HIVE EXCLUSIVE: Ingram Downsizes as Revenue Disappoints13 Jul, 2001 By: Thomas K. Arnold
Hit by potential budget shortfalls of as much as $170 million, Ingram Entertainment last week laid off 83 employees and closed another sales office.
About half of the pink-slipped staffers were involved in sales, says president David Ingram. The shuttered office was in Charlotte, N.C., and had been inherited through Ingram’s merger with Major Video Concepts last fall. The closure follows several other facility shutterings since the first of this year.
Ingram attributes the cutbacks, which he estimates will save his La Vergne, Tenn.-based company upwards of $2.5 million a year, to shrinking sales stemming from a marked increase in sideways selling, big accounts going direct and dot-coms going out of business.
“We are projecting that our sales will come in below budget, probably $150 million to $170 million short of the $1.018 billion we were budgeting for 2001,” Ingram says. “Perhaps the biggest reason, and one that is perhaps controllable, is retailer sideways selling, which is made possible by studio copy-depth programs that really don’t seem to be audited a great deal by the studios.
“Certainly Fox has done something with their colored cassettes for Blockbuster and Hollywood, but generally we would be proponents of more Hannibal-type one-price arrangements as opposed to copy-depth programs, which seem to encourage all sorts of game-playing and create a separate distribution network that’s difficult on traditional distributors like us.”
Sideways selling involves retailers forming informal buying groups in which some retailers place orders that meet goal and then sell off the bonus units to other retailers who do not place orders. Studios frown on the practice, although retailers defend it as the only way they can stay in business because it effectively reduces the cost per cassette without making them meet goals many feel are unrealistic.
The National Association of Video Distributors (NAVD) has estimated as many as 80% of its members’ retail customers engage in sideways selling.
One studio executive who asked his name not be used has little sympathy for Ingram’s plight.
“It’s ironic that Ingram blames the downturn in business on sideways selling,” he says, “when they were one of the distributors who leaned the hardest on studios to adopt copy-depth programs for retailers.”
Competitor Steve Scavelli, president of Flash Distributors, a smaller wholesale operation based in New York, was more sympathetic.
“It is upsetting to me, as a fellow distributor, to see more branch closings and layoffs,” he says. “I feel this only serves to underscore the continued loss to the retailer of same-day and next-day service. These closings and staff reductions are not healthy for the independent retail community.”
Other factors also contributed to the downturn at Ingram, David Ingram says. “We had more than a bit of our business go direct, such as Best Buy, Blockbuster and Circuit City — we were doing their DVD special orders,” he says.
“That’s one of the things a distributor has to deal with — we help accounts in certain aspects of their business and when they reach a certain size it’s more advantageous for them to take business direct.”
In addition, Ingram adds, “we’ve also experienced a number of our dot-com customers go out of business, and that has hurt us more than we were projecting.
“We’ve also seen less feature sellthrough titles in the first half of the year than we had in the past, and our company has become more dependent on sellthrough because we do cater to quite a few grocery and drug chains.”
The cutbacks at Ingram follow several other cost containment measures the wholesaler implemented in the past month, including increasing the minimum ship requirements for retailers to get free freight and combining catalog video orders with new video game release shipments.
The layoffs, which accounted for approximately 8% of Ingram’s total work force, leaves the home video industry’s No. 1 wholesaler with 960 associates.
Ingram also confirmed that under the Video City reorganization plan, Ingram Entertainment will be the struggling video retail chain’s “largest single shareholder,” with an equity stake of between 15% and 25%.
And yet Ingram won’t be Video City’s distributor because “there are some issues regarding the credit line they are looking for, so I think it will be VPD.”