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DVD Is Big Part of Kmart's Critical Holiday Season

27 Sep, 2002 By: Joan Villa

The slide in consumer confidence that is dampening spending and keeping shoppers out of stores couldn't have come at a worse time for mass merchandiser Kmart, which is in the throes of bankruptcy and facing traffic issues of its own.

But the discounter is facing the critical holiday season armed with a plan that includes using video and DVD to bring consumers back, while developing a new store prototype that will update Kmart's lackluster image when it emerges from Chapter 11 reorganization, according to Dave Karraker, director of marketing.

So far, video is still a growth category for Kmart, with Monsters, Inc. leading the way as the chain's “biggest DVD ever,” Karraker said. The title carried a first-week promotional price of $14.98, or about half the $29.99 suggested retail price for the two-disc DVD and a substantial discount off the $24.99 VHS.

“They went out with really aggressive pricing,” noted Buena Vista Home Entertainment president Bob Chapek. “We had programs at all retailers to push sales, but some of the aggressive moves they implemented I'm sure helped drive business their way.”

Buena Vista, like other studios, would not discuss specific sales or shipping policies to Kmart. But supply-side sources agree that although the retailer's market share may have shrunk below the 7 percent of sellthrough sales it claimed last year, Kmart's remaining 1,850 locations are a formidable video force.

“They're still a player in the industry with the capability of ordering a respectable amount of product,” explained one sales executive. “The problem is, for the most part, that they haven't demonstrated the ability to do that on the majority of releases that come out.”

Kmart is polishing everything from store appearance to customer service -- widening aisles, boosting lighting and emphasizing displays, Karraker said. Plus, the chain is secretively working on a new store prototype that will be unveiled next month, he added.

After an 11 percent same-store sales decline in the second quarter, sliding into a 12 percent year-over-year drop in August, the retailer's immediate concern is driving sales during the holiday season. Stocking and promoting major video event titles will be one way to accomplish that objective, he said.

“Using a vehicle like DVD is part of the strategy,” Karraker explained. “Anything that contributes to driving traffic to stores becomes a higher priority this year than last.“

Studios are selling to Kmart cautiously to ensure that orders don't race too far ahead of the account's ability to move the product or to pay for it, sources add. But Karraker insists there have been no shipping or billing problems with any video supplier. With more than $1.5 billion in debtor-in-possession financing at its disposal through the bankruptcy, the fourth quarter is not a “make or break” time for Kmart, he says.

“We're in the top seven, if not the top five, in video and DVD sales in the country,” he emphasized. “There's not a studio in the world that would not pursue that avenue -- especially in the fourth quarter.”

Nonetheless, Kmart's share of the video market is not as big as it once was, simply through the closure of 13 percent of its stores since filing for bankruptcy in January, explained analyst Michael Salerno with Adams Media Research.

“Their market share has slipped, and they're a lot less aggressive in video than, say, Wal-Mart or Target,” Salerno added. “Wal-Mart and Target really jumped on DVD hard, and DVD was just coming into its own as Kmart was getting into its bankruptcy problems, so it's a function of when it happened.”

Even with record-breaking DVD sales on Monsters, Karraker admits that VHS usually accounts for more than half of the chain's sales, but DVD is catching up fast.

“As long as VHS has the saturation point it does and demand remains, we'll continue to have a mix of DVD and VHS,” he added. “We'll expand DVD appropriately as demand arises, and it's rising very quickly.”

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