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TK's MORNING BUZZ: The Devil of Deep Discounting Is Burning Retailers to a Crisp

28 Nov, 2000 By: Thomas K. Arnold

The devil of deep discounting is burning retailers to a crisp, retailers who should be enjoying unprecedented sales and rental activity from the explosion in popularity of DVD.

Last year and the year before, it was the online retailers who were selling DVDs at lowball prices in the hopes of driving traffic to their sites.

This year, it's the mass merchants and big electronics chains such as Best Buy and Circuit City, who are selling DVDs at record lows to build market share.

It's VHS all over again, say frustrated retailers like John Thrasher of Tower Records and Video, with the big guys selling new releases and catalog heavyweights alike at prices smaller retailers simply can't match, much less beat.

The online menace was bad enough, they say, although customers ultimately wised up and realized that buying a DVD for $15 isn't really a bargain when you factor in a $5 shipping charge.

But now that the big brick-and-mortar chains are lowballing prices for the benefit of walk-in customers, with no shipping charge to even the score, more and more retailers are finding it difficult, if not downright impossible, to compete.

Hardest hit are the video specialists, who never were very good at selling packaged entertainment. They lost out on the VHS sellthrough boom to the mass merchants, and now they're in danger of losing out on DVD sellthrough as well due to rampant deep discounting that's letting consumers buy new DVDs for less than the video specialists pay wholesale.

DVD rental, meanwhile, is hardly the bonanza it was thought to be. It's not incremental revenue, but revenue that otherwise would have been spent on VHS rentals.

Unfortunately, there's no real solution to this dilemma. MAP doesn't really work, because the big chains have grown so powerful that the threat of lost co-op is no longer a deterrent.

And I've been chided repeatedly by retailers who say my suggestion that they cross-promote DVD sales with rentals--offering their customers a certain number of free rentals if they buy a DVD--simply doesn't work. Been there, done that, they say--having tried the same approach with VHS, only to still lose out to the mass merchants.

Is this a devil that simply can't be beat? Or are there some strategies out there that can help smaller retailers develop a vibrant DVD sellthrough business despite the plunging prices of DVDs at the big mass merchant chains?

I'd like to hear your views.

Comments? Contact TK directly at:TKArnold@aol.com

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