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Movie rentals up close: the script for success.

If there is a single point around which successful movie rental operations pivot, it's the adequacy of the store service counter facility--its location, space and staffing. Inadequacy in any of these aspects will surely doom any chance of a profitable operation, and worse, antagonize customers.

The possible exception to this need is the self-contained movie rental boutique, which has its own staffing and service facilities.

The location of the service facility is important because the tapes' display should be convenient to customers and have a clear identity. If the courtesy counter or other service desk is positioned in an untrafficked corner or in an awkward place, the related tapes display-- and the whole rental operation--will suffer. On the other hand, if the service section is located ina spot that is too heavily trafficked, movie rental customers won't be able to browse, deterring multiple purchases and, in some cases, eliminating sales entirely.

The service facility must have a certain amount of space to provide for storage of the tapes. Also, clerks and customers need a certain amount of elbow room as the rental transaction is made.

For those retailers who have traditionally provided extended service counters in conventional, superstore or combination outlets, movie rental's service needs are relatively easily satisfied. However, in many stores, even those that are fairly large, there is no service facility of any consequence.

The store manager may have a desk in the sales area for okaying checks and dealing with customer problems, or there may be a store office in or near the sales area, but there are minimal customer service facilities. In some stores, courtesy counters are raised above the floor, which provides better surveillance of the selling area, but does not promote the give-and-take contact needed for rentals.

Is movie rental out of reach for stores like these? Not necessarily. Some large, highly trafficked stores are said to be doing we with freestanding, separately staffed sections with little, if any, tie-in with other service facilities. A more practical alternative would be to extend, modify, relocate or create a customer service area capable of doing the rental job.

The remodel route involves some expense, particularly in carpentry, and may require some adjustment in other store sections. Yet a "new look" for the courtesy counter/service desk facility does present an opportunity to offer the newest development in home entertainment and other merchandising opportunities the store may be missing. This includes photo finishing, which usually requires some clerk contact. Also, of course, an enlarged service ara can be made more efficient in terms of labor when linked with bottle return and other service functions.

Proper staffing could be a whole subject unto itself. In brief, streamlined procedures should be devised to minimize paperwork, and personnel scheduling should be both flexible and scientific to provide sufficient staff coverage, starting with the Friday afternoon customer rush. Training is vital. Clerks must handle a variety of tasks, from explaining how the rented VCR machine is connected at home to inspecting machines and taps when they are returned.

There's also a pesoanlity or salesmanship aspect. Bill Sullins, who heads up general merchandise at Randallhs in Houston--which has 26 stores with movie rentals--puts it bluntly. "You've got to build this business," he says. "Part of the way to do it is by having people who know the product, care about it and who enjoy selling."

Joseph Wright, general manager of Video Enterprises, Tampa, Fla., estimates that properly trained and motivated employees can increase rentals by 15% through superior salesmanship.

Personnel for these sections demand some special attention. For instance, security for equipment is important, suppliers say, because pilferage of tapes and machines is mostly an internal problem. Likewise, care should be taken to keep employees from renting new movies before the customers have had a chance. (However, since employees are good customers of rental, a special discount can be offered for weekdy rentals.)

Howard Brown, president of Ramm Electronics, Orlando, Fla., says "special efforts" must be made to motivate the rental clerks. He suggests contests, free VCR machine rentals and even a 25-cent payment per rental during a limited promotional period.

Fixtures Run the Gamut

Just like video equipment and films, display fixtures for movie rentals come in a wide variety of types. Fixtures range from full-size boutiques requiring fulltime staffing to what one small store resorted to--some shelves mounted on pegboards above the soft drinks. There are 2-foot- by 2-foot-2 and 4-foot- by 4-foot-freestanding modules of all sorts, spinners, islands, back-to-backs, walkarounds and endcaps as well as in-line setups, wall units and portions or extensions of the service desk. Displays can be made by the retailer or provided by an outside supplier.

The wide gamut is necessary because of the differences in space availability and configuration in individual stores. One supplier, throwing up his hands, says he'll build whatever is necessary.

The basic concept in most stores is a display that is an open exhibit on the sales floor, not of the actual merchandise, but of the empty boxes or sleeves in which they are packaged. The boxes, pictorially and verbally dramatic in the Hollywood manner, serve exceptionally well as sales tools. After making their selection, customers take the empty box to the rental service area or tell the clerk the requested tape's number or title. Meanwhile, of couse, the costly tapes are held in a secured area within the service desk.

A different format displays the tapes in a locked fixture on the selling floor. Some have wide slots which permit customers to examine both sides of the tapes' boxes, but a store person is needed to unlock the fixture to remove the requested tape. This process is somewhat inconvenient and time consuming for customers and clerks, but it has advantages.

The locked system is good for stores with insufficient space at their service counter for storage of tapes. It also prevents disarray and stealing of the boxes and serves as an excellent monitor of what tapes are actually in stock.

As far as location in the store is concerned, the general preference is for a location with excellent visibility and proximity to a service counter. An exception is the manned boutique, which can be located at the front of the store or where browsing space is available.

The manned counters, which require up to 200 or 300 square feet in some installations, may also be located near the pharmacy or other service area. The purpose of this is to utilize other service personnel when the boutique's business is at a low point (as often happens in a 24-hour store) and when the tape display is left unmanned.

Most displays are accompanied by posters and banners and other merchandising materials. Some have TV sets playing "trailers" of the films offered and messages about rental prices and specials. The tapes may even demonstrate how easily VCR equipment is hooked up to the home TV.

Keeping it Simple

The byword in movie videocassette rental operations is "keep it simple." That does not exclude efficiency or security, but reflects a three-part purpose: to speed the customer's purchase, eliminate customer hassle over deposits and reduce store labor involved with paperwork.

the hang-up in the past has been the requirement of a deposit as part of being in a "club." This up-front money from the customer was deemed necessary to ensure against losses from non-returns and, no so incidentally, to build capital for this capital intensive business.

While some programs still use the term "club," it's just a formality to obtain fuller information and to provide a contract-type form, requiring sufficient ID, which the customer signs to receive a card securing rentals without a deposit.

Many stores are bypassing this procedure entirely as the storehs check-cashing card is considered sufficient. Other stores have a pseudo deposit system in which a debit is made on a major credit card for a deposit. The paperwork is not usually carried through, just held until the rental has been cleared. New customers are sometimes asked for a deposit until their check cashing card or video club card has been issued. In some areas the credit card is checked by telephone, calling a credit-card verification number.

There is an auxiliary benefit from using check-cashing cards as movie rental ID, according to an executive with a ShopRite chain in New Jersey. He says it has increased the number of customers applying for cards, which is a desirable way to solidify customer loyalty.

Barbara, Peterson of Prime Time says that in six months of operation in supermarkets her company has not had a single no-return loss. She says major credit cards are all that's needed for security or the store's own courtesy card--if its procedures are thorough.

Suppliers around the country have expressed surprise at how few losses there have been despite no-deposit systems. Many credit this to more than just good procedures. They say customers tend to treat supermarkets with respect and that they want to continue to enjoy the rented movies.

The emphasis on "keep it simple" has led to some stores changing their payment policy. Instead of paying with the rental, customers pay afterward when they return the film. The main purpose is to speed the initial transaction. Also, since many customers keep their tapes past one day, payment of a late fee can be combined with the paperwork for the initial rental.

Service Supplier vs. Do-It Yourself

In most larger multiple store and chain organizations, the development of a movie rental program is the province of the non-foods department. Sometimes, store operations personnel take charge as part of their overseeing of store-door product lines. In smaller companies the store operator himself or a store manager may hold the prime responsibility.

In any case, a movie rental department is typically handled by an outside merchandiser or jobber who provides a wide range of store services. The tapes and machines are provided on a consignment basis--that is, the store has no investment in goods. Other services provided through a field service organization on a weekly or every other week basis usually include: fixtures and signs, paperwork procedures, servicing for equipment and tapes, replacements for damaged goods, rotation of tapes, and new film releases. Margins typically run from 30% to 35%, depending on various factors including sales volume and the degree of service offered by the store.

In return for no-investment sales, profits and service, the store provides space and labor for customer contact and paperwork. That's a pretty good deal, but profits--in theory at least--can be improved if the retailer organization becomes its own supplier.

Sometimes the retailer has little or no choice. No servicing organization exists in most rural areas and in some metro areas a retailer may not be satisfied with the programs, performance or financial stability of outside suppliers.

Retailers on do-it-yourself movie rental programs usually buy their tapes through local wholesalers or other merchandisers. Many of these provide sales programs that include forms, procedural information and ideas, materials for training and merchandising, current details on new releases, and catalogs of hundreds or thousands of tape titles. VCR machines are not usually provided.

Buying tapes through the movie studios' licensed distributors (who actually manufacture the tapes) or national or regional wholesalers is somewhat cheaper and faster than through smaller local wholesalers. However, this may require high minimum purchases to gain the best prices, a somewhat risky endeavor considering the "perishability" of the titles and the small scale of rental operations at the present time. Tim Baskerville, who publishes the Video Marketing Newsletter says the entire field of movie tapes distribution is being strained as mass marketers enter the field. He thinks more "direct" purchasing may become possible in the future, bringing lower unit costs.

Baskerville also points out that the major studios are continuing to challenge copyright regulations that prevent them from charging wholesalers more for tapes being used for rentals than for tapes sold to the public. Their request will probably be considered by the new Congress and if the studios win, rental tape costs could increase significantly. Meanwhile, he says, tape prices have been declining. (Paramount has 25 titles being retailed for under $25 this Christmas.) Lower prices, of course, should expand the market both for rented and retailed tapes.

Besides the potential additional profits, there are other advantages in do-it-yourself movie rental, including tax credits for purchased tapes and machines; an ability to promote more forcefully with pricing; and the likelihood that the retailer can better motivate store servicing personnel than an outside supplier.

Other Side of the Coin

On the minus side, disadvantages to do-it-yourself include: rental's capital-intensive character--a purchase of just 100 tapes of various titles at an average of $40 each means a $4,000 investment in one store, excluding VCR equipment; the need to constantly rotate stock (some distributors say the retailer should have at least five to 10 stores and a service staff to rotate stock efficiently); and the need to dispose of dead stock at a reasonable price.

"Do-it-yourself," says a servicing jobber, who admits he has an ax to grind, "is the road to ruin" for movie rentals in supermarkets. He says retailers tend to make less than a full-scale commitment in people, time and money and end up with a poor program that will "fail to yield sufficient returns and will antagonize customers by their inefficiency."

Another supplier says, "It looks simple, but movie rental has a lot of complexity." People who have labored full-time in the field have failed, he points out. He says that independents with a few stores can succeed better than large chains in do-it-yourself because the independent owner often takes a personal interest in making his program work.

Says another jobber: "When chains get into movie rental on their own, they tend to overdo it and end up with a lot of junk after the pipelines are filled.

This is costly to unload. They also find they've bitten off more than they can chew in the area of servicing the VCR equipment and designing a system to rotate the tapes."

Dan Griffiths, president of Video Software, warns, "There's nothing mystical about this business--the expertise is available--just beware the pitfalls."

Ron Eisenberg, president of East Texas Periodicals, asks rhetorically: "Is it economical for a chain to staff up and make this big capital investment as opposed to having a racker?"

Video Enterprises' Joe Wright says, "It's almost greedy for retailers to strike out on their own in movie rental. Why get involved with all those details, tie up so much capital? Isn't no-investment profit in the 30s enough?"

Several chain non-foods executives countered the rackers' warnings, saying they have acquired buying expertise and find their non-store service wholesalers helpful in tapes selection and in forwarding information on new paperwork procedures.

Armchair Video, Winterhaven, Fla., offers franchised retailers 30% of cost for unwanted used tapes, and other wholesalers offer fairly reasonable prices for buy-backs. One four-store operator has set up a program on his company's personal computer to keep track of titles movement. (General Computer Corp., St. Louis, has developed a video rental software package which it is now marketing to wholesalers.)

A chain GM buyer looks at do-it-yourself this way: "If we can rent a popular tape just three days a week at $2.50 a day we can pay off a $50 cost in just seven weeks. The rest is gravy."

Some wholesaler jobbers offer a program through which retailers can receive a higher profit by dispensing with some services. At least one chain, while receiving full-store service, relieves the jobber of most of the capital investment burden by purchasing the tapes itself. The jobber says the chain's purpose was to fortify his fiscal soundness so that he could extend rental operations deeper and faster throughout the chain's stores. Also, the chain receives some tax advantages by owning the tapes.

Don Thompson of Sight & Sound, St. Louis, an experienced tape wholesaler supplying over 600 outlets, asserts, "There's no need for a third party to service stores when retail management is committed." He says that selling off extra copies of slow moving tapes is "no big deal" and adds that "after a tape has been rented 30 or 40 times, you've made your money, so you can sell it cheap to your customers as a closeout and make a little more."

Pricing and Promotion Part of Success Recipe

The most common promotional tool used in movie rental is to encourage Monday to Thursday rentals. It's estimated that at least 75% of rentals are made on Friday, Saturday and Sunday. This causes jam ups at the service counter and increases stockouts of the most popular titles.

Two-tier pricing helps solve this. Weekday prices are often $1 or more below the weekend price. Other offers include $1-off coupons and two-for-one tape specials for weekday rentals.

As for pricing in general, many tape wholesalers decry the tendency of supermarkets to undersell everybody. The argument is that "the supermarket's prime advantages are convenience, store familiarity to the customers and no-deposit programs. A higher price of 50 cents or $1 over the low end of the market will not hurt sales and will help profits."

Besides cents-off coupons, promotions often center on offers such as two tapes for the price of one or three-for-two. These are designed to hike the price tag and encourage business. A variation pushing multiple rentals uses a round dollar figure such as $5 for two tapes, regularly $3 each, or $8 for three tapes. To build extended rental (reducing paperwork), some supers offer two-day or three-day rentals at a reduced rate.

Dominion in Canada, for example, offers movies at $2.99 per day, $1 each additional day, and VCRs at $5.99 per day, $3 for each additional day. Randall's in Houston offers tapes at $2.50 per day or $5 for three days.

Another pricing ploy is to offer a lower price on movies appealing mainly to children. Dominick's, which has large movie rental sections in over 15 stores in the Chicago area, has three price levels: "Blockbuster" (identified with a red dot), $3 for one night, $6.50 for three; "Classics" (blue dot), $2 and $4.25; and "Old Favorites," $1 and $2.25.

Here's a grab bag of promotional ideas:

* Encourage multiple rentals over a period of time: a "movie pass" punch-card or package plan giving, say, two free rentals with 12, 24 or 48 rentals at a bargain (but high ticket) price.

* Handbills and bag stuffers help movie rental, especially for chains with limited movie rental distribution. Often the stuffers contain a cents-off coupon and list some of the "hits" available.

* Co-op monies and materials are becoming more accessible, some suppliers say. This will enable supers to announce new rental titles with a Hollywood flair in various media.

* For stores owning their own tapes: Accumulate them for a large sale. Use an inflatable pool and sign the display: "Take a dive in our movie pool and enjoy." Anderson News, Florence, Ala., plans to offer excess tapes to consumers at clearance prices through its bargain books program.

* While movie rental can be advertised within the grocery ad, it may win more attention in the newspaper's news or entertainment section.

* Posters vividly portraying movie themes are available and can be affixed to store windows, entry doors as well as the tapes display and service section. An applicable slogan: "Now playing at (name) supermarket. See our movie rental display."

* Buttons worn by the store staff can attract attention with slogans like: "We Rent TV Movies"; "Ask Me About Our Movies."

* Offer tie-ins like a free bag of popcorn with a rental. This can be backed by a large display of popcorn with movie posters and signs.
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Title Annotation:renting movies through supermarkets
Author:Snyder, Glenn
Publication:Progressive Grocer
Date:Dec 1, 1984
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