Video Rental Stores' Bizarre Survival Strategy

10:23 PM PST 09/14/2010 by Paul Bond, AP

35% of independents now have tanning beds

"Please enjoy the movie. Would you like a tan with that?"

At the rate big video-rental chains are closing up their shops, the 10,000 or so independently owned stores are getting creative to ensure they don't suffer a similar fate. Combining movie rentals with tanning beds is one popular move.

More than 3,500 independently owned video-rental stores have added a tanning salon to their stores, estimated Ted Engen, president of the Video Buyers Group, an industry trade association.

A good tanning bed -- one that consumers won't mind paying about 50 cents a minute to use -- can cost up to $15,000. Despite the hefty upfront cost and fattened energy bills, rental time combined with ancillary product sales like suntan lotion translate into a profitable business.

Engen said peak hours, days and seasons for tanning coincide nicely with the slow times in the movie-rental business, so traffic is drawn to the combo stores fairly consistently. A store with a half-dozen beds typically will garner 40% of its revenue from tanning and 60% from DVDs.

Video stores are fighting for their lives against competition from online streaming services (Netflix and Apple), by-mail subscription DVD plans (Netflix) and dollar-a-day kiosks (Redbox). If the independents throw in the towel, the neighborhood video-rental store could go the way of the dinosaur, considering 4,000 Movie Gallery and Hollywood Video stores already have been liquidated and Blockbuster's domestic-store count has fallen from 4,000 at the beginning of the year to 3,400. Blockbuster also plans to close as many as 800 more stores, and the company faces possible bankruptcy if it can't make a $42 million payment to bondholders by Sept. 30.

Competitively speaking, the shuttering of chain-store outlets is good news for the independents, as long as consumers are interested in renting DVDs at bricks-and-mortar stores. They are, but not as much as they once were: In 2009, Americans rented $6.5 billion worth of DVDs, down 24% compared with peak-year 2001, according to Adams Media Research.

"Mom-and-pops have two advantages: cost structure and porn," Wedbush Securities analyst Michael Pachter said. "They can be much smaller format stores, with owner-employees, so they can operate at a much lower cost than many chains."

Engen said independently owned video-rental stores are being run today by smart entrepreneurs, and the business isn't terribly complicated to begin with.

"They just buy DVDs, rent 'em and sell 'em off as previously viewed," he said.



Tanning isn't the only weapon in the independents' arsenal. Some are fighting against Redbox and Blockbuster Express, for example, by challenging the safety, appropriateness and even the legality of kiosks.

Films rated R can be rented to kids under 17 at kiosks, assuming they have a credit card, Engen noted, and kiosks that don't offer sufficient room for wheelchair access might not comply with federal law.

"Be aggressive," a recent issue of the VBG's newsletter recommends. "If these Redboxes are in violation of the law, let local officials know about it. Some retailers have already done this, and the vending machines were moved or taken out altogether."

Highlighting the VBG's disdain for Redbox and Netflix, a short movie at its annual conference recently had Engen, dressed like George C. Scott in "Patton," running over kiosks in a tank and driving over mailboxes in a jeep.

Redbox and Netflix also must wait a month or so before some studios give them access to new DVD releases, so video stores are highlighting their advantage with signs reading, "Available Here First." Some stores might even use flat-screens to feature the image of a Netflix queue that is packed with titles carrying a "long wait" message next to them.

"MacGruber here now, not in the box," read a marquee above two stores owned by Steve Pickard in St. Cloud, Minn. The "box" reference meant his stores had the comedy, and Redbox didn't.

"Things are looking better for us because of that 28-day window," he said. "It's only a matter of time before the public figures this out."

Pickard's stores are among the 35% of independents that also contain tanning beds, running 10 in one store and seven in another.

"It's keeping us in video," he said. "I don't think we could pay all our overhead with just video."

While Blockbuster, Movie Gallery and Hollywood Video stores were shuttering at a rapid rate and selling off inventory at fire-sale prices a year or more ago, times were tough for independents. "People were taking movies home by the bagful," Engen recalled.

Now, though, he sees independent stores not only not closing but in some cases branching out, helped by falling prices for rental retail space.

"Rest assured -- independents will be around for a while," Engen said. "They use every niche they can think of to survive and be respected in their communities. Besides, people like going to video stores. It's an event."
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