Former 7-Eleven CEO Seeking Blockbuster Results
James Keyes, the former CEO at the nation’s largest convenience store chain, 7-Eleven, has been named to help turn around Blockbuster Inc., the world’s largest video rental retailer that has lost money for nine of the past 10 years.
Mr. Keyes replaces John Antioco who was criticized for a compensation level that many felt was not justified considering Blockbuster’s stock had fallen some 70 percent since it was initially put on the market in 1999.
“John Antioco set the company up to succeed, but moved a bit too slowly in aligning costs and shedding non-strategic assets for the board’s tastes,” Michael Pachter, an analyst at Wedbush Morgan Securities, told Bloomberg News.
Under Mr. Keyes, 7-Eleven experienced eight straight years with same-store sales gains. Although he also served as 7-Eleven’s chief financial officer and chief operating officer in addition to CEO during his 21-year career at the convenience store chain, Mr. Keyes is known for being more than just a financial guy.
Barton Crockett, an analyst at JP Morgan Securities, wrote in a note that Mr. Keyes is “known for in-store merchandizing innovations at 7-Eleven.” According to Mr. Crockett, Blockbuster “could benefit from keener merchandizing to capitalize on new in-store traffic from Total Access.”
Total Access is Blockbuster’s subscription program that allows customers to rent DVDs online and either return them through the mail or at stores where they can pick up new titles.
Discussion Questions: What challenges are facing Blockbuster and is James Keyes the right person to help the company reverse its slide? How do you think he will go about achieving a change in fortune for the company?
I am not sure I would call 7-Eleven a success story to start with. The convenience store industry is as lost as the supermarket industry was 10 years ago. Blockbuster is another issue. Technology has simply passed them by. Why drive to a store or go to the mail box when one can download off the internet or cable company movies. On demand is the future and Blockbuster has no response. Further, what can they do to get customers into their stores? Maybe the answer is to go the way of the book stores with an lounge area, coffee, etc.
Please remember that Antiocho was a 7-Eleven transplant, too. But during his days there he was known for lots of flash and a reverence for cash. While visiting his upscale Dallas home in ’87, I complimented his exercise room and its central jewel, a chromed universal gym with four work stations. His smirking reply was, “Do you really think you could ever afford something like this?” Great guy.
Although I don’t know Mr. Keyes, close friends who do give him high marks. I understand that he’ll bring a closer, hands-on relationship with store managers who feel they’ve been left out of the developmental loop. And what an important loop! What’s required of Blockbuster now is to leapfrog over NetFlix. For instance, all Blockbuster locations should have complete electronic inventories enabling them to “custom-burn” DVDs on demand for shoppers on an as-needed basis (the DVDs “die” after a few days). That way, the stores are never out of inventory and locations can be added by installing kiosks with this custom-burn feature in high traffic areas. Etc., etc.
The cast of characters may have changed, but the plot is still the same: Blockbuster’s success is built upon a business model that has proven surprisingly perishable. Recording formats have changed and will change again as high-def disks replace conventional DVDs. Viewer behavior has changed too–all the cool, young people I know are using Netflix and/or saving on-demand programming to their DVRs.
The one bright spot I can see is that the huge bandwidth of the BlueRay and HD-DVD formats will make digital downloads impractical for the foreseeable future. So there may remain a business in circulating copies on disk.
Predicting whether a particular individual is the right person for the CEO slot is challenging at best. The real question issue is identifying Blockbuster’s strategy. In a brick-and-mortar environment where changes take time to filter through the stores (and cost capital), making the rapid adjustments necessary to handle a digital medium is very tricky.
As TVs move into the digital world of 2009, consumers are more likely to want ease of delivery for media rather than than the cumbersome process of store pick up and drop off. For Blockbuster, then, the question becomes what to do with a huge installed real estate base. For even the best of CEOs, that will be a big challenge.
Blockbuster is built around an outdated business model. As information service providers (ISPs) move to become application service providers (ASPs) we will quickly see the bricks and mortar model die. People will purchase, rent or test their games, videos and movies either online or directly. There no longer is a need for a slow-moving brick and mortar intermediary. We are rapidly moving to a purchasing society of disintermediation, and the value of services like Blockbuster are quickly being replaced by iTunes, the network, and soon the very companies that make these….
I think that the expectation might be a little more of the same, if you remember Antioco prior to Blockbuster worked for Pepsi in the Yum Brands family…but prior to that he was at Circle K and was the one that positioned that convenience store chain out of bankruptcy and sold it to Tosco. I would say that he probably had a hand in picking Keyes as his replacement. So I am not very comfortable that he could do much more than John did.
Like some of the others, I think the Blockbuster model is not contemporary versus where the music industry has gone.
There needs to be a download system that a provides instantaneous viewing opportunities with a limited viewing window (either time or frequency).
Until that happens, I think the on-demand movie viewing offered by cable and satellite companies will continue to win market share from the brick and mortar/mail order operators!
James Keyes is certainly talented and certainly talented in building business. The bigger question is if Blockbuster is operating with a failed business model. The delivery of media has changed so much over the past few years that Blockbuster really does not have a chance to make it. The mail delivery service they have in place now only temporary at best as the power base has shifted to the cable and phone carriers.
The best strategy James Keyes might be able to put in place is one that maximizes revenue and controls costs with a 5 year plan of exiting the business completely.
Jim Keyes is the man for the job. Many of the old 7-Eleven managers followed John Antioco to Blockbuster years ago, and Jim worked with the remaining “hard-liners” to reform the company. He can do this again, and he has the courage and the innovation to get the job done quickly.
7-Eleven wasn’t exactly a profit center when Jim entered the management at Southland Corporation in the 1990s!
Blockbuster needs a business plan that faces the future: easy quick movie downloads via broadband (cable TV and internet). James Keyes has to find a new business paradigm for Blockbuster, or the company will be washed away in the technological tsunami. If there was an easy answer for Blockbuster, they would’ve found it already.
Though others disagree, our data seems to indicate that the download model for films may not be as big a proportion of film-watching as Netflix and others may think. We note that over 60% of consumers do not like to use their television as a computer, for example, which confounds the crowd promoting the TV as web browser/photo album/MPG player/etc. Just because something can be done and seems convenient doesn’t mean it is what the public wants.
That said, let’s look at our data about consumers’ complaints against Blockbuster (not in any particular order): movies are not in stock, fees, drive is inconvenient, store help is surly, checkout lines, titles are limited, some films are edited and not in original version. True or not, this is quite a list of negative consumer perceptions to correct. The difference between the dark days at 7-Eleven and Blockbuster is that 7-Eleven had a goods-delivery model that still worked and was not being challenged by competitors. Updating merchandising is one thing, having only two-thirds of your competitors’ title count, just as an example, is quite another.
Blockbuster has yet to figure out a business model that works, now that the industry has been disrupted. While their biggest challenge continues to come from Netflix, they are being attacked from all sides and have yet to devise a defense strategy. While they focus on Netflix in their competitive television ads, Blockbuster also needs to worry about iTunes, Movielink, YouTube, Joost, Red Box (owned by McDonald’s) and Starbucks. All of these companies are in the movie business, but movies are only one revenue stream. Blockbuster has no other revenue stream except for some candy and cokes at the front counter. Jim Keyes has his work cut out for him.
One of the first challenges Blockbuster and James Keyes face is the threat of the internet and the ability for consumers to download movies on demand. However, I recall hearing many soothsayers predicting the death of retail brick and mortar stores as e-retail began to emerge. Blockbuster has to get creative, imaginative and find new ways to bring consumers into their stores. Their Total Access is a good start to getting some consumers back into their stores, however Blockbuster has to do more. Just as James Keyes and his team did at 7-Eleven, he needs to re-invent their stores and brand.