Indie Suppliers Survive Outside Wal-Mart World22 Apr, 2006 By: Jessica Wolf
It may be a Wal-Mart world, but some suppliers would rather not play in it.
The discount chain accounts for 30% of DVD sales and is noted for its aggressive loss leadering and cheap DVD dump bins.
Now, Wal-Mart reportedly is getting more aggressive with inventory control. According to a recent Ad Age article, the chain is gearing up for “zero inventory,” which means it won't pay suppliers for goods until they are sold to consumers. This likely will lead to lots of returns for products that clutter shelves for too long.
This strategy will hit DVD suppliers across the board, especially the big studios, and may cripple suppliers working on a smaller scale. For the little guys, the sheer economics of dealing with Wal-Mart have already kept them from selling to the chain on a major scale.
Everyone's heard the horror stories of suppliers shipping thousands of units to the behemoth retailer, then getting 90% back in returns, said Gary Baddeley, president of the Disinformation Company, which recently released the documentary Wal-Mart: The High Cost of Low Price.
That title didn't make it into Wal-Mart or a lot of other mass merchants, Baddeley said, but it didn't need to be there. There are better-suited retail outlets for certain suppliers' products, and they say they are doing just fine by placing it outside the nation's biggest seller of video —specifically, in bookstores.
“I wouldn't even sell something like an ‘Inspector Morse' boxed set to Wal-Mart unless they gave me cash upfront because it doesn't belong there,” said Denis Donnelly, president and CEO of BFS Entertainment. “A lot of our stuff will never get sold in Wal-Mart, and thank God for that.”
Suppliers such as A&E Home Video, BFS, Disinformation, Koch Vision, Kultur Entertainment that traffic in eclectic programming, foreign fare and high-brow documentaries say the bookstore channel is often a more important retail account than Wal-Mart.
They like bookstores because the customer base is in tune with their kind of product, and the stores stock a larger breadth than most mass merchants. Bookstore customers also aren't as sensitive to price and street date as most Wal-Mart shoppers.
It's the slow dime versus the quick nickel, said Dan Gurlitz, GM of Koch Vision.
“Do you want to hang out lots and lots of it and sell it very aggressively, or do you want to hang out less and sell it for more?” he said.
Koch's sales team searches out indie or genre-specific bookstores, museum shops and boutique shops — outside the two big booksellers — and tries to get them into DVD. It's not an easy area to exploit, Gurlitz said, but it's worthwhile to try.
In fact, he said, he's bewildered at reports of slowing DVD sales.
“We're having an unbelievable year,” Gurlitz said. “We're not only ahead of last year, but ahead of what we projected.”
His company's product just isn't tied to the vagaries of Wal-Mart.
“If Wal-Mart is losing sales, it's not going to hurt us because it's not our biggest market,” he said.
Book chain Borders, which got into DVD sales early and still is heavily invested in the segment, remains a bit insulated from a softening DVD sales business, said Patti Russo, director of multimedia for the chain.
“While we sell new releases really well, it's not the main focus of our business,” she said. “When there's a poor year in new releases, we tend not to be hurt as much.”
In fact, the chain had positive comps for DVD in 2005 and a “pretty good first quarter,” Russo said.
Retail and online bookstores combined constitute the largest sales market for Kultur Entertainment, said managing director Ron Davis. The company's lineup of classic performance titles and a new line of boxed sets featuring British TV shows will find nice homes in bookstores.
Most A&E Home Video product is tailor-made for the book/museum shop shopper, said Kate Winn, the division's VP of sales and marketing.
“We have a good business at mass, and we are very careful to put in titles that are going to work for them,” she said.
But A&E has great relationships with Borders and Barnes & Noble, she said, and it benefits from both retailers' online presence and Web search engines that drive shoppers to book-related e-commerce sites.