LOS ANGELES-Video games are back, big time. And now that chains like Musicland, Blockbuster, and Hollywood Video are racking up sales, the smaller chains and independents have become less hesitant about a category that many have abandoned.
Games were dropped for a reason still relevant. Competition remains tough, leaving video retailers only the crumbs of the market. But the crumbs-in the form of a thriving rental trade-can be profitable.
Provided they don't promote sales, there's a payoff for the small fry. Says Peggy Lake of Country Home Video in Clovis, Calif., "I don't sell games. Why should I bother? I can't compete with the toy stores and discount houses. As long as they keep the prices high, people are going to rent. I don't understand why stores are getting out of rentals."
Nonetheless, game-rental veterans, returnees, and newcomers are seeing a changed landscape. Video games are vastly more sophisticated than they were five years ago. Nintendo and Sony are more dominant than ever. Finally, the field is no longer dominated by console units, notes David Cole, VP of market researcher DFC Intelligence.
Personal computer games have vaulted to a $1.4 billion a year business-little of it accessible to video stores. "Rental has never developed for PC games," Cole notes.
Retailers strong in consoles agree that they've been shut out of the growth side of the sector. Too much follow-up technical support is required, according to Steve Kowalski of Video Headquarters in Keene, N.H.: "With all the [copy-depth] programs video stores have to deal with, PC games are just another complication."
One dealer who did try PC products has tossed in the towel. Rick Viengrad, owner of Video Connection in Pembrook Pines, Fla., says, "PC games for CD-ROM ended for us in December. We are selling off all the PC games left. We had rented CD-ROM for a number of years without significant results."
But the PC blaze has also reignited interest in console games, which are getting a helping hand from distributors. One major breakthrough has been the "store within a store" concept. "It's like the early rackjobbing days in music, letting a specialist come in and take care of everything," says Dan Crider, VP of Video Bicycling in Dallas. Some majors are adopting the concept.
Musicland, which is putting Video Zone departments in all its Media Play outlets, expected to have 69 stores completed by the end of April. Blockbuster is reportedly experimenting with installations in four Dallas outlets in a deal with Gamescape LLC, which runs seven stores in Irvine, Calif.
Hollywood Video chairman Mark Wattles, who has called games "the single greatest opportunity" for the chain this year, should have 14 "store within a store" sections up and running this spring.
Independents acknowledge the opportunities. But Crider also stresses the complexities, including tight supply. "We even see allocations. There was a nationwide shortage of "The Legend Of Zelda' at Christmas. This is incredible to me," he says. "I think demand just overwhelmed supply."
Worse, demand can fade quickly. Kowalski says that at one time "I think we had 15-18 copies [of "Zelda"]. It rented great the first three to four weeks, but it died off fairly quickly." However, Kowalski, who usually carries 10 copies per title, still believes that copy depth is the only way to compete.
Tom Warren, owner of Video Hut in Fayetteville, N.C., says he too has noticed "a shortening of the legs" for games. "It's been happening in movies for some time." Warren wonders if "game suppliers should consider a depth-of-copy program."
The feast-or-famine environment has made retailers ambivalent about the business. Frank Viziri, owner of a 20/20 Video franchise in Santa Monica, Calif., once devoted the entire front of the store to games. "I was glad to get out because for a couple of years games just died," he recalls. "Now I wish I were back into it, but I can't start all over."
The Internet would give any newcomer pause. Games specialist Funcoland reports Web site sales were up a whopping 463% for the fourth quarter that ended Dec. 27, 1998. Not surprisingly, Funcoland is expanding its 4,000-title inventory.
But, as further indication of consumer demand, Funcoland is also investing heavily in bricks and mortar. The chain opened 40 stores in the third quarter last year and has 310 locations in most major markets.
Taking a page from the video playbook, independents often purchase from mass merchants selling games a notch above wholesale. "I will do whatever it takes to get games, including visiting my local "games distributor,' Toys "R' Us, Wal-Mart, and Kmart," Viengrad says.
Supply is a constant concern. Richard Woodroof of Captain Video in Stamford, Conn., explains, "Many times we have to resort to Toys "R' Us for product. Even though we pre-booked "Zelda' three months in advance, we were unable to get copies until 30 days after street date and then only through the Toys "R' Us Web site. Due to this and the lack of returnability, we do not stock games for sale, only for rental.
"We stock both Nintendo N64 and PlayStation [PSX]," he adds. "In the past we had Nintendo, Super Nintendo, Sega Genesis, and Sega Saturn games. Our strongest renter is N64. It has never been hotter. In my area, most [consumers] have both systems, and if we don't have PSX they will rent N64. We rent the hardware for both, and N64 is the most popular."
His customers won't have the choice much longer. "Due to the damage rate and the strength of N64, we have recently decided that PSX isn't for us," Woodroof says. He plans to eliminate the 100-game PSX section "toward the end of the summer."
Many video stores find they must rely heavily on suppliers to keep up with the myriad title selection. Says John Heim, who runs four Video City stores in Denver, "I consider the game business a necessary evil. The kids love it, and hopefully they shop here with their parents, and therefore it increases my total rentals."
But Heim doubts he could function without help. "I have a salesperson [at his distributor] who knows all the games in detail, and I take his word on what to buy, within limits of my budget. I try to buy the most promising games, but sometimes it's not that easy, and I miss one that's good or buy one that's not. It's trial and error."
For many video store operators, it's still a wait-and-see situation. Martin Zbosnik of Home Video in Duluth, Ga., thinks that "kids are getting more interested" in games of every kind. However, Blockbuster and Hollywood, expanding into games, are crowding him out.
"I don't see how it's profitable in my area," Zbosnik says, "particularly with a population that has shifted to singles and couples." Instead, he's focusing his attention on DVD.