Keyes Looks to Unlock Blockbuster’s Potential

Discussion
Apr 25, 2008

By George Anderson

Jim Keyes, chief executive officer at Blockbuster, is one of those “throw it against the wall and see if it sticks” guys.

While many were left scratching their heads over his offer to buy Circuit City and his assertion that the combination of the two companies would result in a “game-changing retail concept with a sustainable competitive advantage,” there’s no doubt that Mr. Keyes is focused on finding some way to keep Blockbuster relevant in the consumer marketplace.

A piece in The Dallas Morning News outlines a number of concepts Blockbuster is testing to establish a deeper connection
with its customers. Among the concepts in test are stores:

  • That open at 6 a.m.
    to give consumers on the way to work the option of dropping off or picking
    up movies or games at a more convenient time.
  • Equipped with coffee bars and
    fountain drink dispensers. One location across from Southern Methodist University
    includes an old-fashion soda counter down to the swiveling chrome stools
    and checkerboard floor.
  • Focused on kids with a dedicated play area and merchandise
    including toys, books and t-shirts to go with Blockbuster’s usual product
    selection.
  • That
    sell entertainment and education technology (the Circuit City tie-in).

“I’m a big believer of the physical relevance of a store. People like to shop, whether it’s in a Neiman Marcus or a Blockbuster,” Mr. Keyes told The Dallas Morning News. “We need to change our stores to become a destination for entertainment.”

Discussion Questions: What concepts being tested by Blockbuster do you think are most promising? What do you think of Jim Keyes’ approach to keeping Blockbuster relevant? Are there other concepts that you think the chain should be pursuing?

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15 Comments on "Keyes Looks to Unlock Blockbuster’s Potential"


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Mark Nanchy
Guest
Mark Nanchy
14 years 1 month ago
Blockbuster understands their time in the DVD rental market is winding down. Over the next few years, 30mb+ bandwidth will be much more widely available and affordable and just as music went digital, so will movies. The question is when will the availability of bandwidth outpace the latest HD technology? That could take longer than we predict. A move towards more of a Gamestop model seems to make more sense as a chance to extend the longevity of their current footprint. Gaming will follow music and movies into the downloadable space, but that should be a few more years considering the amount of content packed into the latest titles My disconnect is the home electronics. Gaming hardware and accessories are a logical move. But a $2000 LCD television? Who will sell them? If the move to this model is purely to keep their customers informed of the latest technology, hoping that it will translate into higher sales of their movies and games, I can see it. Not the best use of capital, but I understand… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
14 years 1 month ago

One of the impacts of this downturn is that it is rapidly identifying retail business models that are no longer compelling and viable. When the environment was stronger, and volume could mask more things, those businesses that didn’t any longer seem to make a lot of sense could continue to go along. However, periods of economic softness have historically culled out those formats that were no longer relevant. My sense is that the same is likely to happen with the Blockbuster/Circuit City combo, these efforts notwithstanding.

Mike Romano
Guest
Mike Romano
14 years 1 month ago
With a declining economy and increasing costs, a family of four is now more likely to choose a $5 movie rental rather than pay $75 for 4 tickets to a neighborhood movie theatre, fake-butter popcorn and the cost of gas to get there. That family also will probably hold off on buying a $2,000 plasma at Circuit City. So, that acquisition makes no sense. Circuit City will only hinder Blockbuster’s potential to benefit from a depressed economy. It’s a fact–people stay at home when times are tough, and they don’t buy discretionary expensive electronics. That’s the main reason Netflix just announced 21% earnings growth last quarter. It’s not because they have more or better movies, or their online service is better–it’s the economy stupid! And this is where Blockbuster has the advantage. Part of the entertainment experience can take place at the store level at Blockbuster with the family in choosing the movie. Kids love to pick-out their own movies. Blockbuster has a huge database of customers both online and in their Rewards program. They… Read more »
Camille P. Schuster, Ph.D.
Guest
14 years 1 month ago

What kind of a store is this new concept trying to be? Do people really want to shop to buy or are they shopping for entertainment? The answers to these questions can identify some new directions for format, services, ambiance, and new business. Guessing at answers may arrive at a useful new concept–knowing what consumers would find appealing might help get there faster.

Dan Gilmore
Guest
Dan Gilmore
14 years 1 month ago
The one point I think Keyes misses is that on the Blockbuster side of the business, whatever fun he can try to put into the store will ultimately be overwhelmed by the cost advantages of digital download. For a product that can be digitized, and hence downloaded, there are virtually no manufacturing or logistics costs. Those cost are actually quite high for a DVD. And by the way, with digital I don’t have to buy a ton of videos when the movie is first released on DVD, which then need to be sold later. I don’t have to worry about forecasting, etc. Stores will remain relevant for products that can’t be digitized, so maybe they can turn Circuit City around. But no matter how fun the store is, the inevitable end for all products than can be digitized is it simply goes to the web eventually. Maybe these strategies by a few years for Blockbuster, but not a new lifeline. One possible exception: a store that merchandises these products well, and is a fun place… Read more »
Ed Dennis
Guest
Ed Dennis
14 years 1 month ago

Business School 101 – Roll large rocks downhill! Mr. Keys is trying to save the dinosaurs. Blockbuster’s entire concept is flawed by the advance of technology. I don’t think making the stores a “hang out” is going to work, as even Starbucks is finding it hard to establish themselves as a neighborhood hangout in many of their expansion markets.

A concentration on the gamers might make more sense. Get into the rental and sales of games for Wii, X Box, PC, etc, and equipping the stores to reflect this concentration might offer an option. They could convert the back of the house to a skateboard park. Kids could gather around 30 something wizards to learn the cheats and strategies necessary to get to level 5. As to renting movies, why bother?!

And leave Circuit City alone! They have been broken so long you can’t fix them.

Ben Ball
Guest
14 years 1 month ago

I’d like to see a poll of all the RetailWire readers who have actually downloaded a full length film on their PC, burned a DVD at home and then played the DVD in their VCR to watch a movie. Make the second question “how many have rented a DVD for home viewing–from any source–in the last month?”

I don’t mean to imply that the rentail (no, that’s not a typo) industry should stick its collective head in the sand. But it is a long way technically from today’s capabilities to the majority of US households being able to conveniently view digital content on their flat screens.

Mark Lilien
Guest
14 years 1 month ago

Blockbuster and Circuit City each typically have only about $150 million to $200 million in cash. I assume the $1 billion offer would have to be financed. I’m curious about the lenders’ loan provisions (covenants) for this deal. Many weak retailers are having trouble getting financing. Given the capital crisis, adding leverage seems like asking for trouble. This isn’t an exchange of stock, which doesn’t eat up cash.

W. Frank Dell II, CMC
Guest
14 years 1 month ago
A wise old consultant once said two bad retailers don’t make one good one. The Blockbuster business model is at the end of its life cycle. The only way it can go is down. On-demand entertainment from cable or internet providers is the future. This is just like what happen to music CDs with the invention of the iPod. The business model for Circuit City is also nearing its life cycle end. The majority of electronic consumers are doing considerable research on the internet before they walk into the store. Phase 2 and 3 web sites will greatly reduce the need to visit a store. Ten knowledgeable sales representatives online can service many more consumers than a floor staff of a hundred. Floor staff have significant down time and many simply have not been trained. How one gets a game changer out of two different sized stores that have different site location models should be interesting to watch. Maybe the vision is a RadioShack with DVDs?
Doron Levy
Guest
Doron Levy
14 years 1 month ago

Good ideas but this is not the core of what’s wrong. Blockbuster needs to change the way it does business from the vendor to the customer. They need to use their massive amounts of rental data to better serve their customers.

The rental game is dying (if not already dead) and what Blockbuster did in the past is the past. We need to see cutting edge innovation from this brand. Although the old timey soda fountain shop sounds really cool!

Max Goldberg
Guest
14 years 1 month ago

Once before Blockbuster tried to add a number of non-DVD items to the store and it was a colossal failure. As a number of panelists have commented, movie renting is moving online. But the transformation to online is happening very slowly. This will give Blockbuster time to perfect its online offerings.

They have the name recognition, now they need the technology. They also have the best database of consumer movie rental information. Blockbuster’s future success will hinge not on another store redesign, but on how they acquire and combine the technologies that are coming into the marketplace with their vast knowledge of consumer rental habits.

David Biernbaum
Guest
14 years 1 month ago

Some interesting ideas for changing the in-store Blockbuster experience. It seems that before long almost every type of store in every channel will be equipped with coffee bars and fountain drinks. I think what Blockbuster needs to re-invent is why it’s more convenient to rent a movie from a retail store vs. simply ordering one with the touch of a keypad in the family room.

Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
14 years 1 month ago

You have to admire the efforts. Here’s the important quote:

“I’m a big believer of the physical relevance of a store. People like to shop, whether it’s in a Neiman Marcus or a Blockbuster,” Mr. Keyes said. “But we need to change our stores to become a destination for entertainment.”

It’s true everything is moving online, but a combination of online and in-store is necessary to optimize opportunities. However, here’s the other important quote:

Arvind Bhatia, an analyst at Sterne Agee & Leach in Dallas, has been through the test stores. Although he found them promising, he said it’s too early to tell whether the investments will generate a return.

Lee Peterson
Guest
14 years 1 month ago

Too bad Mr. Keyes wasn’t in charge 10 years ago, when these changes really would’ve been “game-changing.”

It’s all going online! Both businesses! So, the concepts proposed, in my mind, don’t go far enough. Think experience instead of buy. Think download to hand-held vs. cash wrap. Think game bar competition vs gondola’s of product. Think way, way fewer stores.

Then we’d be close.

Dick Seesel
Guest
14 years 1 month ago

Some of the ideas being tested make sense, particularly the expanded hours that add more convenience for Blockbuster shoppers on their way to work or school. Some of the other ideas, intended to get customers to spend more time in the store, seem at odds with most shoppers’ preference for a quick, efficient experience–especially if they are searching for new releases. Blockbuster might consider other ideas, such as a storefront “vending machine” setup to capture sales after hours.

However–as I pointed out a couple of weeks ago when panelists discussed the proposed Circuit City deal–the real challenge to Blockbuster is the technological change in how video content gets delivered. National music chains have gone out of business because consumers preferred downloading to their MP3 players. Digital delivery of movies and other video content to PCs, cell phones and home video devices will only continue to explode in coming years. Perhaps Blockbuster needs to consider an iTunes model for meaningful growth instead of tweaking a concept that is rapidly aging.

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