HIVE EXCLUSIVE: Holiday Shopping Season Launches Discounters' Low-Ball Assault on Video29 Nov, 2001 By: Thomas K. Arnold
As soon as the holiday shopping season officially got under way the day after Thanksgiving, new merchandisers began popping up in Wal-Mart stores filled to the brim with videos selling for as little as $6.44.
The theme was an obvious stab at rental. “No Late Charges…You Own It!” was printed in huge letters at the top and on the sides. “Great Value, Low Price.”
The videos selling for just a few dollars more than a Blockbuster rental were hardly your standard, public domain budget fare. Instead, low-priced video inventories consisted almost entirely of major studio blockbusters from the recent and not-so-recent past, sometimes bundled in two-packs. VHS cassettes priced at $6.44 included both Austin Powers movies, Girl, Interrupted, Deep Impact, Jumanji and more than a half-dozen James Bond titles, from Dr. No to The World Is Not Enough.
Another Wal-Mart merchandiser contained DVDs selling for $9.44 each, including Kingpin, The Arrival, Stigmata, The Net and Ready to Rumble.
Right next to it was a new shipper loaded with bundled DVD two-packs priced at $14.88. Titles included Spies Like Us/Three Amigos, Mortal Kombat/Annihilation, Spawn/Spawn II and Young Guns/Lightning Jack.
“I think mass merchants are looking at consumers who are making multiple purchases in different categories and because of that they need to have a low-price barrier on products in each of these various departments,” says Bill Sondheim, president of GoodTimes Entertainment, a leading supplier of budget-priced product.
“Significant numbers of consumers go to mass merchants without specific purchases in mind,” Sondheim continues. “And pricing and positioning therefore become key elements in converting that potential consumer into a cash register ring.”
Sondheim should know. Sixty percent of GoodTimes product retails for less than $10 and 75% is priced below $15.
Video Store Magazine's mass merchant study supports his observations. Indeed, the study shows that while mass merchants are stepping up their commitments to home video in general, thanks in large part to DVD, their hearts are still with budget product, the mainstay of their video sections since the birth of sellthrough more than a decade ago.
Despite the increasingly hit-oriented mentality of video buyers and renters alike, more than one-third of video unit sales at mass merchants, or 35.5%, are of budget product, generally defined as videos selling for less than $10.
New video releases, even at the deepest discounters, generally retail for at least $15.
This finding underscores the importance of the impulse buyer to mass merchants, according to David Karraker, director of marketing communications for Kmart. Budget-priced videos — like many other budget-priced goods — are typically sold outside dedicated video departments, occupying large, self-contained merchandisers situated in high-traffic aisles, more often than not near the front of the stores.
“The impulse buyer is important to any mass merchant,” Karraker says. “That's why we do much up-front, when-you-walk-in-the-store point-of-purchase displays. That real estate is incredibly valuable — it's the first thing customers see when they walk into the store and it kind of sets the tone for the whole shopping experience.
“That's why you see lots of low-priced product up front,” he says, “and low-priced videocassettes and DVDs are perfect for that.”
Karraker says big theatrical blockbusters priced below $10 are particularly appealing to Kmart shoppers because those prices are in the same league as movie ticket prices.
“People see a movie they remember from when it was in theaters and if it's less than $10, they say, ‘I might as well pick that up.’ No surprise, then, that a recent Kmart freestanding newspaper insert (FSI) advertises several budget videos alongside pricier new releases, among them Prancer and Josie and the Pussycats (both $9.95 VHS).
Simon Swart, senior v.p. of sales, national accounts, for 20th Century Fox Home Entertainment, says he's noticed a “pretty dramatic increase” in mass merchants' share of the VHS catalog business. This increase, he says, is occurring “by default, as video specialty and music chains get more and more into digital media.”
One studio executive who asked not to be identified says he has mixed feelings about the plethora of low-priced, big-name product at mass merchants.
“On the one hand, that's where we're seeing a good deal of our revenue generation on catalog titles,” he says. “But on the other, it serves to quickly devalue our margins on catalog.”
Titles that mass merchants sell for less than $10 can wholesale for as little as $5 when purchased in large quantities, he says, “and at that price you're eroding the profitability of your product, when taking into account duplication, packaging and shipping costs.”
Fox's Swart will only say, “At that price point it's got to be more of a quantity business.”
Mass merchants, however, are feeling price pressures of their own from club stores, online dealers and the proliferation of used home video product that reaches selloff bins early as fallout from revenue-sharing and copy-depth.
The Video Store Magazine survey found that price is the biggest challenge mass merchants face (31%), followed by competition (28%) — which, observers point out, could amount to the same thing.