RETAILERS CAUTIOUS ON DVD PERFORMANCE IN Q4

WEST BEND, Wis. -- While Blockbuster, Dallas, announced last week that the company plans to shelve 25% of its VHS inventory to capitalize on DVD profitability (in addition to rolling out an aggressive DVD hardware and software merchandising campaign), some supermarkets are more reluctant to devote more space to the format for holiday time.Jan Schreier, video manager, Prescott's Supermarkets here,

WEST BEND, Wis. -- While Blockbuster, Dallas, announced last week that the company plans to shelve 25% of its VHS inventory to capitalize on DVD profitability (in addition to rolling out an aggressive DVD hardware and software merchandising campaign), some supermarkets are more reluctant to devote more space to the format for holiday time.

Jan Schreier, video manager, Prescott's Supermarkets here, said she pulled all DVD sell-through two weeks ago because of poor sales.

"It was more of a hassle, and it was taking up inventory space," she told SN. "We only sold one or two DVDs a week -- it's not worth it when you can sell a lot of VHS." Schreier pointed out that DVD accounted for 10% in total rental sales.

"People don't want to change to the format -- with money getting tight, DVD is a luxury," said Schreier.

Bob Gettner, video coordinator and buyer for Super Saver, a banner under B&R Stores, Lincoln, Neb., also did not plan to increase the mix of DVD product for the fourth quarter.

"Our ratio of DVD and VHS hasn't changed, and I don't foresee any changes this year -- we're satisfying the demand for our customers," Gettner said. "As far as we go, VHS is still the most dominant [format], our bread and butter, although DVD is picking up steam all the time."

Indeed, the format is expected to boast strong numbers during the significant fourth quarter. According to Alexander & Associates, New York, the value of the DVD market will top $3 billion for the last 13 weeks of the year, a 20% gain from the same quarter last year. The marketing and management consulting firm also indicated that total DVD units will reach nearly 71 million units, an increase of more than 140% over last year.

DVD penetration has been rapid, but acceptance has been slower at food retail compared to mass merchants, according to Bill Bryant, vice president of sales, grocery and drug, Ingram Entertainment, La Vergne, Tenn.

"DVD rental and sell-through will continue to grow as hardware penetration increases. However, a majority of sell-through DVD sales in Q4 of this year will occur in the mass merchant class of trade, which is a destination for DVD for two reasons: DVD selection, and deep discount pricing structure that consumers are confident they will be offered at these locations."

Leslie Baker, director of grocery and drug at Ingram Entertainment, agreed that some supermarkets have been more hesitant to jump on the DVD bandwagon.

"Some grocery retailers are actively participating while others are holding back due to internal issues like theft or location of product in the store," she said.

One supermarket, Reasor's, Tahlequah, Okla., is stepping up the DVD sell-through inventory in time for the holidays by installing a 100-piece DVD library of older hits.

Paul Richardville, director of video/photo, said, "We feel it's timely and something my clientele is asking for." The revolving stock of catalog titles will range in price from $4.99 to $13.99.

Others planned to increase DVD inventory after December, when consumers purchase DVD players as gifts for the holidays.

Bill Glaseman, video specialist at Bashas' Markets, Chandler, Ariz., said he planned to merchandise more classic sell-through titles like "Dr. Zhivago."

"I'm anticipating more [demand] for those titles since more DVD players are bought at the end of the year," he said.

Bryant said that "combination displays containing mostly VHS units and a few DVD units will be the most popular way to merchandise and promote both formats."

Meg Mahoney, senior marketing manager for New Line Home Entertainment, Los Angeles, also suggested a mixed merchandising format for retailers.

"Retailers can take advantage of studios offering mixed merchandising displays of VHS and DVD side-by-side," she said. "It's the best way to encourage sales of both formats" and take advantage of supermarkets' limited space.

Schreier is taking more of a wait-and-see approach after December. Although she stopped carrying DVD sell-through, "I could change my mind come January," she said. "It will be interesting to see what happens in November or December."