US-based DVD rental company Blockbuster has announced it is planning to close as many as 960 stores in the US, representing more than a fifth of its total US stores, by the end of next year.
The closures are much more severe than the 380 to 425 stores originally envisaged to go, suggesting the retailer needs to cut much deeper than it anticipated to keep its lenders happy.
The announcement follows on from last month’s sale of its 186-store Xtra-vision chain in Ireland, suggesting that the scaling back of its international presence will continue into next year.
Blockbuster chief executive Jim Keyes said the closings in the US were a natural step as the retail chain rolls out new ways to rent and sell movies. The retailer has followed its competitors by launching mail-order rental, online and kiosk services, such as those offered by non-store competitors Netflix and Redbox. “We’re actually adding points of service rather than deleting,” Keyes said.
DVD rental kiosks have mushroomed in numbers and popularity in recent years. Unlike rental stores, the difficult economic climate has not seemed to hit DVD rental kiosks as the lower cost of each rental DVD attracts users trying to save money.
In addition, the fact that key retailers such as McDonald’s and Wal-Mart have struck deals with Redbox to install DVD rental kiosks in their stores has greatly increased its presence and convenience. The challenge facing Blockbuster is getting customers to its stores when the same DVD can be picked up more locally.
Addressing this core issue is at the heart of Blockbuster’s recent attempts to adapt and survive. It is attempting to convert its store format to one that will look more like an “entertainment convenience store” with a greater emphasis on digital delivery, Blu-ray and video games. It also plans to improve and add new in-store features, to simplify its pricing policies and to be the best in aggregated content.
However, the steep decline in Blockbuster’s store numbers shows the retailer recognises its future no longer rests solely with its bricks-and-mortar stores. Unlike its new competitors, Blockbuster also has a network of traditional rental stores to consider. While rivals simply operate from warehouses, thus keeping their expenses to a bare minimum, Blockbuster still has to pay for the upkeep of all its video rental stores. Further store closures are therefore highly likely.
➤ Bob Gregory, research director, Planet Retail. For more information contact us on:
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