Retailers see rentals rise as economy falls

Kung Fu Panda, Tropic Thunder standouts for November

By Susanne Ault -- Video Business, 11/26/2008

NOV. 26 | Despite the general economic malaise—or because of it—some video retailers are reporting rental revenue surging as high as 10% to 15% above last year in the first few weeks in November.

Stores credit consumers increasingly searching for bargain entertainment. Managers especially noticed the upwards trend with heavy renting on Paramount Home Entertainment’s Nov. 8 release Kung Fu Panda and Walt Disney Studios Home Entertainment’s Nov. 18 WALL-E. Generally, such popular family films are bought rather than rented, in order to satisfy kids’ tendencies to constantly rewatch their favorite titles.

Rentrak Corp. reports a 5% drop in both rental turns and revenue for the first three weeks in November. However, some retailers, particularly those in areas hit hardest by the economy, seem to defy the national trend.

Among Video Buyer Group’s 1,800 members, the 10% to 15% gains are being felt primarily within markets most impacted by these recessionary times, according to VBG president Ted Engen.

“In the last 30 days, there have been a couple percentage upticks for many VBG stores’ rental over this time last year, and there has been a dramatic increase in the frequency of visits,” said Engen. “But some stores are as high as 10% to 15%, and those are located in parts of the U.S. that seem hardest hit with economic issues.”

VBG member Palace Video, with three outlets in weakened Minnesota, is up $8,000 in combined rental/sales revenue in October and through the first two weeks in November. Michigan, with its huge slumped automotive industry, is another such market with large revenue hikes, said Engen.

Elsewhere, Kansas Blockbuster franchisee Major Video noted a 5% rental climb for the first two weeks of November over the 2007 period. On the flip side, however, the franchisee’s sell-through business is down about as much, generating overall flat results compared to the prior year.

“Kung Fu Panda did very well for us,” Major Video product/operations manager John Sanders said. “And right now, rental is better than sell-through.”

Similarly, Palm Springs, Calif., chain Video Depot is enjoying a single-digit percentage rise for rental in the first three weeks of November. Paramount’s Nov. 18 release Tropic Thunder has been a stand-out there, as the title’s transactions at the chain’s automated store were 100% over that of other recent titles on street date.

Some rental stores also are seeing lifts in tanning and used DVD activity. During what is traditionally considered an off-peak frame, industry-wide tanning revenue is up 13% to 14% for October through the first two weeks in November, noted VBG’s Engen. That figure spans video store/tanning hybrids and straight salons.

“We are making the assumption that people are doing inexpensive things to escape the stress of dealing with the economy or worry over their jobs,” said Engen. “This is off-season. Peak season happens in between mid-January to mid-June.”

Citing stiff competition from low Redbox pricing, People’s Choice Video Express owner John Sarantakis said his Chicago suburb location is off 16% in rentals and off 24% in sales in November. As the outlet declined, Sarantakis responded by opening a nearby Chicago location on Oct. 1 dedicated to selling relatively inexpensive $5 previously viewed DVDs.

“We’ve been doing double the business than we expected,” said Sarantakis. “By doing that, it has kept us above water. We don’t have to cut back on our purchasing, and we will have all the hot titles in fourth quarter” at the main Chicago video store.

Video Depot is buying back 50 used titles a week from its customers, double the rate of earlier this year, a sign store management takes to mean its customers need cash.

Rentailers who are enjoying an upswing worry their fortunes could change and are rolling out new programs to keep cash-strapped customers happy.

In October, Video Depot launched a triple-feature initiative offering consumers free popcorn and candy each time they rent three releases at once.

“This is under $20 and a great entertainment option,” said Scott Whitmer, Video Depot president. “Taking a family out is not as affordable as it once was.”