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Test: Rentailers Can Succeed at Sellthrough

14 Feb, 2003 By: Joan Villa

Can new DVDs sell in a rental store? The Video Buyers Group says “Yes.”

The 2,000-member group, based outside Minneapolis, tested the concept during the fourth quarter in several member stores and concluded rental customers will buy new DVDs simply for the convenience, even without deep discounts or marketing, said president Ted Engen. The test also boosted consumer traffic in the test stores, he said.

One group of about 20 stores gave customers the option of purchasing at slightly below full retail and didn't offer incentives, while a second similar group aggressively pursued sales with discounts and a coupon book for free rentals promoted as bringing the cost of Monsters, Inc., for example, down to $12.95, he said.

“The group that tried to promote the sellthrough sold 21.6 percent of their units. The other group that did nothing still sold between 12 percent and 13 percent,” Engen said.

Convenience played a major role, he concluded. Although rentailers often believe they can't compete against mass-merchant discounting, Engen insisted that many consumers won't opt to make a special trip to Wal-Mart to buy a movie if it is offered for sale closer to home. “Convenience does have value,” he said. “As long as it's within a couple, three bucks, for the most part consumers are comfortable paying the money.”

The test took a unique approach. Retailers received two-sided display racks from VBG's distributor, Ingram Entertainment, and agreed to buy 10 or 20 units of each major new release on top of any they purchased for rental. The rack was treated like a “mini-warehouse” that could replenish rental shelves when necessary, but still offer customers the chance to buy.

A major focus of the test was also to maximize previously viewed sales by following a strict schedule of culling rental product after the fourth rental, or when the store gained $14 in revenue based on $3.50 per turn. The DVD was then priced for sale at $4 below retail cost, netting the retailer about $10 per unit as early as the second week after release and capturing dollars that consumers may have spent elsewhere, Engen said. Demand for these previously viewed units was higher than expected. “For the people that do want to own it, you're giving them that option previously viewed while the title is still popular,” he said. “Most retailers bring it in deep, wait till the movie is stone cold and then try to sell it off previously viewed.”

As titles sell off, retailers in the test would replenish the rental wall with new product from the sales rack. Thus, several retailers sold out all their units of some titles, Engen noted.

Engen said the group will expand the concept to more stores in the next few months and ultimately offer a refined version to the entire group in time for the 2003 holiday season. “In the majority of the test stores, three to five times what was normally ordered of DVD high-profile titles is now being ordered, rented, sold as previously viewed and offered for purchase new with positive results,” he concluded.

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