Summary
While it always makes sense to cut slow movers in favor of faster moving, more popular merchandise, when it comes to DVDs and Walmart there's a greater dynamic at play - physical media is losing it's appeal with many customers, and Redbox has begun offering
a far superior value proposition for Walmart and their customers.
Analysis
At one time building a big impressive music library, then DVD library, was a status symbol for many, but not any more. Space consuming to store, a hassle to keep track of, owning physical media has become a pain.
While still a long way off, and very different, from the dynamics of downloading music a la the iTunes model on CD sales, what’s happening to DVD sales has key parallels: Easy options for being able to access what you want, when you want, where you want, at a fair price is more important, more convenient and more cost effective than buying and possessing the prepackaged media.
When the average movie rental was $5, paying $15 to buy it seemed a reasonable decision - any good movie is likely to be watched three times over it’s lifetime. But now, with Redbox $1 rentals in Walmart, the value proposition for consumers really changes. There are very, very few movies you will watch 15 times; or even 5 or 10 if you're buying from the discount bin.
And so does the value proposition for Walmart. Partnering with Redbox, Walmart is able to convert previously underutilized retail space, space Coinstar, Redbox's owner, refers to as the fourth wall - the area around the entrance and exit doors - into a super efficient DVD rental center that can provide Walmart a much higher GMROI than much of their traditional DVD category did, create a potentially higher, more frequent traffic generator, and offer a super high perceived value to their customers.
There are of course exceptions – baby boomers and Gen Xers still like to own old and modern day classics, and there's still a very big market in selling children's DVDs - children have a seemingly infinite capacity to watch their favorites, or at least until they can fully recite every plot and line - but beyond that, how many DVDs does the average person really need to physically own?
The Redbox rental system is very low tech solution and will eventually be replaced by more technologically sophisticated digital media downloads. But for now, it’s fast become the best solution for many - that is the easiest and least expensive way to view movies – and that counts for a lot, especially to Walmart and their customers.
Cathy Stauffer consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
