With 1997 ranking as one of the poorest years for video rental and, to a lesser extent, sell-through sales in recent memory, the need for video retailers to develop alternative revenue streams has become more apparent. For some, that means carrying licensed kids product.

Video retailers have a ‘built-in audience’ of people who are looking for merchandise related to the latest animated kids feature, says John Nucifora, owner of Chimney’s, a two-store video chain located in Syracuse, New York, and president of Video One, a buying group representing 70 video stores scattered across the northeastern U.S. Most of the products he stocks in his stores are based on popular kids movies and television shows and on evergreen properties that appeal to impulse buying-for example, small plush toys and key chains that retail for US$5 to US$10.

Despite what Nucifora sees as the financial incentives for video retailers and toy manufacturers and the promotional possibilities for the studios, the practice of selling licensed kids product remains a limited success story. In its study Distribution of Dollar Sales by Retail Outlets, the Toy Manufacturers of America (TMA) doesn’t track the percentage of toy dollars spent at video stores. Video retailers, along with supermarkets and drug stores, fall into the TMA’s ‘Other’ category, which accounts for 24 percent of total toy dollars spent. ‘Just how much they sell, I can’t say,’ says Diane Cardinali, assistant communications director at the TMA.

Applause, a Woodland Hills, California-based manufacturer of licensed plush toys, is one company that has recognized the sales potential of video stores. Applause makes toys based on characters from the television series Rugrats and Disney animated features such as The Lion King for many of the stores Nucifora buys for, as well as for large chains such as Blockbuster Video and Hollywood Video.

‘We’re not going to get more customers into their stores; it’s the titles they carry that can do that,’ says Steve Oldroyd, vice president of marketing and sales at Applause. ‘What we can do with our products is help get their average transaction size up and get more money every time a customer walks in.’ Naturally, the arrangement benefits a manufacturer like Applause, which sells only to specialty stores, by providing it with another outlet to showcase its products. At the moment, Applause is designing a new plush line based on the direct-to-video sequel to The Lion King (set for release this fall) and is working with Buena Vista Home Video to create a sell-through program for the video and related merchandise specifically for video retailers.

‘We understand the needs of the retailer . . . [and] since we’re not selling our products in mass-market, the video retailers can take a full keystone [100 percent] margin on it and be price competitive,’ says Oldroyd.

Not all video retailers, like Blockbuster Video, for instance, buy all of their product at keystone. In order to lure customers to its product offering, Blockbuster works with manufacturers to modify existing and, in some cases, create new, licensed products that extend the Blockbuster brand into merchandise. The resulting products are called ‘Blockbuster Exclusives.’

‘It can be a little tweak [in the product] . . . or a new item that`s never been on the market before,’ says Julie Piatas, senior buyer for licensed merchandise at Blockbuster.

To coincide with the theatrical release of Barney’s Great Adventure: The Movie, Piatas took Hasbro’s Talking Barney and got the company to manufacture a special farmer’s hat and kerchief specifically for Blockbuster. In another example, Piatas came up with the concept for a Rugrats-themed baby bottle that was sold exclusively at Blockbuster.

Although licensed kids products have proven to be a cash cow for Blockbuster-sales jumped from US$4 million to US$21 million in the last two years-Piatas insists store aesthetics, not economics, is the reason for the company’s efforts to build up this area of its business.

‘I think [the look of] our stores is somewhat uniform. I don’t want to say ‘boring,’ but we’re video stores. . . . [Licensed merchandise] creates a little bit of visual excitement and dimension.’