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Smaller Video Specialty Retailers Slower to Abandon VHS

6 May, 2004 By: Melinda Saccone

The “Significant 20,” on the cusp of breaking rank into the elite top 50 video specialty retailers as determined by Video Store Magazine Market Research, are vital players in the home entertainment arena. As a follow-up to VSM's annual Top 100, we will take a look at this segment and their contribution to home entertainment.

Despite a relatively flat rental market and a highly competitive sales environment where competition stems not only from other rentailers, but also from other retail channels, the Significant 20 retailers have tweaked their strategies to successfully remain in the game.

This group of video retailers (see chart at bottom), 78 stores strong, has followed a survivor strategy by remaining loyal to the VHS consumer while embracing DVD adopters. All told, their movie rental revenue amassed $22 million in 2003.

While many of the Significant 20's revenue sources mirror that of the Top 50's, there are some noteworthy differences in their retail strategies.

This secondary tier of players has remained true to the core needs of the renter. In 2003, movie rentals remained the dominant source of revenue in the Significant 20 stores, like their Top 50 counterparts. However, movie rentals accounted for two-thirds of this group's overall take in 2003 — compared to 61 percent in the Top 50 stores.

While these players are equally committed to DVD as their top 50 counterparts, they have not been as quick to abandon VHS.

Last year, disc rentals accounted for 38.5 percent of their overall revenue — on a par with the Top 50 video specialists in the country.

However, transactional cassette rentals generated a larger portion of their overall revenue (27.6 percent) than for the top 50 video specialty retailers (22.8 percent).

This group is also much less likely to abandon VHS in 2004. Only 5 percent said they planned to discontinue carrying cassettes in 2004, compared with 40 percent of the Top 50 who said they planned to abandon the format this year.

Nearly 60 percent in both groups have no plans to discontinue carrying VHS in 2004. However, many of the Significant 20 will follow a strategy that will answer to what consumer demand dictates in the next nine months, with 35 percent undecided in their product plans for the format.

By comparison, only 4 percent of the Top 50 remained uncertain of the role VHS will play in their stores in 2004.

New-movie sales do not appear to be a product line the Significant 20 are aggressively pursuing, perhaps because the market has become extremely competitive with other retail channels in the past few years. Combined new DVD/VHS sales accounted for an average of 3.9 percent of their gross revenue in 2003 — compared to 9.2 percent in the Top 50 video specialty retailers.

While they may not have chosen to cater to new-movie purchasers, they have found a new revenue stream to combat competition from discounters and mass merchants: selling previously viewed titles (PVT). Last year, revenue from PVT sales accounted for a slightly higher percentage of gross revenue (8.9 percent) in their stores than in their Top 50 counterparts (8.5 percent).

While games have become an increasingly important source of revenue in many retail outlets, the Significant 20 have also been less likely to embrace the game market. Game revenue in the Significant 20 stores were off nearly 2 percent from their Top 50 counterparts, averaging 6.1 percent of the overall revenue in 2003.

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