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Indie Rentailers Hanging in There

20 Mar, 2010 By: Susanne Ault

The indie video store is in a regular war zone these days — dodging competitive bullets from $1-a-night kiosks, Netflix and growing video-on-demand options. That doesn’t even include ongoing threats from major store chains such as Blockbuster and Wal-Mart. But don’t count out the mom-and-pops just yet, as they are working as hard as ever to offer unique services to stay viable for customers.

Granted, many indie rentailers have suffered at the hand of these powerful rivals in the past year. Palm Springs, Calif.-area chain Video Depot; Johnstown, N.Y.-based Video World; and Waukegan, Ill.-based People’s Choice Video Express all have recently shuttered outlets.

Many store owners blame Redbox’s cheap $1-a-night rentals for stealing customers away. In Video Depot’s market, there are about 30 Redbox machines, including two inside a next-door Albertson’s grocery store. Both Video Depot and People’s Choice launched their own automated rental kiosks to fight back, but closed them after about a year of operation because of low response from customers.

However, indie stores are rallying around customer service, breadth of titles and other distinguishing tactics as a source for competitive strength. For example, People’s Choice is striving to become the comfortable, inviting spot to find a movie.

“One Redbox can only satisfy so many people — they need to come to us,” said John Sarantakis, president and owner of People’s Choice Entertainment. “There can be a line at the Redbox, and you’re outside and you get frustrated because it’s freezing.”

He believes that the initial novelty of Redbox machines are wearing off and that people are realizing the value of a traditional brick-and-mortar outlet.

“I think we are going to be here a long time,” Sarantakis said.

People’s Choice originally was banking on a kiosk concept, first opening up one inside its Waukegan location to service after-hours customers. Last spring, it tried launching a mall-based kiosk where people could buy previously viewed titles at budget pricing. Both closed because of poor customer response.

Sarantakis has decided to get back to basics with customers, relying on regular tent sales. This activity boosts business and fosters the kind of community goodwill that technologies, such as Redbox, Netflix and VOD, can’t match.

“We offer hundreds of titles, with some movies selling for a dollar,” said Sarantakis of such sales that can generate up to $10,000 per event. “We can bring in new people that might not be customers of ours.”

At its peak, Palm Springs area Video Depot managed eight outlets. Last spring, the chain closed three stores, including its fully automated one. Yet the chain believes its business has stabilized, after its decision to intelligently cut rental pricing. When Redbox first started to eat away at Video Depot’s customer base, the rentailer reduced pricing from $3.99 for three nights to $1 a night.

However, Video Depot soon realized it couldn’t financially survive at that price point and shifted up to $2 for the first night. With rental volume surging, the chain believes it’s getting back on track.

“We are running at close to 50% more customers at our new rental rates that we had for the same weeks last year [at $3.99],” said John Booth, owner of Video Depot. “We are also down 20% in dollars. But we are holding our own. People that we had lost to Redbox are coming back to us. When Redbox is busy with people returning [and renting] items, you can walk across the parking lot and come to us.”

Booth agrees that the human touch helps set Video Depot apart from the competition.

“I think people do appreciate the personal service,” he said.

For indies weathering the competitive firestorm, another key has been diversification. About a decade ago, People’s Choice opened up an arcade/pizza restaurant family center.  At that point, the video store component was making the lion’s share of revenue. Today that has flipped, with the Family Fun Center responsible for 70% of the company’s business.

Not only does the Family Fun Center offer a cushion when video revenue falls, but it also serves as a distinctive trait.

“You can stay home and get Netflix or be in a grocery store and get Redbox, but that’s not entertainment,” Sarantakis said. “You come here, and it’s like going to an amusement park. We give them a lot more bells and whistles.”

One king of diversification is Marty Riske, owner of Fargo, N.D.-based Take 2 Video and VidCycle. After noticing falling business with his Take 2 rentailing format, Riske converted one of the stores to a used DVD/Blu-ray/video game store in November, dubbing it VidCycle. At this new storefront, customers can sell back old merchandise, which Riske professionally polishes and resells, with movies starting at $3.99 and games starting at $5.99. VidCycle became a hit, and Riske just opened a second location of the brand. He continues to operate two Take 2 traditional video stores in the area.

“It’s hard to compete on price with rental,” said Riske, regarding the threatening combo of Netflix, Redbox and VOD. “VidCycle is now doing more volume than my video store did.”

Riske additionally manages two tanning salons and five hair salons.

Some indie video stores do feel defeated by the current atmosphere.

At the end of 1997, Jim Carbone was managing 14 Johnstown, N.Y.-based Video World outlets. The chain is now at two outlets. Carbone is angry at studios for not doing more to keep the indie video stores alive, which helped launch the business, he noted. His hope is that studios further push for a window delay on new releases to Redbox and retreat from same-day DVD and VOD release.

Despite the difficult climate, there are many indies that do believe they are an asset to customers and are far from throwing in the towel.

Seattle-based Scarecrow Video continues to pride itself on stocking hard-to-find films. Scarecrow is renting the entire line of Warner Archive manufactured-on-demand titles, which are primarily offered only for sale at the studio’s Web site.

“We can’t compete with Blockbuster or Netflix or Redbox, but we can provide something that is truly unique,” said Scarecrow buyer Mark Steiner.

Yet, for competitive reasons, Scarecrow has had to slightly rein in its arthouse sensibilities.

“We’ve been faced with the realities of the industry for the last year as much as everyone else,” he added. “We’re less careless. We watch what we buy more.”

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