Retailers lie in wait for high-definition DVD boom
LAS VEGAS —High-definition DVD is expected to catch on with consumers, but it’s going to take a few more years. That was the conclusion of studio executives and analysts at the annual Home Media Expo in Las Vegas held July 16 to 18.
The new format that retailers hope will resurrect a stagnant DVD business got off to a slow start in 2006, caused in large part by a format war between the Blu-ray and HD-DVD formats. Russ Crupnick, an analyst for The NPD Group, summed up the situation at a July 17 seminar entitled, “The Future of Retail and Home Entertainment.” “Consumers are totally confused,” said Crupnick.
Adams Media Research president Tom Adams said high-definition DVD accounted for just 0.5% of total DVD sales in 2006, but that percentage is on the rise. He said that Blu-ray players—including the Blu-ray-enabled PlayStation 3 video game console—would be in 5 million homes by the end of the year.
“High-definition DVD is going to eventually take over the market, but it will be nowhere near as fast as the DVD takeover of VHS,” said Adams. He expects high-definition DVD to generate more than $10 billion in sales by 2012. Kagan Research has a more ambitious forecast, predicting high-definition DVD will account for 14% of sales by 2009 and 53.7% of the market ($14.98 billion) by 2012.
That growth should be helped by booming sales of high-definition LCD and plasma TVs. Warner Home Video worldwide senior vp Steve Nickerson said consumers are already preparing for the transition from standard to high-definition DVD. “It’s estimated that 36% of all U.S. households will have a high-definition TV by year’s end,” said Nickerson.
A drop in the price of players would also help, a move expected to begin this fall, especially now that Target stated that it will be carrying Sony’s Blu-ray players’priced at $499—in October. Target is expected to debut the Sony player at a lower price and Wal-Mart is likely to follow suit with sales of Toshiba’s HD-DVD player. At the “Retailer of the Year” award ceremonies on July 16, Target was honored as the Mass Retailer of the Year, with its senior buyer for video, Mike Thielman, accepting the award.
Mass retail generated nearly half of all DVD sales in 2006, according to a report commissioned by show sponsor, the Entertainment Merchants Association. Led by Wal-Mart, mass retailers accounted for 43% of DVD sales, followed by consumer electronics chains with a 16% share and online retailers with 12.5% of the market.
Overall, DVD sales were essentially flat in 2006 with $16.45 billion in sales, compared to $16.38 in 2005. The rental market dipped slightly to $8.45 billion from $8.54 billion in 2005. Sales are expected to be flat again in 2007.
Gap resurgence lies in Canadian retail vet
SAN FRANSISCO —Gap Inc. has tapped another industry outsider to try and turn the company around. After a six-month search, the apparel retailer named Glenn Murphy, a Canadian retail veteran, as its new ceo.
While Murphy has more than 20 years of retail experience, he does not have any experience in the specialty apparel industry. Most recently, Murphy served for six years as the chairman and ceo of Shoppers Drug Mart, the largest drug store chain in Canada. Before that, he held several positions at Loblaw Cos., a leading Canadian retail and wholesale food company, and he also served as president and ceo of Chapters, a major book retailer in Canada.
“Murphy is no merchant,” warned Todd Slater, a senior retail analyst with Lazard Capital Markets, in a report. “With no merchandising background, the new ceo is clearly a departure from the board’s stated goal of installing a leader with ‘deep…merchandising experience ideally in apparel.’ Instead, Murphy’s hire moves Gap Inc. from the Disney [era] to the drug era, and could be the latest in a series of fashion missteps.”
Murphy succeeds Robert Fisher, a member of the founding family, who acted as interim ceo since January when Paul Pressler resigned. Pressler, who also lacked an apparel background, ran the Disney Stores chain when he was an executive at Walt Disney. While Pressler did not ultimately revive Gap’s comparable-store sales, or hire talent that helped improve the company’s product, he did initially cut the company’s expenses and restored its overall balance sheet.
While Murphy does not have apparel retailing experience, he is not without his merits. With Murphy at Shoppers’ helm from 2001 to 2007, for example, the company reported 22 consecutive quarters of revenue growth, earnings doubled and the stocks appreciated 180% (roughly 25% per year, on average). According to Fisher and Gap executives, Murphy not only has a history of strong returns for investors, he also has a good track record for turning companies around.
“Glenn is known for being a decisive leader with great retail instincts who understands his customers,” Fisher said. “He has revitalized major retail brands by offering new products and significantly improving the store experience. He’s well qualified to return Gap Inc. to the level of sustained performance we all expect.”
Murphy will have a daunting task in front of him, apparel experts say. Sales and net income for Gap Inc. have declined over the last two years. The company has experienced several months of same-store sales declines over the past couple of years as well, sometimes across all three of its brands and sometimes consecutively for months at a time. Many analysts are calling for hundreds of store closures so that the company can again reclaim its cachet with loyal shoppers. Other drastic moves may be needed, as well.
“For the short term, Gap [brand] should eliminate peripheral categories such as intimates, pet and shoes, and get laser focused on apparel and accessories,” said Carol Spieckerman, president of newmarketbuilders, a retail strategy firm. “In terms of positioning, Gap cannot go back to being all about khakis and T-shirts. With Wal-Mart, Target, Uniqlo, American Apparel and others, including Gap’s own Old Navy, on one end, and Abercrombie, American Eagle and so on, on the other, Gap’s search for a niche will be more difficult than ever.”
Although much work remains to be done under Murphy, Gap Inc. has already made some moves to clean up the clutter and turn the business around. Gap has cut jobs in recent months in order to streamline management, and it has begun to hire new design talent such as Patrick Robinson as the new head of Gap Adult. Gap Inc. also cut its Forth & Towne business, which catered to female baby boomers, at the end of June, after an 18-month, 19-store pilot.