LATE RETURNS

DAN ALAIMO

Late fees and unreturned tapes are a sensitive issue in supermarkets, where the delinquent video customer may also be a good grocery customer.

In a spirited exchange at SN's video roundtable, retailers discussed how they meet the challenge of maintaining the integrity of their video program without alienating big spending customers.

"When we are across the counter dealing with somebody with a $2 late fee, we have to decide whether that $2 late fee is worth costing not only our customer, but a grocery customer," said Jamie Molitor, director of video operations at Dierbergs Markets, Chesterfield, Mo.

At Southeast Foods, Monroe, La., upper management got involved to ensure that the video department got the revenues, and the tapes, it had coming to it, said Denise Darnell, video supervisor. For example, if store management wants to forgive a late fee, it comes out of the main store's budget, not video's, she noted.

"That way, the customer is happy because they feel like the store manager took care of them and I like it because I know that the forgiving of late fees was destroying our business," she said. Tighter membership requirements also have helped, she added.

Many agreed that these problems need to be handled on a case-by-case basis and sometimes resolutions can be negotiated.

"If we can negotiate with the customers, and get a portion of it, it is worth our time," said Sharon DeSordi, video buyer and merchandiser at Grand Union Co., Wayne, N.J.

Here is what the participants had to say about this problem.

SN: An area where many supermarkets differ from specialty stores is in the enforcement of late fees. Denise, you were telling me that it has become a real issue for Southeast Foods.

DARNELL: That is one of our biggest challenges. I know that some video stores have required credit cards, and if you don't return the tape, they just charge your credit card. But in our stores, we have a lot of customers who don't even have credit cards for one reason or another and we don't want to deprive them of the opportunity to rent a video.

We've really cracked down on our membership requirements. We still don't ask for a membership fee, but instead of just asking for a photo ID, now they have to provide us with a driver's license or a state-issued ID card and a telephone number that is listed in their name. We found that people who don't have a phone number listed in their name are like nomads. They move from place to place to place, and they are hard to catch up with in the event that they do keep your video. We instituted a few other requirements that have really made a big impact on the amount of movies that we are losing due to non-return.

SN: Has anybody else had a problem with this?

FEINSTEIN: We have tightened up our membership policies. Now we will take a credit card or we will require $5, and we will put the customer through TeleCheck, where they will look to see if the customer has been imprinted on TeleCheck anywhere else. If they come out bad, then we won't accept them. Before, our membership policies were much more lenient.

We thought we would get a negative response to this and less members. But our new membership levels are pretty much the same. The one or two people who don't become members because they don't make it on TeleCheck, we don't want them as members.

MAXWELL: Is it a deposit or a charge?

FEINSTEIN: It is a charge, because we have to pay TeleCheck $5. But we offset that by giving them a free rental on their next visit.

CARTON: We do much the same thing in terms of the non-credit card customer. There is a $5 processing fee, but we will give them a free rental at the outset to help get over any issues that might arise.

MAXWELL: We have customers coming in who don't have credit cards, and that's an advantage that we use against Blockbuster. We will give them a membership and there is no cash deposit or anything.

CARTON: We don't operate that way, because I have freestanding stores in a couple of rural towns where the incidence of credit card customers is much lower, and sometimes they are your best customer anyway. Going into the grocery store environment a year ago as an independent operator, we were worried about the late fees and the collection issue, because we didn't want to do anything that got the customer irritated with the grocer.

Actually, I'm not sure the grocer was quite as concerned about it as we were. But what we found was people pretty much identified us as Blockbuster and really never blamed the grocery store for any problems. This may be a case where being separate from the grocery store works to our benefit. You may run a greater risk if you rent videos out of your own department. Maybe you can't be as diligent about pursuing customers with unreturned tapes and late-fee issues.

MAXWELL: That is an advantage for you because when we are across the counter dealing with somebody with a $2 late fee, we have to decide whether that $2 late fee is worth costing not only our customer, but a grocery customer.

DARNELL: And the store manager will be the first to step up and say, "Oh, that's OK."

MAXWELL: He thinks that the movies are already back, so it's no big deal.

DARNELL: The president of our company decided that this was an issue that he wanted to address. He realized that video was suffering from the store managers and assistant managers forgiving the late fees. Now the policy is, the customers still have to pay, although the store manager can give them a refund out of the grocery till. That way video still gets their money.

CARTON: I really like that.

DARNELL: That way, the customers are happy because they feel like the store manager took care of them and I like it because I know that the forgiving of late fees was destroying our business. The customers just were not bringing the movies back on time because they knew the store manager was going to forgive the late fees. That has made an impact on the store managers. Before, in their minds, no money was ever really lost because they were not out any money from their budget.

DESORDI: Do you find that, in most cases, you can negotiate a reasonable solution with those customers?

DARNELL: If you want to.

DESORDI: Exactly. If you make the attempt.

DARNELL: I would much rather get 50% of something than zero.

DESORDI: Grand Union has a standard in-house policy of no hassles. While the percentage of your customers who are going to come in with that kind of a complaint is very small, you can't give away the store. If we can negotiate with the customers, and get a portion of it, it is worth our time.

MOLITOR: There are ways of handling that. But you are right, we are walking a very fine line. We aren't willing to compromise our grocery customer for a $2 or $3 late fee, but at the same time, we are in video to make money. We explain that to our customers by saying, "Mrs. Jones, we will forgive your late fee this time, but in the future, you will have to pay it," and that usually works. We give them the benefit of the doubt the first time, but put a note in our software for the next time it happens with that customer. It takes time and effort.

DESORDI: Right.

MAXWELL: It's case-by-case. You can't make a blanket policy. You have to pull up that customer's records on the computer, and the software tells us a lot. It tells us how many hours they've been late, ever. How many late invoices they've ever had. If I pull somebody's record up, and they've been late once a year, that's one thing. But when they've been late every time, and they've only opened their membership two weeks ago, that's when you have to crack down.

DESORDI: There are some people you don't want to do business with.

CARTON: We've only had one key customer who reached me with a problem -- others may have been solved below me. But it hasn't been as big a challenge as I thought it would be when we first went into the supermarkets.

GETTNER: Getting our tapes back used to be a real problem, but just in the past few years, they created the post of security director and one of his duties is to go out himself and collect these tapes, and his percentage is very high. Actually tracking these people down sometimes is a little tough, but our percentage of unreturned tapes has gone way down.

DESORDI: Have you found that late fees increased with the use of the drop boxes?

FEINSTEIN: When we first went into the supermarkets, we experimented with not having drop boxes because the supermarket wanted the customers to come back into the store a second time when they returned the tapes. But if all the video stores around you have drop boxes, and you don't, they become more attractive than you are. On collections, you will get a lot of late movies back in the drop box because the people are too embarrassed to come in the store.

DESORDI: What happens the next time they come in? Do you ask them for the late fee?

FEINSTEIN: Right. But again, you take it one person at a time and decide whether you want to make them pay or not.

MOLITOR: Protocol in our stores calls for a letter. If they return a movie and they owe late charges, then we will send them a letter saying they owe so much in late charges. The next time they come in, we can discuss it. But they know the next time they come in to rent that they have late charges.

DARNELL: One thing we have done with people who have small late fees, and if it has been a while since they have been in, is to send them a "We've missed you" card promoting a title, sometimes even offering them a free catalog rental. Then when they come in to rent the movie that is featured on the card, we will tell them they owe a late fee. It may not sound very nice, but it really has worked tremendously. One of our better managers collected about $200 in one week doing something like that.

DESORDI: Guilt works!

MAXWELL: We tried something in one store where a manager left and a lot of late charges had accumulated. I got some nice premiums from Ingram. I put up a display with a director's chair and put a nice shirt on the back of it, along with a hat, and a bunch of other freebies, with a sign saying that, we would do random drawings using our computer software. If they were winners, they got the premium, if they had no late charges. I found that some people were trying to pay off their late charges in case their name came up.

DARNELL: I like that.

CARTON: By the way, we call late fees "extended viewing fees." It's a delicate issue. Contrasting our grocery store experience with our freestanding store experience, our extended viewing fees have been about the same from a percentage standpoint, but our bad debt in our grocery store departments has been lower

FEINSTEIN: A lot of times if somebody knows they have a big charge because they are late on something, we call them "extra day rentals," because when people hear "late fee," that's a negative and it upsets them. But when you tell them that they've had the movie out for an extra rental period, it's not as bad.

MOLITOR: We call them "additional day charges."

FEINSTEIN: That's important.

MOLITOR: We also have a bonus card where every time you rent, you get a stamp on, and we stamp for additional day charges too.