MiniBuster

[JustTheFacts]

Blockbuster to Try Smaller Stores
Monday July 30, 5:54 pm ET
Blockbuster Hopes Less Is More With Smaller Stores


NEW YORK (AP) -- While Blockbuster Inc. expands its online video rental business, the company is shrinking its trademark stores.
After a raft of store closures both domestically and abroad, Blockbuster plans to test smaller stores in U.S. urban markets. The new stores will feature new and popular titles, while directing customers to their online service for other movies.

The move comes as Dallas-based Blockbuster struggles to regain profitability amid its all-out price war and assault against Los Gatos, Calif.-based Netflix Inc.

Jim Keyes, Blockbuster's new chief executive, said during a conference call Thursday that the business model of the 5,000- to 6,000-square-foot store is "under significant pressure."

Indeed, the company, which has more than 7,000 stores worldwide that are mostly leased, closed 519 stores during the first half of the year, compared with 427 during the same period last year.

"We hope to have a portfolio of stores that are smaller and more efficient," Keyes said in an interview. "It's a departure from the approach where it was more or less a one-size-fits-all" strategy.

The entire brick-and-mortar video rental industry is under siege from online DVD rental services like Netflix as well as threats from cable's video on demand, movie downloads and smaller players.

To remain viable, Blockbuster launched its "Total Access" subscription plan in November that allows online customers to return DVDs via the mail or swap them at a store for movie rentals. The company followed up last month with a new mail-only Internet service that was so aggressively priced Netflix recently cut prices on its most popular plans.

Although Total Access has increased the relevance of Blockbuster stores and fueled subscriber growth, the relatively cheap service hasn't made any money. That has made Wall Street antsy as Blockbuster's stock has fallen about 40 percent to $4.25 since it hit a 52-week high of $7.30 in mid-March.

Michael Pachter, an analyst at Wedbush Morgan Securities, said competition from online rentals has decreased foot traffic in the stores and rental sales over time. "That is what is killing those guys," he said.

Analysts say the vast majority of Blockbuster's store space is wasted on older video selections that customers often ignore in lieu of newer releases.

"They are just too big. There is not enough product to really get decent productivity numbers," said Stacey Widlitz, an analyst at Pali Research. "If they had the same amount of sales in smaller (stores) that makes more sense."

Keyes, former CEO of 7-Eleven, said Blockbuster will test smaller stores in the next few months. The company may look at kiosks and mixed-use locations that can accommodate a 1,500-square-foot store.

"If you satisfy 98 percent of customers with half of the inventory we have today, then we could satisfy that demand with a 1,500-square-foot store and lower our rent and operating costs and create efficiencies," Keyes said.
"I'm hoping to offer even more depth in the new releases without necessarily the breadth ... in the traditional movies," he said.

The company is mulling scaling back on additional store closures, while testing several large store format alternatives that feature a combination of rental and retail products.

Blockbuster already took a stab at a mixed-use model with Fort Worth, Texas-based RadioShack Corp. in 2001, which ended in early 2002 amid fierce competitive pressures on both companies. "You ... had two companies that had serious challenges trying to join up together," Widlitz said





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[zooworker]

I can't satisfy 98 % of the customers with larger inventory since TA. We are a small store and when someone is looking for a new release and it's out . I sugest to order it in their que. Answer, oh it is, but if you have it I'll get it here. TA customers are killing off the regular renters. And they keep it for a week usually. Something needs to be done about that, and grandfathering them in doesn't help us one bit. I dread tomorrow when 300 comes out, we have 52 copies and most will be exchanged for TA and they don't like spending money at all.

[BBVcasualposter]

Smaller stores arent new. They downsized 2 stores in my district 6 months ago to about 1/2 to 2/3 size they were and other places leased out the space.

Maybe we were a test market again though and that is why. The one closer In my district if you hadnt been in old store you wouldnt know this one was downsized. It looks a functions just like any other store and is still good size, just not tons of room like mine. Also the rent is obviously lower. I think the biggest drawback to my store is the enormous building rent cost.

[JustTheFacts]

I would bet that store is still a lot bigger than 1,500 sq ft

[OzMan]

Originally Posted by BBVcasualposter

Smaller stores arent new.

No, they are not.

Usually, they're called "Movie Gallery"

[videoslave23]

I can just imagine little blockbuster kiosks in the mall, like they have for cell phones. They'll have a handfull of the newest releases, and a laptop. The manager working will then chase everyone that walks by to talk to them about total access.

[OzMan]

Originally Posted by videoslave23

I can just imagine little blockbuster kiosks in the mall, like they have for cell phones. They'll have a handfull of the newest releases, and a laptop. The manager working will then chase everyone that walks by to talk to them about total access.

They have those too, at an airport near you.

What's the company called?? In Motion?? BBI bought them out years ago.....

[CureForEmo]

Originally Posted by videoslave23

I can just imagine little blockbuster kiosks in the mall, like they have for cell phones. They'll have a handfull of the newest releases, and a laptop. The manager working will then chase everyone that walks by to talk to them about total access.

We had talked about doing that here last XMas. Pimp My Online coming to a mall near you....but unfortunately (or luckily for the CSR's that would have manned the laptop), hollywood beat us to the punch and got kiosks selling off PRP. worked great for them