In economic crisis, video industry relatively healthy
Major chains have secure credit lines
By Susanne Ault -- Video Business, 10/16/2008
OCT. 16 | Video retail is feeling some pressure from the U.S. credit crunch, but the industry overall is in relatively healthy shape, according to retailers and distributors.
With the U.S. government massively bailing out banks for making bad loans, it’s hard for retailers to escape intensified scrutiny when seeking funds and purchasing product for their own operations. At least one distributor admits to giving retailers less product than they requested, due in part to the current financial shakiness and hesitancy about over-extending credit.
“There are more cases where we can’t get the retailers what they’ve needed than what we were able to give them in the past,” said one distribution source. “It’s definitely tougher making credit decisions. You want to make good business decisions to allow retailers to do their business but without much risk for us.”
But despite some of these precautions, the distributor believes DVD will fare well in the end.
“Our class of trade seems to be resilient, where Sleeping Beauty and Iron Man are doing well” in the midst of stock market turmoil, the source said. “Consumers are still spending money on DVDs. They think it’s a great value, and I hope that doesn’t change.”
Sell-through specialist Trans World Entertainment should be able to survive any economic strain, with a $150 million line of credit in place, said its chief financial officer, John Sullivan.
“We can draw on that at any time with no restrictions,” Sullivan said. “The consumer is pulling back on all of their spending. But with our product price points, we may weather it better than others.”
Similarly, Wedbush Morgan Securities analyst Michael Pachter sees mostly clear skies ahead for Blockbuster, Netflix and Movie Gallery.
“I don’t see any of them having cash issues,” said Pachter. “All have lines of credit and no refinancing obligations near term.”
Video rentailers looking to launch or expand tanning areas, coinciding with the start of the peak season, will be granted loans, assures major tanning product distributor JK North America.
“We have our own financing, and we lend money based on that,” JK executive director of sales Jerry Deveney said.
However, there is some concern that worsening consumer softness could ultimately bite into DVD. September U.S. retail sales fell 1.2% over the prior month, marking the largest drop in three years, according to the Commerce Dept.
Some analysts note DVD retailers are delaying major store renovations and/or conservatively ordering stock, in order to offset expected product sales dips.
“We’re hearing everything from slowing store growth to holding off on remodels,” said Edward Woo, an analyst with Wedbush Morgan. “And they don’t want to take a big position with inventory for the fourth quarter.”
Rentailers are being more selective with title ordering, agrees National Entertainment Buying Group president Todd Zaganiacz.
“People are watching their budgets real close, and what’s getting affected the most are the secondary studio titles,” said Zaganiacz. “Retailers are being forced to cut some of that out. They’ll look at what they are spending each month and ask, ‘Can we afford this title?’”
To goose consumer spending, some retailers are launching new value programs. For example, Total Entertainment stores are offering free fitness titles for people who sign up for a month-long $49.95 tanning package.
