Trying to Survive

[phoenixvid]

We live in a small community in Idaho in which a grocery store chain is building a small commercial shopping center which will include a Movie Gallery. We will have our third anniversary April 13th and have grown substantially every year. We will really have to compete when MG opens as the revenue for video here is limited. Good for one store, questionable for two.
Rufusjack gave me some really valuable advice some weeks ago and we are implementing some of his suggestions. We will have hot new releases for two days but increase the older new releases to five days with a special for four or five rentals at a time. We are also increasing the rental times on catalog.
We have also decided to have our landlords increase the add on to our shop. We will go from about 1800 square feet to 2800. Space has been an issue since our first year.
We visited a MG in another town and they were down the street from a Hollywood. They had all new realeases for five days at $3.29. We use Rentrack so for many films this would not be too bad and we could match this policy. For the ones we have to buy I'm not sure about. Does anyone do five day rentals on all their stuff? If so, how does it work out for you?
It seems impossible for MG to bring in enough titles on a new movie to keep it in stock with a five day rental period and make a profit and have enough available for their customers. Any input would be appreciated.
For those of you who compete with MG, how do you do it? We have been told that in communities where they have no competition they charge $4 for 1 day and if you want to rent it longer you have to pay more.

Thanks, Count

[yburan]

We used to do 2 day rental on both hot and new releases. What would happen is people would come in on Friday rent out the hots and not bring them back untill Sunday night. This would mean that the hot releases did not get as many turns, plus I was all out of hots for the Saturday crowd.

I changed that policy to 1 day rentals on Hot and also they get a $1 early return credit for bringing it by 2PM next day. This lets me have maximum turns on hot releases, the early return credit makes customers feel like they are saving money by bringing in in early. I would say that about only 30% actually do take advantage of that. Those that do, are my most frequent renters.

[videogeek]

The MG in the town 20 miles from me used to do a 1 day deal for $3 something and you could get it for 5 days for $1 something more...roughly $5. NOW they switched over to Roughly $5 for 5 days. No one day rentals no two day rentals 5 only. They are constantly wiped out of movies. From what I hear from people I know they hate it. No selection and $5 just to rent a movie is not good. At one time I almost considered picking up and moving there just to take advantage of MG's weakness. If they do the same thing in your town all you have to do is keep the price reasonable and try your best to keep some selection and you will be able to compete with them just fine......Be forewarned, when they first open they will do a big radio campaign and all of their 5 day rentals will be $1.99 for a bit. Im sure you'll slow down for a bit during that period but once the honeymoon is over and their selection runs low and prices high people will wise up.

[mcmarc]

I'll quit harping on diversity of inventory for awhile and mention another thing that helps me is pushing the local angle.  It seems works for both a liberal and conservative clientele, and try to give yourself a stronger presence in the community.  I'm sponsoring a sports team, giving away raffle items to schools and charities, and showing free movies.  I have 10 stores to compete with!

marc
orbit dvd

[Hardcopy]

See if the local high school has their football, baseball, basketball games available to get on VHS and make them free rentals.

[sungifts]

I agree with mcmarc.  We have been donating items (gift baskets for teacher appreciation week, free rentals for block parties, etc) to anyone that asks and even those that don't.  I really think that helps because they will remember your name and the fact that you were nice enough to help out in the community - something the big boys don't always do.

If you support them, they will support you!

Word of mouth advertising is FREE and the best in my opinion.  I know if someone tells me of a product or company they liked, I am more likely to try it or buy there than if I just see an ad somewhere.

As far as rentals, we charge $4.09 for new releases for 2 days, after they are no longer "new", our price stays the same, but the days move to 5. Once in catalog, they are 5/5/5 or $2.25 for 5 days.  

I want to offer a credit for movies returned in one day, but haven't had the time to put it in place yet.  I just don't see why you would need to keep a movie 5 days - if I rent one today, I will be watching it tonight!

Good luck to ya!

I would suggest to start pumping up your good customers right away. Send them a letter, give them some free rentals, give them some posters or whatever. Get them on your side and let them know how much you appreicate them.

Also start focusing on things you can do that MG wont do. Like reservations, subscriptions and such. Its the little things that set us apart from the big guys, use that to your advantage.

[yburan]

In the current, or one before that, Home Media Whatever magazine they have a front page small section about MG and it's store #2500. There is a photo. On the windows, I clearly see a promo of $1.99 rentals. I can't read  the small print. (its too small) What is it? Do they say, "limited time promo" or something like "untill that video store across the street goes out of business"?

I am thinking that MG does this because it works and have proven so.

So I am thinking why not me too? I can do that for 3 months and mass mail the heck out of my neighborhood. My question is how does MG then raise it back without people making a face and storming out?

[videogeek]

Because MG only goes to smaller communitys the $1.99 deal usually shuts down the competition. No more competition and you can set your prices where ever you want. I know this because in the past few years three have come to 5000 ish population towns around here...two of them in the past year. They do direct mail, radio and in small towns everyone and their brother knows about it quickly. It's a shame too because MG is very misleading to small town folk, they come, overstock their movies, $1.99 for 5 days, and once the competition independent movie store packs up and leaves MG takes off the mask stocks the shelves normal rather than heavy, takes down the $1.99 sign and goes into normal store mode....by then its to late to go back to the indee video store they shopped at for years because its GONE.....But it can be different...the stores that shut down after a few months were probably poorly run and in financial trouble to begin with...why else would they close down after a few months of competition unless they wanted out anyway...If the small store would have rode out the storm the sun would have come back out eventually.

[Anonymous]

$1.99 thing will only last 3 to 6 months then it must starting making profit.
what the real killer is over that 3 to 6 month time period they will be loaded out the azz in new releases, older kids movies will go for 0.49 or more and the games will go for 4.00 for 5 days or 3 for 10.00 for 5 days, not to forget the 1100 to 1800 titles in adult movies that you don't have, that go for 6.00 for 3 days

[phoenixvid]

You say the "$1.99 thing will only last for 3 to 6 months then it must start making a profit." Who says that it must make a profit? The company or the government?
I have wondered about anti-trust issues with chains and their ability to use their size to squash smaller competition. It would seem that renting videos below cost would be a form of dumping and would have some constraints.
Does anybody besides the chains rent all NR for five days and make a profit? If they can do it we should be able to also if we are being given the same terms they get. Input?
Count

[Mick]

Hi Phoenixvid.

Unfortunately, federal anti-trust laws do not address this type of situation, although there are some states that have statutes on the books meant to curtail "predatory pricing" at the retail level.  The problem is that, each time someone has tried to pursue legal action, the courts have shot it down.  Another problem is that there is not a state out there that will not allow you "promotional pricing" (with the exception of some commodities like alcohol and cigarettes, etc.).

But, even if you could pursue this, there are a lot of questions to answer...

First of all, how do you determine that $1.99 rentals are "below cost"?  Then, how do you define "profit"?  And when does a profit need to occur -- 2 months after opening, 12 months after opening, 2 years after opening?  Additionally, what defines a reasonable (let alone, legal) "promotional period" under the law?  Lastly, do each of their stores have to maintain the same profit strategies as all the rest, or is it enough that the overall company is profitable?

These are just a few of the very difficult questions to define.

You pose the idea that if MG can be profitable with this kind of rental structure, we should be able to be profitable with it also.  Perhaps if all of us owned a few dozen stores apiece, we might be.  But MG can leverage new store opening profits (or losses) against established store profits without getting hurt.  The owner of a single store does not have that opportunity.

Mick

[yburan]

Lets say you want to expand your customer base. You advertise five free rentals to new customers. Can MG file a suit for price dumping?
Just asking.

[Anonymous]

Hello Mick
What got me going on this line of thought was the previous statement about the $1.99 needing to make a profit between 3 and 6 months. A quick check on profitability would be if ROI per title was less than the investment for that title. If 100 copies were brought in on a title they would need to rent an average of 7 to 9 times per copy. If that average was not met on a consistent basis it would establish a pattern of flooding the market.
I know nothing about anti-trust laws or predatory pricing laws and that is why I wanted input on this subject. I don't know that much about MG and what their policies are. That is what I'm trying to find out as I will be in competition with them soon.
As for special promotions, it would seem that would not establish a pattern but a, if not unique, at least a non-standard event. If it were shown that a company ran a store at a loss until the competition folded and then raised prices to a profitable level on a consistent basis then a pattern of unfair trade might be raised.
It may be difficult to take to court and win but it doesn't make it impossible. But it would take resources beyond my own to test it.
Count

[Mick]

Hi Count,

Certainly, I am not an expert on anti-trust or blue laws....but I have had some experience with them.

I am convinced and completely believe that the strategy behind MG's pricing practices in new markets is to put the competition out of business.  I "believe" that there is a significant amount of evidence to support that conclusion.

And, ultimately, you are right -- having the money to pursue that legally is a huge issue that makes it virtually impossible to pursue.

Mick