SHRINK TANK

DAN ALAIMO

Shrink is an old issue for video in supermarkets, but there have been several reports lately of retailers who are cutting back on their sell-through efforts because of it. Others are devoting more resources to improved security systems.

Meanwhile, on the rental side of the business, internal shrink and problems with late and lost tapes are getting more attention from video executives. But this can be tricky, as retailers have to balance the concerns of running a profitable rental operation with keeping grocery customers happy.

In this segment of the video roundtable, participants discussed shrink, how it relates to sell-trough and rental, and other operating issues. Here's how the conversations went:

SN: What effect has shrink had on your video operation?

SCHLOSS: Shrink has a major effect on video. In fact, it's a major concern in the supermarket business right now. Everybody's looking at it. Naturally, one of the greater areas for potential shrink is sell-through video and rental video. There's two kinds of shrink in video.

There's the outright theft of sell-through videos or customers that just don't bring rental videos back. So shrink is a major issue for us, and we're looking into a new security system for video and other areas of the store as well, because it isn't just video that causes shrink. It's everything else in our stores. Shrink is the reason we got out of the music CD business quite awhile ago. And we're still out of it, because of the shrink factor in CDs.

UFER: Shrink continues to effect my part of the business; both internal and external shrink. Rental shrink impacts me more because of the cost of the videos. You have one customer who doesn't return, or steals, one cassette that costs you $70; it impacts you more than five people who take a $9.99 sell-through title. To address it, we've modified our software to be security oriented. We also have electronic article surveillance systems in our video department to protect our inventory.

We're doing a lot more tagging. We're doing more frequent inventories on our product to determine losses. One of the other big challenges is that we don't seem to be getting cooperation from police departments in recovering our property. It's just a low priority for them. It's a whole industrywide issue that isn't going to go away.

When they have mass murderers and robbers out there, it's hard for them to get excited about a videocassette. That's partially because when they walk into Kmart, they see them on sale for $4.99 or $3.99. So in the eyes of the public, and of law enforcement, the perceived value isn't that high, and it's not important.

REDISKE: On the rental side of the business, shrink has moderated somewhat. I don't consider it a major problem. The biggest problems we have are internal situations, which mirrors shrink that occurs in any grocery environment.

On the sell-through side, we've had retailers pull out because of shrink, and generally speaking, that hasn't been internal, but professional in a lot of situations. The worst cases are when a store will be hit by people and 18 copies of a particular title disappear almost instantly. It's not like a child coming into the store and stealing a copy of the Disney title. It might be the video store down the street or people that sell them off at flea markets, or whatever. It's the professional criminals coming in and taking quantities of videos.

As a result, stores have gotten out of sell-through, or they might bring some copies in to cover a store ad and keep it behind the counter, which negates the possibility of impulse sales. Unless you have it out on the floor, it isn't going to happen. So it's hit and miss. Some stores have run into severe problems, while a lot of stores have very few problems. One of the ways stores deal with a moderate shrink poroblem is to bring in more sell-through that has a higher profit margin, to offset some of the losses. When you're making tiny margins on a product and you lose some of it to shrink, it adds insult to injury. It helps when you can raise the overall gross of the sell-through business by bringing in the 30% stuff.

VANOVER: On the rental side, as far as the number of copies I buy, shrink doesn't have an effect. On sell through, that's where we're buying less, and we've pulled it from the main sales floor to inside the video department.

SN: Is your company moving toward more secure systems for the whole store?

VANOVER: We've checked into it. I believe they're tagging other items in the store. I know that our director of security had looked at it, and there was a problem with video.

SN: Is the problem of late and lost tapes different for a supermarket than for another kind of video retailer?

UFER: Late and lost tapes, of course, are more of an issue for the grocery chains because we have to be concerned about the customers' grocery business, as well as their video business. We try to handle that on a situation-by-situation basis and try to be fair to the customer, and at the same time protect our company assets.

VANOVER: The late and lost tape issue is a lot different for supermarkets than it is for specialty stores.

You don't want to lose a grocery customer. Currently, we're letting store managers handle each situation individually. The store manager will talk to the video manager to make sure he has all the information, and then makes the decision. But if he needs to call the district manager or even me, we'll be available to him.

MUELDENER: The issue of late and lost tapes is the same for supermarkets and specialty stores. The local Video Software Dealers Association chapter worked very hard over the last three years to get a video theft and loss-prevention bill passed. It goes into effect on July 1. The bill treats the theft of video as a crime, and gives us effective legal recourse. SN: What do you expect from the bill?

MUELDENER: I expect our stores to jump on the bandwagon and bring the consequences of the bill to the attention of consistently abusive customers. For example, one store employee called me up and said that there's a customer who has a tape, she admits she has the tape, but she refuses to pay late fee fines and she refuses to bring it back. In the past, you would have county attorneys who would say, 'I'm not a collection agency for you.' So at least now it's clear: She broke the law.

The theft bill isn't designed to go after the customer who's occasionally late. We're smart enough retailers to know that we aren't going to beat anyone over the head to get $1.99 or $2.99 if they're only one day late.

We try to look at the store's overall long-term relationship with the customer and the customer's family -- and I want to stress family -- and try not to jeopardize it. But on the other hand, we do occasionally and unfortunately have the customer who doesn't treat a rental video as an asset of ours with a cost, and in some cases a big cost. The bill is designed to go after those customers.

REDISKE: Late and lost tapes are always a problem, but I don't know that it's any worse or better than it's ever been. It becomes difficult when a customer refuses to bring a tape back because there just aren't that many options for a grocery store. The bigger store may have a security department you can turn the situation over to. You pursue it as far as you can, but in the end, it's a cost of doing business.

SN: What other operational issues are you facing?

VANOVER: Other than day-to-day challenges, we watch how many hours each store uses. You try to set goals, and then try to ensure that they meet those goals.

MUELDENER: Labor in certain areas is tight. It's very difficult for our stores to manage everything with just the amount of labor they're able to acquire and keep. So we're trying to do whatever we can to simplify their job and make it easier for them. That's a major challenge. We're trying to get our distributor involved in helping us to take some of the burden off the stores.

SN: How would that work?

MUELDENER: We look at what they're doing in the store and figure out what we can do better on a larger scale of economy. We try to make it so there's one less thing for the store to worry about as the product enters or leaves the door on a day-in, day-out basis.

REDISKE: There are no dramatic new changes or huge problems for us. The biggest problem to me is always personnel. The grocery environment is more or less a self-service situation compared to video stores. So when you have an employee who's involved and responsible, and who cares about video and enjoys it, that can make a huge difference.

SCHLOSS: Just making sure you have good people behind the counter who are familiar with videos, who really enjoy videos, who aren't afraid to sell to the customers. You can't always have the newest and greatest releases in stock at all times, but hopefully, you can have good salespeople behind the counter who can make other recommendations. So when a person comes up and says, "I can't find 'Good Will Hunting,' " the associate will say, "You're right; we're out of it. But we should have some more back tomorrow or this afternoon. Meanwhile, have you seen these movies here?"