In a Securities and Exchange Commission filing on Thursday, Blockbuster Inc. (BBI) revealed it plans to close 282 of its domestic stores in order to improve their operating margins and grow their market share.
When the company did this in 2006, closing 290 stores, it not surprisingly greatly helped the revenue in their stores surrounding the closed areas. They hope that the same will result this time, and it should.
One of the reasons the actions have been taken is the "Total Access" plan introduced in November in which the store allows online subscribers to either return DVDs to the stores or send them back in the mail.
"That's putting a greater emphasis on our stores. If you look at Blockbuster Total Access, and the way that program works, our stores are becoming more important because of our online business," Blockbuster spokesman Randy Hargrove said.
This has been good for their customers and gives them something Netflix (NFLX) can't offer, and so is a differentiator. The problem is the flexibility for the customers is cutting into the profits of the business because they've had to invest a lot of money into increasing their DVD library. The result is a $49 million quarterly loss for the first quarter.
Short term it's a little tougher, but I do like the long-term outlook. Once they close the stores this year, it'll increase traffic and profits at the surrounding stores. At that time the heavy investment in shoring up their DVD library should be complete as well.
Once that is finished, they should be a lot leaner and start increasing sales and profits at the stores. When that happens, they'll be able to focus more on their online business, and start to turn that into something more than a loss leader; which at this time it is. To grow their online rental share, they dropped their prices by $1 for those that exclusively rent via the Internet.
According to Blockbuster spokesman Randy Hargrove, the Total Access program is already paying big dividends as new memberships signups and customer visits are at their highest levels in two years.
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