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Store on a Shoestring

28 Apr, 2003 By: Holly J. Wagner

In a number of foreign countries, customers rent discs and tapes the same way Americans buy lottery tickets and get cash: using vending machines with touchscreens and card swipers.

Nobody tracks automated sales or rentals in the United States, partly because the market is so new and still fragmented here. But Blockbuster Video has 779 stores in the United Kingdom and 116 in Spain, with 120 kiosks in those countries combined; and a franchisee operates 230 of the machines in Israel, said Blockbuster spokesman Randy Hargrove. The machines have been in place since 1997, primarily in gas stations, convenience stores and grocery markets, but also outside of traditional video stores as a way of extending hours.

Initially the machines were designed for tape rentals, but the advent of DVD made movies more compact and allowed for more uniform slots that let machine operators stock movies, games and music CDs, depending on the surrounding market.

DVD and game kiosks are going into 14 Tom Thumb Markets convenience stores in Florida; the 1,274-store The Pantry convenience-store chain is testing them in its stores, but declined comment on the test.

“It's a continuation of the channel blur. The value of convenience has never been higher,” said Jeff Lenard, spokesman for the National Association of Convenience Stores. “There are smart retailers out there looking to capture that consumer. As long as there is demand for DVDs, more people will get into it.”

McDonald's put automated TikTok DVD shops outside 20 of its restaurants, primarily in the Washington, D.C., market. McDonald's representatives did not return calls for this story. Several grocers are testing kiosks but would not go on the record.

DVDPlay chief marketing officer Dee Cravens admits they are not for every situation, but sees opportunity anyplace that generates lots of foot traffic. “We have one in a hospital that has 900 employees,” he said. “We are talking to two large chain stores that want to free up space devoted to DVDs. We are talking to stores that want to take the DVDs off the shelf to sell that space to the potato chip guy.”

The rising operational costs driving some video retailers out of business and forcing others to examine alternatives are also putting steam behind a handful of video vending machine companies who see kiosks as the answer to operating on a shoestring budget.

Vending machines offer a way to extend a video sales or rental business's hours or geographic reach, or both, with a minimal investment compared to opening another store and no staffing costs.

“We are getting more and more video store owners calling us to ask for information,” said Ron Szuchy, owner of the independent Video Highlights store in Pittsburgh and Video USA, a vending machine sister company to manufacturer Video Italia. “People are trying to understand how to get into this. If you had one of the mid-size machines, you could have 1,000 titles. Let's say it costs $25,000 [for a machine]. That's less than a third of what it would cost you to open up another video store.”

DVD Express, which operates 10 machines by DVDPlay at some locations in the Manhattan, N.Y., market, puts them in caf?s, dry cleaners — anyplace with a lot of foot traffic. “There's no shortage of locations where it can do well. They are where people frequent, it's close by. Their comment is that it's so convenient, because it is right on the way to work or school,” said Arun Mathur, director at DVDExpress. “We get dozens of e-mails on a daily basis from people who are interested in participating. We get positive feedback from customers. Even our customers are interested in getting into the business.”

Many of the machines, including DVDExpress and Video USA, are Internet-enabled not only for the operator to manage machine activity, but to let customers reserve their selections online. The machine holds the title for a specified period of time until the customer can pick it up. The DVD Express machine also lets customers check stock at several machines in their area.

As with so many other areas of promotion, an increasing number of unrelated businesses see DVD as a carrot to dangle in front of consumers. “What we're finding out is, we have been contacted by apartment complexes asking us to put systems there,” Szuchy said. “They say, ‘You want to rent here because not only do we have a pool, we have 24-hour video rental.' We have been contacted by resorts in New Jersey. [One] guy practically begged us to put them in there because when it rains, there's nothing else to do. He had rack jobs, but he could not control them, and they took too much space.”

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