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Be a Home Entertainment Retailer, Not a Specialist

27 May, 2005 By: Thomas K. Arnold

They're not telling us anything we didn't know, or at least assume. But it's still nice to hear some good tidings after ominous warnings that this business we all depend on for our livelihood may be softening.

I'm talking about The NPD Group's new Cross-Entertainment Shopping Report, which seems to support the move toward diversification Blockbuster and other rental dealers are undertaking — although it also explains why the mass merchants are so dominant in video sellthrough.

The study found that in the last holiday season, more than half of all people who bought an “entertainment product” crossed categories. Sixty-two percent of music buyers also bought a video, and 62 percent of video game buyers bought another toy.

The study also found that DVD was at the top of the entertainment-product food chain. Forty-two percent of the U.S. population older than 13 bought at least one DVD in November and December 2004, more than toys (37 percent), CDs (36 percent) and video games (20 percent).

What does this tell us? For starters, a “specialist” anything doesn't cut it anymore. The mass merchants aren't winning at sellthrough solely because they have the lowest prices. They're winning because the person who wants to buy a DVD can easily buy a CD, a book, a toy or just about anything else without ever leaving the store.

Now, this doesn't mean that video stores need to go crazy and start carrying everything under the sun. (I believe a gentleman by the name of Bill Fields tried that back in 1996, when he stripped the “video” off the Blockbuster name and brought in licensed merchandise, toys, magazines and various other items.) But it does mean that home entertainment retailers should carry all things home entertainment, at appropriate levels — both breadth and depth — and at competitive prices.

John Antioco, who's getting pummeled in the press quite a bit these days, really has the right idea for Blockbuster. And he's also well aware of the difficulties in matching the mass merchants on pricing. But I'll let him talk for a second, in the form of a response to a Q&A I drafted for an upcoming 20th anniversary special on Blockbuster:

“It is tough to compete with aggressive pricing by mass merchants who continue to use videos as a loss leader. With that in mind, we are not attempting to go head-to-head with the mass merchants; we're not trying to compete on price. Instead, we are working to differentiate ourselves as a complete source for home entertainment — movies and games; rent, buy and trade; in-store or online. That is the competitive advantage we are seeking. That is our transformation plan.”

I, for one, believe it just might work. And I'd bet the folks at The NPD Group would agree.

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