Company attributes losses to software glitches

When Image Entertainment Inc. opened its Las Vegas distribution facility in May, it was supposed to be a state-of-the-art operation that would propel the company into a leadership position in the DVD movie market.

It hasn't worked out that way so far.

Chatsworth, Calif.-based Image, the nation's largest distributor of videodiscs, reported a first-quarter loss of $714,000, or 4 cents a share. It blamed that loss squarely on "difficulties encountered implementing the software required to run the company's Las Vegas warehouse and distribution facility" and "related operational inefficiencies."

The center is now shipping orders within 48 hours of receipt. It was designed to ship within 24 hours.

"The software package, unfortunately, had glitches in it," said Jeff Framer, chief financial officer of Image. "So in order to get around those coding issues, we had to have coding fixes done and we had operational issues with the movement and flow of product.

"One inefficiency caused other inefficiencies."

Additional costs absorbed by the center during the last few months include expedited shipping at Image's expense and 24-hour shifts to catch up with backlogs, Framer said. A delay in completing the system kept Image from opening the center in January as planned, he said.

Difficulties with the software system have been corrected, he said, and Image doesn't expect any further losses due to troubles at the Las Vegas facility, which now employs 40.

Image hopes to turn the center into an outsourced shipping facility, one that other Internet music retailers could use for a fee, without having to invest in their own distribution network.

But, as with many other companies, the biggest challenge in expanding in Las Vegas is finding the right people.

"We love Las Vegas ... it's a fantastic location," Framer said. "We anticipate, as things start moving, that we could be hiring another 20 people.

"But we wish the labor pool was actually bigger than it is. This is an automated, computerized distribution system. Rather than just warehouse staff ... you also need somebody with some computer system experience."

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