LUCKY GOES WITH NEW VENDOR FOR THREE VIDEO RENTAL UNITS

DAN ALAIMO

BUENA PARK, Calif. -- Lucky Stores here is installing three more video rental departments in southern California stores starting this month, going with a new leased-space operator, Marbles Entertainment, Los Angeles.

The new departments, all in former Smith's Food & Drug stores, bring Lucky's store-within-a-store departments to a total of 13. Nine are operated by Wherehouse Entertainment, Torrance, Calif., a prominent regional chain of combination music and video specialty stores, and one by Video III, Orem, Utah. Video III also operates about a dozen shared-revenue departments in Lucky supermarkets.

A Lucky official declined to comment on the video rental program. Lucky Stores is a subsidiary of American Stores Co., Salt Lake City. Monte Deere, who took over as president of Video III at the beginning of January, also declined to comment. Gregg Wright, the former president, is pursuing other interests, said Deere, who has been with the company for three years.

The future of the nine Wherehouse departments, meanwhile, is unclear. The specialty retailer, which is due to emerge from Chapter 11 Jan. 31, has been plainly unhappy with their performance to date. Wherehouse has a one-year agreement to operate the departments, the first of which was installed last February. A decision will be made about their future after Wherehouse comes out of Chapter 11, said Tony Alvarez, who will become chairman and chief executive officer at that time.

"We are disappointed with them," he said. "The performance to date hasn't been good and we are going to look at the whole relationship." No decisions have been made yet, he noted.

Wherehouse has been focused on resolving its financial situation, not on the Lucky departments, and that may have contributed to the poor results, said Bruce Ogilvie, who is president and CEO until Alvarez officially takes over on Jan. 31. Ogilvie noted that he inherited the project when he took over the company the middle of last year.

Marbles, on the other hand, has been very satisfied with the results from the nine departments it runs in stores of Vons Cos., Arcadia, Calif., said Matthew Feinstein, vice president. With two more Vons stores due to open later this month and the three Lucky stores, Marbles will have a total of 14 departments, most operating in the spaces formerly occupied by Smith's video rental program.

The three stores are under the Lucky/Sav-On combination store banner, said Feinstein. They are located in Garden Grove, Mission Viejo and Rialto, Calif. None are close to Vons stores where Marbles currently operates, he said.

The first opened Jan. 20, the second will open in February and the third in March, he said. When Wherehouse would not put in the departments, Lucky's called Marbles, said Feinstein.

"We were flattered about the opportunity," he said.

The departments will be similar to those Marbles runs in Vons' supermarkets, with 4,000 to 8,000 rental units in 1,000 to 2,000 square feet of space. The departments focus on rental tapes, but include many other entertainment offerings, such as video games, sell-through, music and licensed merchandise. "After doing this in southern California supermarkets for a year, we have a good feel for what goes well. So we are going to continue," he said.

Marbles has been grooming people to manage new departments in its existing operations, he said. "The best thing is to hire people already within our company who are interested in moving upward, and who have proven themselves in our system," he said.

Feinstein expects to double the number of Marbles departments by the end of 1997 from the nine it had at the end of 1996. "This is a very exciting opportunity for us and we will see where it goes from here. But right now this is going to keep us pretty busy," he said.

The company plans to do the same kind of aggressive promotions with Lucky as it does with Vons, he said. "They are open to our ideas about things we would like to try within their supermarket. Both chains are great people to work with and they want to help us in any way that they can. That is exciting for us," said Feinstein.