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Prerecorded videotapes heat up.

Drug stores gaining market share

Prerecorded videotapes heat up

CDR Roundup--Consumers increasingly are purchasing instead of renting prerecorded videos. The trend offers retail opportunities to drug chains (few of which are in the rental business). Nonetheless, making this product category profitable, say suppliers and retailers, still requires a strong commitment.

In 1991, according to market research firm Cambridge Associates Inc., Americans bought about 280 million videotapes in the under-$30 range, 22% more than the year before. At an average list price of $15, sales of sell-through videos (versus rentals) totaled more than $4 billion for the year.

A year ago drug stores accounted for 5.2% of all prerecorded videotape sales, says analyst Amy Innerfeld, who tracks the sell-through market for Alexander & Associates, a New York City-based consulting firm. For 1991, she says, the drug store share should be slightly higher.

Drug stores and other mass marketers are gaining share from specialty video outlets as sell-through prices continue to decline (thereby encouraging impulse purchases).

However, retailers contend that making money from video sales remains a challenge. A rack jobber who services Portland, Ore.-based Fred Meyer Inc.'s video business, says that drug stores and other mass market retailers can use hit releases effectively to build traffic. But he adds that margins are typically thin due to very competitive pricing. In fact, as a spokesman for a Midwestern drug chain claims, "Selling videotapes is more of a defensive thing."

Dennis Maguire, vice president of sales at Buena Vista Home video (which distributes Walt Disney videocassettes), says that retailers can build video sell-through into a profitable year-round business geared to impulse purchases. "The aim," he explains, "is to get people in the store not just to buy Home Alone or Fantasia, but to buy prerecorded videotapes every day of the year."

Catalog films strong

Hits are vital, but so is an ample selection of catalog films. "They are the most profitable," says Maguire.

Other ingredients for success include strong in-store merchandising and accessible displays.

Revco D.S. video buyer David Halle notes that Fantasia is selling well. But he adds that space is the biggest constraint to the category.

The Fred Meyer rack jobber says that "pumping up" sales of catalog videos is not easy.

Still, at Fred Meyer space constraints have not been a major hindrance. The chain maintains separate, fully staffed video sections in its stores with on average about 2,000 prerecorded videotapes each. And there is usually enough shelf space for some videocassette facings, which can really boost sales.

The rack jobber cites Phar-Mor Inc., with its wide selection and competitive pricing, as the pacesetter for video sales among chain drug stores. (According to Alexander & Associates, during 1990 the Youngstown, Ohio-based deep discounter ranked fifth in video sales among all mass retailers--with nearly 3% of the sell-through market.) "If you're getting into video," says the rack jobber, "you'll have to fight PharMor. As it is, many drug stores are struggling with a few hundred videos in rack locations."

Some video producers and distributors say that the answer lies in special-interest videos, which generally carry good margins. The category includes fitness tapes (the most successful example), plus how-to tapes, documentaries, sports videos and music.

The in-store merchandising possibilities are tremendous, says Ron Weinstein, president of TBA Communication, a company that markets special-interest tapes. Retailers could offer videos relating to any number of other services and products available in their stores. As an example, Weinstein says that a dental health video targeted to children could be advertised via hang tags in the toothpaste section.

"The special-interest video category is growing very nicely," says Dick Kelly, president of Stamford, Conn.-based Cambridge Associates Inc. More retail outlets, including drug stores, are carrying such videos, and declining list prices are opening the way for more impulse purchases. Sales of special-interest videos last year were estimated at over $1 billion.

Overall, entertainment videos for children are the sell-through category's strongest performers. Their list prices have always been relatively low. "Moreover, people don't rent children's videos, since children want to play them over and over again," says Kelly.

Drug stores account for about 10% of Disney's sell-through business. With additional promotion. Maguire believes, that share could double. He states that drug stores offer children's video distributors the "perfect" customers: mothers who visit the stores once or twice a week with children in tow.

PHOTO : Overall lower videotape prices encourage impulse purchases, boost performance at chains.
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Title Annotation:purchases of prerecorded videotapes
Publication:Chain Drug Review
Date:Jan 13, 1992
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