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Floorspace Balancing Act

7 Feb, 2002 By: Joan Villa

The rapid growth of DVD releases is putting serious pressure on home video retailers to continually shuffle store shelving and layouts to keep up with the growing demand for DVD while balancing their VHS inventory.

Ted Engen, president of Video Buyers Group in Minneapolis, says DVD growth means most retailers are “hurting for room.” The 2,000-member buying and marketing group is working with Chicago-area Specialty Store Services to come up with shelving ideas and configurations, because store layouts will almost certainly be affected this year as DVD penetration grows, he said.

“The time to start planning is not when it becomes a crucial issue but way before that,” he insisted. “Floor space, and maximizing that floor space to the fullest extent, is critical to the success of video retail now.”

VBG analyzes revenue per square foot — a technique borrowed from the grocery industry — to “see what's really going on” and devise layouts that generate higher revenues. The likely victim will be the store's center floor space that houses low-turning catalog product, he added.

“Our figures show 70 percent of the floor space generates 30 percent of the revenue, and we can no longer afford to have the equation be that way,” he noted.

Business is booming for fixture suppliers. Specialty Store Services offers three styles of clear plastic DVD security cases, a variety of shelving and “space maximizers” that can display 14 DVDs in place of 10 VHS cassettes. Sales of those items have “skyrocketed,” confirmed sales VP Lee Gimbel, who said he often recommends audio shelving to solve the DVD display problem, since DVD boxes are closer in size to CDs than they are to VHS cassettes. He also advises adding wall units or converting “library”-style stores to live inventory, which frees up additional floor space behind the counter.

Dealing With DVD As It Grows Into Catalog

To accommodate the format, many stores have adopted a DVD “stripe” across their new release walls, providing eye-level visibility for DVD while VHS sits on separate shelves above and below. The system works fine, said retailers interviewed for this article, as long as DVD rentals comprise less than 30 percent of revenues and focus on new releases rather than older catalog inventory. When the format expands to around 50 percent of rental revenue by year-end, as predicted by analysts, and starts spilling into the vast catalog sections in the middle of the floor, many retailers expect they'll be forced into rethinking and redesigning floor space.

The issue has already challenged managers at Philadelphia-based TLA Video, for example, who debate how to accommodate DVD alongside the chain's extensive VHS library.

“Before the holidays DVD was consistently at the 25-percent level of new release rentals, and since the holidays it's consistently been at 33 percent,” noted David Bleiler, rental buyer for the six-store chain. “We've already rearranged the display in our stores to accommodate new releases. Now we're trying to figure out how to integrate DVD into our total store layout [so that in] six months it will be totally integrated.”

The new layout must be both “pleasing to the eye” and also efficient for customers to navigate, he said. Bleiler suspects that will require scrapping the stores' current shelving which is only big enough for VHS boxes spine-out. Currently when titles are overstocked, TLA displays only DVD boxes and keeps VHS inventory behind the counter as part of its library-style system, he added.

Dothan, Ala.-based Movie Gallery has also seen a rise in DVD rentals thanks, in part, to heavy DVD player sales at nearby Wal-Marts, located in many of the same rural towns, said SVP of marketing Ted Innes. Now the chain's 1,420 stores are testing new display approaches to find out which configurations customers favor.

“Most of our stores have DVD all along the new release wall, but we have stores experimenting putting it on the floor and stores testing putting it side-by-side,” he added.

For the most part, Innes said Movie Gallery has reduced VHS purchases almost one-for-one with increases to DVD, so stores are not yet overcrowded with inventory. He expects most locations will opt to pare back VHS copies as DVD increases throughout the year, or “double up” with more copies behind VHS boxes to accommodate the growing wall space required for DVD.

Mixing DVD and VHS Not Effective

J.C. Flicks owner Chuck Grachan learned the hard way that DVD customers didn't want to sift through VHS when he initially mixed the formats, causing DVD rentals to dive.

“So we took islands and made them strictly DVD and we had an increase in DVD rentals,” he said. “People wanted DVD by itself because most were new adopters of the format, and they didn't want to go through all that VHS stuff to get to the DVD.”

To find the space, Grachan has already started tracking catalog rentals at his 22 stores and will sell off anything that hasn't rented in a year. Then the Joliet, Ill.-based chain will remodel to create distinctly separate sections for DVD and VHS, essentially making each store into two stores, so as DVD grows in floor space VHS will shrink, he said.

“I suspect we'll be out of the VHS business within a year, year and a half,” he predicted. “This is going to come about quicker than CDs took over LPs.”

Some retailers are hoping to simply hold on to both formats as long as possible. For Dan Jenks, owner of 12-store All the Best Video located in the college town of Chico, Calif., a wide selection of VHS catalog is a necessity, but he is cutting back on new VHS purchases.

“I'll keep packing it in there and keep both formats in there as tight as I can for as long as I can,” Jenks said. “If I have to go to a new type of shelving or invent a new kind of shelving, that's what I'll do.”

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