High rents killing every mother's son who runs small business
http://www.businesstimes.com.sg/sub/news/story/0,4574,383788,00.html?
Published May 1, 2010
Video rental operators refuse to give up
The business is still profitable though there are many challenges, they say
By TIMOTHY SEOW
WITH Internet downloads, digital cable, rental kiosks and online mail-order DVDs, the writing seems to be on the wall for the local video shop. Even American giant Blockbuster Video is struggling - it announced the possibility of bankruptcy last month.
MR TAN
'Our biggest challenge today, honestly, is the landlord. In Singapore, retail rent keeps going up, despite difficult economic times.'
But operators such as Video Ezy and Video King say they are not quite in King Belshazzar's position - at least, not yet.
'The business, since I've started, is actually in slow decline, but it's not the end. It's a matter of whether you can control your cost,' says David Yip, 42, owner of Video King, which has four stores. 'The video rental business in Singapore is actually a decent business. It's not very exciting but it's very steady income.'
A key reason cited for this is that video rental shops target a specific kind of customer - and don't need the whole of Singapore to patronise them.
'There is no doubt the market is more fragmented. There will be the younger ones who don't even own a DVD player,' says Tan Poh Lam, 54, CEO of Video Ezy Singapore.
'But we're not targeting the young ones, we're targeting a certain profile of customers. And while the market may be fragmented, all I need is a thousand customers spending $10 a week, giving me about $40,000-50,000 a month.
'If I have 10 stores, the target is to generate half a million in revenue, $6 million a year. And you make anywhere between 10-20 per cent profit.'
In 2007, Video Ezy had 28 shops generating some $10 million of revenue. It now has 16 shops, five of which are franchises. These brought in $8 million of revenue last year.
The drop in number of stores may not be a result of new media. According to Mr Tan, Video Ezy expanded rapidly in the early years, and had to close some stores because they did not perform well. In particular, performance was poor in 'locations where consumers are more interested in Chinese products'.
As for Video King, it has about 100,000 members, 20-23 per cent of whom are active. 'We do see drops. But our membership base doesn't grow because our catchment area is always only X number of houses. So it's only replacement,' says Mr Yip. His shops generate about $1.5-1.6 million a year, making it a 'profitable business'.
One advantage of a brick-and-mortar shop is the physical outlet itself. 'Our core business is face-to-face retail experience, and I think that is where we will continue to focus,' says Mr Yip. 'We want the face-to-face interaction. As things become more faceless, people appreciate this.'
The opposite applies to US giant Netflix, an online, mail-order rental company that has taken the industry by storm since it hit the scene in 2007. For a flat monthly fee, members can hold on to three DVDs at any one time, and exchange them for new titles as frequently as they choose. Transactions are online and the DVDs are sent by post.
But this model is not easily replicated locally. Netflix, for example, has revenue-sharing arrangements with studios that keep its costs down. And the business is dependent on an online customer base that other companies want to target. The result is economies of scale not present in Singapore.
Still, local online mail-order company Hollywood Clicks seems to be doing well so far. Despite purchasing its products from wholesalers, the company became profitable a year after it started in 2004, says founder Richard Fan, 40.
Other online rental companies, however, such as WayCentral and Moviemaster, have fallen by the wayside. (Hollywood Clicks bought the latter.) While the company does not want to disclose its revenue or the size of its customer base, Mr Fan says membership has been 'steadily growing'.
Video Ezy also got in on the online game - but then got out of it. 'I would say we did okay,' says Mr Tan. 'Looking back, the commitment wasn't there. It's not that online didn't work. It's like having a Ferrari - if you don't drive it properly . . ., it's not that it's not a fast car.
'There was also some conflict of interest. If we promoted aggressively online, the brick and mortar stores would be affected. And we did have quite a number of franchisees then.'
Mr Tan also cites issues with the partner hired to run the online operation as another reason.
Online mail-order models aside, another threat is the arrival of rental kiosks - something like a video rental vending machine, which has been successful in America.
However, video-on-demand and Internet streaming may pose the biggest challenge, perhaps even threatening the entire concept of video rentals. But are local companies worried?
'The reality is that 90 per cent of new technologies don't really catch on in terms of becoming a standard in consumer behaviour and everyday activity,' says Mr Fan.
'It's basically the grandma test - if my grandma can't do it, it's not ready yet. And my grandma certainly can't stream a movie. Even I don't really know how to stream a movie.'
In fact, Mr Tan of Video Ezy reckons other challenges, such as the spiralling rents, problems with content regulators and a lack of cooperation between local distributors and retailers are more pertinent.
'I'd be lying through my teeth if I tell you business has not been affected,' he says. 'But we have been affected not so much, in my opinion, by competing media. Our biggest challenge today, honestly, is the landlord. In Singapore, retail rent keeps going up, despite difficult economic times.'
And while the threat of new media looms large, Video Ezy and Video King are not ready to lie down and accept defeat. Besides a possible return to the online rental scene, Mr Tan is considering introducing a buy-back scheme and 'increasing the range of related services and products a customer may be looking for', such as video games and so on.
Video King is also looking forward. Mr Yip recently invested $80,000 in a new software that allows members to return DVDs anywhere they want. Additionally, this prepares Video King for possible entry into the online or kiosk market.
That said, the future is not a bed of roses. 'I'm worried. I need to make sure my brand is able to extend and re-purpose itself into as many avenues as possible,' says Mr Yip.
'You're looking at a classic case of an industry that is slowly passing with new technology. It is very textbook. All bets are off once the fibre network is out. Our mentality is that we only have three years left in this business.'
http://www.businesstimes.com.sg/sub/news/story/0,4574,383788,00.html?
Published May 1, 2010
Video rental operators refuse to give up
The business is still profitable though there are many challenges, they say
By TIMOTHY SEOW
WITH Internet downloads, digital cable, rental kiosks and online mail-order DVDs, the writing seems to be on the wall for the local video shop. Even American giant Blockbuster Video is struggling - it announced the possibility of bankruptcy last month.
MR TAN
'Our biggest challenge today, honestly, is the landlord. In Singapore, retail rent keeps going up, despite difficult economic times.'
But operators such as Video Ezy and Video King say they are not quite in King Belshazzar's position - at least, not yet.
'The business, since I've started, is actually in slow decline, but it's not the end. It's a matter of whether you can control your cost,' says David Yip, 42, owner of Video King, which has four stores. 'The video rental business in Singapore is actually a decent business. It's not very exciting but it's very steady income.'
A key reason cited for this is that video rental shops target a specific kind of customer - and don't need the whole of Singapore to patronise them.
'There is no doubt the market is more fragmented. There will be the younger ones who don't even own a DVD player,' says Tan Poh Lam, 54, CEO of Video Ezy Singapore.
'But we're not targeting the young ones, we're targeting a certain profile of customers. And while the market may be fragmented, all I need is a thousand customers spending $10 a week, giving me about $40,000-50,000 a month.
'If I have 10 stores, the target is to generate half a million in revenue, $6 million a year. And you make anywhere between 10-20 per cent profit.'
In 2007, Video Ezy had 28 shops generating some $10 million of revenue. It now has 16 shops, five of which are franchises. These brought in $8 million of revenue last year.
The drop in number of stores may not be a result of new media. According to Mr Tan, Video Ezy expanded rapidly in the early years, and had to close some stores because they did not perform well. In particular, performance was poor in 'locations where consumers are more interested in Chinese products'.
As for Video King, it has about 100,000 members, 20-23 per cent of whom are active. 'We do see drops. But our membership base doesn't grow because our catchment area is always only X number of houses. So it's only replacement,' says Mr Yip. His shops generate about $1.5-1.6 million a year, making it a 'profitable business'.
One advantage of a brick-and-mortar shop is the physical outlet itself. 'Our core business is face-to-face retail experience, and I think that is where we will continue to focus,' says Mr Yip. 'We want the face-to-face interaction. As things become more faceless, people appreciate this.'
The opposite applies to US giant Netflix, an online, mail-order rental company that has taken the industry by storm since it hit the scene in 2007. For a flat monthly fee, members can hold on to three DVDs at any one time, and exchange them for new titles as frequently as they choose. Transactions are online and the DVDs are sent by post.
But this model is not easily replicated locally. Netflix, for example, has revenue-sharing arrangements with studios that keep its costs down. And the business is dependent on an online customer base that other companies want to target. The result is economies of scale not present in Singapore.
Still, local online mail-order company Hollywood Clicks seems to be doing well so far. Despite purchasing its products from wholesalers, the company became profitable a year after it started in 2004, says founder Richard Fan, 40.
Other online rental companies, however, such as WayCentral and Moviemaster, have fallen by the wayside. (Hollywood Clicks bought the latter.) While the company does not want to disclose its revenue or the size of its customer base, Mr Fan says membership has been 'steadily growing'.
Video Ezy also got in on the online game - but then got out of it. 'I would say we did okay,' says Mr Tan. 'Looking back, the commitment wasn't there. It's not that online didn't work. It's like having a Ferrari - if you don't drive it properly . . ., it's not that it's not a fast car.
'There was also some conflict of interest. If we promoted aggressively online, the brick and mortar stores would be affected. And we did have quite a number of franchisees then.'
Mr Tan also cites issues with the partner hired to run the online operation as another reason.
Online mail-order models aside, another threat is the arrival of rental kiosks - something like a video rental vending machine, which has been successful in America.
However, video-on-demand and Internet streaming may pose the biggest challenge, perhaps even threatening the entire concept of video rentals. But are local companies worried?
'The reality is that 90 per cent of new technologies don't really catch on in terms of becoming a standard in consumer behaviour and everyday activity,' says Mr Fan.
'It's basically the grandma test - if my grandma can't do it, it's not ready yet. And my grandma certainly can't stream a movie. Even I don't really know how to stream a movie.'
In fact, Mr Tan of Video Ezy reckons other challenges, such as the spiralling rents, problems with content regulators and a lack of cooperation between local distributors and retailers are more pertinent.
'I'd be lying through my teeth if I tell you business has not been affected,' he says. 'But we have been affected not so much, in my opinion, by competing media. Our biggest challenge today, honestly, is the landlord. In Singapore, retail rent keeps going up, despite difficult economic times.'
And while the threat of new media looms large, Video Ezy and Video King are not ready to lie down and accept defeat. Besides a possible return to the online rental scene, Mr Tan is considering introducing a buy-back scheme and 'increasing the range of related services and products a customer may be looking for', such as video games and so on.
Video King is also looking forward. Mr Yip recently invested $80,000 in a new software that allows members to return DVDs anywhere they want. Additionally, this prepares Video King for possible entry into the online or kiosk market.
That said, the future is not a bed of roses. 'I'm worried. I need to make sure my brand is able to extend and re-purpose itself into as many avenues as possible,' says Mr Yip.
'You're looking at a classic case of an industry that is slowly passing with new technology. It is very textbook. All bets are off once the fibre network is out. Our mentality is that we only have three years left in this business.'
