Alive and Kicking

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-By John Boley

‘Don’t write us off yet!’ That is the clear message from a leader in the high-street video-rental shop industry, Civic Video. The industry has taken a number of blows in the past few years and faces continuing challenges, but – as Civic’s General Manager Rod Laycock told Business in Focus, plenty of people still want their friendly neighbourhood shop and the stores themselves still have plenty up their sleeves.

“There is a perception of the video industry that suggests it is in its sunset phase and that inhibits attracting new investors. It also makes people think that the local video store is not going to be around for very much longer. So what Civic undertook in early 2011 was a total refresh of the brand.” This involved the creation of a new brand logo and a new approach in terms of the marketing. This new branding “has flowed through everything we do in terms of marketing in the stores. It also created a new store design which is a much more contemporary 21st century design.” The first of these new stores is now complete in Sydney, one of Civic’s own corporate stores rather than one of the 200 or so franchised operations across Australia, and Rod says this store is being used to ‘test market’ new ideas including the refreshed design in order to ‘fine-tune’ things for the franchisees.

The refresh, together with a number of other progressive ideas, are “keeping pace with what customers are looking for in a retail business today,” and challenging the perception of ‘over-the hill’, explains Rod. “Over the next few months as we start to see the new store designs out there and we move towards the second stage and become much more prominent, I think that those perceptions will start to change.”

Civic sits with a healthy national market share of around 15 per cent in a very fragmented business. The GFC and the general state of the retail economy prompted a pruning effect and the number of stores has dropped from 240 some years ago, to nearer 200 nationwide now. Civic also has a master franchise in New Zealand and has a further 55 stores there.

But business is picking up again despite the threats from technology – legal downloading – and piracy – illegal downloading. Rod says there are still opportunities for franchisees to purchase either existing stores or open new territories. “We have a number of possibilities where maybe there has been an owner who has been in business for a number of years and decided that it is time to move on. The best thing about this option is that [a new franchisee] is buying an established business with a full history, so the risk factor is much lower.”

The second opportunity is for a potential franchisee to buy a greenfield site, a brand new store. “It’s becoming more and more difficult to do that these days,” Rod concedes, predominantly because the rents that landlords are asking are escalating towards the point where they are no longer commercially viable – a complaint being heard the length of high streets throughout the country in all retailing sectors. “We can’t always put together the package, with what the landlord is asking for rent, and we would rather walk away from an opportunity than to accept an unsustainable lease commitment. This is a problem with leasing throughout Australia.” A third window of opportunity is from the deployment of vending machines, where the franchisee can buy a territory which could be for vending machines only.

In terms of cost of entry for a franchisee, “that varies, depending on the type of format. For a brand new store today the investment is probably around $200,000, considerably lower for a vending only territory. Also if a franchisee is buying an existing store, that has been run down and needs some reinvestment, for example, then they could buy it at excellent value.”

Rod returns to the persistent annoyance of being constantly ‘written-off’. “There are plenty of opportunities for franchisees, but one thing that is a barrier and a challenge for us is that we have been told for the past 20 years that the video industry is in its sunset period. So when a potential investor is presented with a number of options to put their money somewhere, you can guarantee that video stores will not be on the list because banks and brokers have all but forgotten about the video stores in favour of coffee shops, or food, or service franchises. It’s a challenge for us to change that perception because the industry is far from dying, and it is reinforced by the fact that many of the stores that come up for sale within our group are actually purchased from existing franchisees from within the group. They know that a store that is being run well and has reasonable rent can actually return a very healthy profit with some TLC and reinvestment from a new owner.”

The banks are not prepared to take any risks at all, Rod reminds us, which has been the case ever since the onset of the GFC, which is a shame as there are perhaps 20-30 serious potential locations across Australia for Civic stores. “There are good opportunities in Sydney, Melbourne, Brisbane, and we don’t have any presence whatsoever in Tasmania.” Another opportunity for Civic itself, says Rod, is to continue to snap up independent video-shops with growth potential; as it has done over the past years, rather than relying solely on organic growth and single-store development.

It would be easy to see technology as an enemy, but pointless, says Rod. “Technology and entertainment go hand in hand. Being an organisation involved with that, you simply have to evolve with the changes as they occur. If you go back to the early days there were two video formats – VHS and Beta. Now it’s DVD and a high definition Blu-ray disc. But there are also other technologies out there and Civic looks carefully at their progress – downloading, for example. “It is physically possible to download a movie here, but the broadband infrastructure we have, compared to other markets outside of Australia, is very slow and a movie file is a huge file, unlike a small music file. If you download from [e.g.] iTunes is very easy to do, but with a movie file you are talking up to five gigabytes or more of information and that does take a lot longer to download.” There is a trade-off. “While it is convenient to download, you do lose some of the quality, so really from a purist’s point of view the physical product, either a DVD or Blu-ray, is still providing the best quality of experience for a customer.”

Will the NBN project (assuming it gets finished) transform this problem? “Not necessarily.” There is little likelihood of fibre-optic cable right across the country and for most purposes a wireless internet delivery will be more practical. But in any case, “from our point of view, having a fast broadband network would make delivery of those large movie files to customers much easier, and would create opportunities for people like Civic to employ that as a delivery method. As an organisation we need to be able to evolve and provide our customers with content in any way they want it. If they want physical product and they are happy to come down to our store because it has an enormous range of 15,000 plus titles then they can do that but if it is more convenient for them to go to a vending machine that is placed a bit closer to home then we have to provide a vending machine for them. The compromise for a vending machine, is that it can’t carry the same range of product that a bricks and mortar store can, and in a similar way if customers want to sit at home and simply download an movie from Civic, then we have got to be able to provide that too.”

Which brings us to the question of legality. “If there is any sort of significant threat to the industry, piracy would probably be the number one. It has changed from 10 years ago when it was someone coming in from Bali or Thailand with a suitcase full of DVDs. These days it’s much easier for people to download movies illegally from various parts of the world and through various file sharing sites.

“That has a significant impact on the entire industry from the revenues that a studio might earn for a movie, right down to the local video store that has a lower demand for a new release movie because everybody has already seen a pirated copy of it.” Pirated products get passed round everywhere, Rod says, pointing out that the consumer thinks it is a ‘victimless crime’ – “because they don’t see who it really impacts. The government has not really taken piracy seriously to provide resources to either the federal or state police to curtail its activities. They are overworked, and if it comes down to a choice of investigating a local assault, or someone who is pirating down the local markets, then the piracy takes a very much back seat.”

Summing up, Rod acknowledges that “in hindsight I think perhaps we could have moved quicker with the brand refresh that we are currently undertaking, because perceptions are difficult to change and once they become entrenched then it’s even harder. It’s probably fair to say that we should have embarked upon making customers aware that we are here to stay earlier. But the key message with us is that we are in a dynamic industry that changes rapidly and for us to remain relevant to our franchisees and to our customers we need to continue to evolve to meet these demands.”

Making Sense of Management

Management is the art, or science, of getting things done through people. Sounds fairly straightforward – except for the fact that people are not robots waiting to do our bidding. People have their own minds, motivations, and goals. So how do managers keep operations – and the people behind them – running as planned?

December 19, 2018, 5:31 PM AEDT