked hard by a struggling music industry, are taking up video aggressively. In fact, some are eschewing going deep on the newest hit releases and, instead, are focusing on providing a broader selection of catalog in response to what the big-box retailers generally lack.

With buy rates probably at near their peak, I would guess that mass merchants have seen the maximum turn rates they're going to see on their video departments. The idea that expanding one's selection, in response, to try to appeal to a broader spectrum of customer is not usually a merchandising option embraced by mass merchants, who move from one mass-appeal product to the next.

I think, then, it will increasing fall upon the specialty retailer to offer that broad catalog selection, such as the music chains have been doing for years in music and, now, it seems, are doing with home video. Specialty video stores have, of course, taken that same approach, largely from a rental standpoint. Now perhaps it's time they play this same role in sellthrough. Certainly we could expect to see that from the major video chains, which can leverage their ubiquitous presence as a significant competitor to music chains.

Smaller specialty video chains and single-store operators may not be able to directly enter the catalog sellthrough business on a large scale, but they can focus on niches that they find appeal to their local market, even as they continue to deliver the rental option.

The home video retail business, so dramatically transformed in the past seven years by DVD's majestic rise in consumer acceptance, will find its equilibrium as DVD penetration and buy rates slow to more normal rates in the next year or so.

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