PROFITING FROM SELL-THROUGH

In years past, the words "sell-through" and "profit" were seldom used together. Retailers despised the low margin they had to accept on hit sell-through movies.But with the evolution of low-priced catalog sell-through programs, providing ample profit and driving impulse purchases, all that has changed. Retailers still advertise the hits at minimum advertised price to drive traffic and create a price

In years past, the words "sell-through" and "profit" were seldom used together. Retailers despised the low margin they had to accept on hit sell-through movies.

But with the evolution of low-priced catalog sell-through programs, providing ample profit and driving impulse purchases, all that has changed. Retailers still advertise the hits at minimum advertised price to drive traffic and create a price image, but customers are drawn to their displays of under $10 and $15 products, and movement is brisk.

Two participants in SN's roundtable are expanding and enhancing their sell-through programs.

Seaway Food Town, Maumee, Ohio, is creating more permanent sections in the main part of the store, said Darlene Kiefer, services coordinator. The result has been a four-fold increase in sales. "We had seen studies that showed the growth in video was in sell-through. We didn't feel that we were a party to that growth and we wanted to be. So we took the gamble and put it out on the floor," she said.

Martin's Super Markets, South Bend, Ind., is replacing a rental department with a sell-through section in one store and is thinking about doing the same in more locations if rental revenues don't pick up, said Laura Fisher, video coordinator/merchandising associate. "We really haven't had any challenges in sell-through. Our sell-through does really well," she said.

Bob Gettner, video buyer/coordinator at B&R Stores, Lincoln, Neb., said prominent placement in the main part of the store is a key to sell-through success. "A lot of grocery stores will plant sell-through in the video department where a lot of customers may or may not see it, which is not a real good idea. But you need to put it in a high-traffic location and finding the space for it is a big challenge, especially in the grocery business because nobody wants to give up any space," he said.

But for many retailers, theft remains a major obstacle to effective sell-through merchandising. "We have to be very careful on sell-through products because if we put it out in the aisles, it's going to disappear. We can't afford to do that," said Bill Glaseman, video specialist for Bashas' Markets, Chandler, Ariz.

Here's what the video roundtable participants had to say about the sell-through category: SN: What is the biggest challenge facing sell-through in supermarkets?

KIEFER: We are just starting to see a great potential in sell-through and we are growing the category. The biggest challenge is making sure we have the right mix on hand, because we just don't sell the hits, we bring in catalog hits as well. Another challenge: controlling the shrink.

SN: What do you mean by the right mix?

KIEFER: We work very closely with our distributor, Baker & Taylor [Morton Grove, Ill.] and we bring in older titles that have sold or rented well, and have now been repriced. We are selling over 1,000 units of those a week. We have to make sure that the titles we bring in will move.

SN: What do you do to control shrink?

KIEFER: We track the movement and if there are too many that we feel have disappeared, then we get involved. A year ago June, we took all the sell-through out of the enclosed environment of the video room and put it out on the main floor, and we saw a tremendous sales increase from doing that. But we know that we are losing some also, and if the shrink gets too much higher, we will have to put it back in the video room, and that means the sales will go back down.

SN: What prompted you to put sell-through on the main sales floor?

KIEFER: We had seen studies that showed the growth in video was in sell-through. We didn't feel that we were a party to that growth and we wanted to be. So we took the gamble and put it out on the floor, and we sold almost four times as many by doing so.

FISHER: We really haven't had any challenges in sell-through. Our sell-through does really well. In one store, we are taking out a rental department and turning it into a dedicated sell-through department. Now that our supermarkets take credit cards and every kind of debit card you can think of, that helps a lot with sell-through. In our stores, we have sell-through in the video department, but we also have spinner racks in the main part of the store, which creates impulse buys for women shopping with their kids.

GLASEMAN: In our case, the biggest challenge seems to be the need for security. We have to be very careful on sell-through products because if we put it out in the aisles, it's going to disappear. We can't afford to do that. But on the other hand, if we leave it in our video department, particularly our store-within-a-store live inventory departments, then it's not exposed to all the people that are shopping in the aisles. So it's really a tough call. One more challenge is the fact that on the hit sell-through titles, almost most everybody sells at MAP [minimum advertised price] for the first couple of weeks and there really is no profit in that. All we have to do is lose one or two movies and the profit goes out the window for that whole program.

GETTNER: In sell-through, I would say the biggest challenge is just having the product in your store. I know a few grocers that have backed off selling videos, and one of the reasons was the guaranteed return policies. In the grocery business, most of the other vendors are real good about helping out with product that does not move. But in video, when you buy something you pretty much own it, and if you can't sell it, you're just going to take the hit on it. As a result, we're very careful about what we buy.

But you have to make sure the sell-through is in a prominent location in the store. A lot of grocery stores will plant sell-through in the video department where a lot of customers may or may not see it, which is not a real good idea. But you need to put it in a high-traffic location and finding the space for it is a big challenge, especially in the grocery business because nobody wants to give up any space.

SN: Is the sell-through category in supermarkets all that it can be?

FISHER: I think it could be more. If we were to pull all our video-rental departments, we would put sell-through in its place. You have a good margin on video sell-through that you don't have on rentals right now. That's something grocers look at very closely.

KIEFER: Sell-through is not all that it can be for us. For example, in our new Adrian [Michigan] Food Town, we put in a 16-foot in-line section and we can't keep it full. The customers are really buying the product. So we feel that if we put that kind of dedicated in-line permanent section in more stores, we could sell even more. That's what we've decided to try and do in the future.

SN: What are the keys to sell-through success?

KIEFER: Having it on the main sales floor is one. But again, it's also the right mix at the right retail and the presentation. I am now looking for the right signing package. We found some permanent shelving, but now we need to find the right signing package to go along with it.

FISHER: You want to make sure it is out in your store in high-traffic areas, not stuck in a corner somewhere where no one can see it. You need to have a good variety -- you don't want to just have the feature films -- you want to mix and match titles, older titles, off-the-wall titles. Make sure it is merchandised well. Make sure the racks are clean and it is priced well, so that customers know how much it is as soon as they look at it.

SN: How about advertising and promotion?

FISHER: Right now we advertise the feature titles, and that lets the customers know that we are at the same price as the competition, and that if you come in to get your groceries, you can get your sell-through at the same time. But as for advertising older sell-through movies and other titles, we haven't done much. We'll stick a dump bin right in front of customers as they walk in the door. That way they have to look.

SN: What has the sale of low-priced sell-through -- under $10 and previously viewed product -- meant to supermarkets?

FISHER: Our new sell-through department will have two different sections: $9.99 and $14.99, because we know those are the price points our customers are looking for. It's easier to spend that kind of money than $24.99 on a movie. We also merchandise that product in the dump bins. At the lower price, they blow out of the store. In the dump bins, customers think clearance sale.

GETTNER: We work with an outside racker and all they do is sell-through. We carry a lot of $9.99 products and that is probably the best-selling product around. Anything that's under $10 moves very, very well and we usually have a big variety on a rolling rack in a lot of our stores. We sell a lot of it. So it's been very good for us. This is not previously viewed, it's all brand new product.

GLASEMAN: We generate our own low-priced sell-through from our video department. When we move a title from the new-release section to catalog, if we have more than just a couple of titles, then we put the extra on our previously viewed fixture and we sell them off. Because of the modest buying I do, we don't have a lot of that product. I have not yet put out any of that under-$10 product as a promotion. Before I took over sell-through, we tried it, and I believe it really didn't do that well and that the returns were rather high.

KIEFER: If we bring in the right title under $10, that's what really moves. It's doing quite well. That price point is magic.

SN: Is there less shrink in the under-$10 product?

KIEFER: I think so. I don't want to say that it's less valuable, but they are just more willing to pay what we are charging for that product and don't steal it.

SN: The rental copy-depth programs have resulted in a proliferation of previously viewed tapes. How has that affected your video sell-through program?

KIEFER: It hasn't. They complement each other. We like having the previously viewed available to the customer because it keeps them coming to us for their video purchases. Take "Horse Whisperer" as an example. That movie caught on as more people saw it -- they liked it and wanted a copy of it. They asked about the previously viewed copies of that long before we were ready to sell it off. Now that it has come out as repriced, we brought it in and it's moving quite well.

GLASEMAN: Because of all the copy depth, there are a lot of previously viewed tapes around and it cuts into our sales of previously viewed. But in our case, we don't have that many copies to begin with. We seem to successfully sell off the few titles that we have.

FISHER: We simply don't participate in a lot of copy-depth programs, so it really has not hurt us. But on a sell-through priced title like "Titanic," when we were selling off our previously viewed copies, it was harder to sell the new copies because we were selling the previously viewed for less. We have a program for pricing previously viewed movies and we follow that and the customers know that we follow it. So we had a lot of people waiting to buy used copies of "Titanic" because they knew that they could get it a lot cheaper. But most customers don't know about it. We basically sell the previously viewed in our video department and it is the video-rental customers that mostly take advantage of it.

SN: What about the Blockbusters and Hollywoods flooding the market with previously viewed copies? Does that have an impact on repriced product when it comes out later?

FISHER: I think that it does. But it depends on the price you are selling it for. If I could get a used copy of "The Truman Show" at Blockbuster for $6.99, I would buy it there. But you do have people out there who still want it brand new. They don't want one that has already been used.