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HIVE EXCLUSIVE: The More Movies the Merrier for Holiday-Primed Mass Merchants

21 Nov, 2001 By: Thomas K. Arnold

If there seems to be more movie-selling at your local Wal-Mart or Kmart, don't be surprised.

The soaring success of DVD is prompting the huge discount chains and other mass merchants to significantly expand their DVD inventories.At the same time, they are holding the line on VHS, reluctant to trim back their videoscassette selections because they cater largely to families who tend to be behind the technology curve.The end result: More packaged movies and bigger home video sections.

“One of the strongest categories for retail right now is home video, and Kmart is all about reaching the mass market consumer,” says Dave Karraker, director of marketing communications for Kmart, which has more than 2,000 stores throughout the United States.

“When we felt our customers were ready for [DVD] we introduced it, and as its acceptance has grown, we have tried to meet the growing demand,” Karraker says. “But that doesn't mean we are going to let up on VHS, since the VCR penetration rate is still so high.”

A survey conducted by Video Store Magazine's market research department finds nearly 50% of mass merchants say they plan on allocating more space to home video software in the next 12 months.

A whopping 94% of mass merchants say they plan to increase the amount of DVD software they will carry for sale, with 85% saying they will increase breadth.

Meanwhile, on the VHS side, 26% say they will reduce inventories over the next 12 months, but 31% say they will buy more cassettes.

Analyst Tom Adams of Adams Media Research says these findings are not surprising.With player prices dipping below $100, DVD is within the reach of the typical Wal-Mart shopper. And yet “they'd be crazy to abandon VHS, particularly in a holiday season that's starting out with VCR penetration at 90% and DVD penetration at 20%.”

Craig Kornblau, president of Universal Studios Home Video, applauds mass merchants for not abandoning VHS, as so many electronics chains are doing. At Best Buy, for example, DVD now accounts for more than 80% of packaged movie inventory.

“Most retailers are giving up on VHS too quickly,” Kornblau says. “And our job as studios has been to try to make sure that even though they want to position themselves as cutting-edge retailers by radically shifting space and focus to DVD, they realize that VHS is still a much bigger business.”

That message is not lost on the mass merchants.

“DVD is clearly where the business is headed,” says a video buyer with one leading mass merchant who asked not to be identified, citing corporate policy. “But at the same time,” he adds, “VHS is still as strong as it's ever been, so we'd be crazy not to offer both.”

According to the Video Store Magazine study, mass merchants continue to derive the bulk of their home video revenue — 63.3% — from cassette sales. Over the next 12 months, however, DVD is expected to gain a slight edge, reaching 52.4%.

With DVD in the mix, Kmart's Karraker says, “we've actually seen a double-digit increase in home video sales this year over last year.”

The chain is rolling out a series of promotions for high-profile home video releases. When Shrek came out in early November, Kmart stores across the country held a Shrek-inspired bean bag toss in which kids got the chance to win a video or a free Sour Green ICEE drink. Kmarts with restaurants also held coloring contests, with the grand prize winner in each store winning a life-size Shrek standee.

Last week, Kmart once again got behind a big video release: Dr. Seuss' How the Grinch Stole Christmas. In one of several media events, the Grinch “stole” a Grinch-patterned NASCAR race car sponsored by Kmart from a race shop in Statesville, N.C., only to return it two days later. Other media events are still to come, Karraker promises, as are in-store promotions such as giveaways and rebates.

“We do video promotions every year, but this is the largest in terms of number of events,” Karraker says of the Grinch promotion.

Adams says that while mass merchants may not change the actual size, or “footprint,” of their home video departments, they can add inventory through reconfiguring existing sections. He notes that two DVDs take up as much room as one videocassette, “so they can actually carry more product in the same amount of space.”

But the real growth, he says, is coming from shippers and merchandising displays set up at various locations throughout the store, including near the checkout lanes.

“That's where mass merchants tend to put their hot products,” he says, “and thanks to DVD, video's hot again.”

Video Store Magazine's mass merchant survey finds that while 90% of mass merchants maintain dedicated video sections in their stores, 70% say they frequently merchandise video products in other locations as well. Of these other locations, the most common is near the checkout counter (64%).

Kmart's double-digit growth in video sales came not from an expanded department, but from packing more units into the existing video section thanks to DVD's smaller size, Karraker says.

Wal-Mart executives would not comment, but a recent visit to a store in Oceanside, Calif., found a 40-foot long video section, seven shelves high, with about 60% DVD and 40% VHS. A GoodTimes Entertainment merchandiser for Rudolph the Red-Nosed Reindeer stood in the center of the entrance to the home entertainment department.Flanking the department were four additional merchandisers, one with $9.44 DVDs, one with $14.96 DVDs, one with budget-priced videocassettes and a fourth of Disney product. There was also a multi-sided video display near the home section, with an assortment of DVDs and cassettes priced as low as $6.44.

“We are not giving up business,” said one Wal-Mart video staffer who asked not to be identified.

That's good news to Jeff Fink, president of sales and marketing for Artisan Home Entertainment.

“While DVD has become the category driver, with higher margins and a continuous supply of day-and-date releases, VHS has held its own,” Fink says. “Obviously the competition for shelf space has become stronger for VHS, as more space is dedicated to DVD. However, from all the reports I've been getting, VHS product that remains in the mix is selling very well, especially in three categories: urban, family and the big hits.”

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