Blockbuster, after making some big changes that their customers really liked - in-store video exchanges and ending late fees - the company has found that while it's a hit with their users, it's not good for the bottom line. Since implementing these two changes, the company has lost about $600 million in revenue annually.
Concerning this reality, Blockbuster (BBI) Chairman and CEO Jim Keyes said, "We can't just raise prices. Or people will go somewhere else. So we have to add some new value."
Some of the new ideas he plans on implementing over the next few months, will focus on making the Blockbuster stores a destination.
In response to that strategy, Keyes will put in a beverage bar which will include books and magazines, a entertainment download center, along with a section for children featuring games and toys.
Another deal will have them working with Sony (SNE) at around 2,000 of their stores where they will sell Playstation 3 consoles.
Keyes added that the motivation for this is "The stores have lost a bit of their zip. We need to make it a fun place to be -- a place to go and see what's new."
Keyes uses the example of the success of Apple (AAPL) retail stores which generate somewhere around $4,000 a square foot.
I've run retail businesses before, believe me, that's huge revenue per square foot.
The point he's making in this, is in spite of the digital age, physical stores can attract a lot of business when done right.
Blockbuster generated about $258 per square foot in 2004, while over the last year that has dropped to $132.
Another problem the company faced, which it now has dealt with, was the abuse of its plan by some customers that allowed them to exchange all their DVDS in-store in an unlimited number. The postage costs had become prohibitive, and so the company either capped the number of free exchanges or raised prices after a certain number of exchanges are completed.
Another problem that arose from that was the lack of inventory of early-run movies which caused problems for customers looking for them.
When you consider a customer coming to the store generates twice the profits an online customer does, it wasn't a good trade-off for the company.
One thing they're looking at doing is increasing the number of first-run movies and making them available on the day it's released for some of their customers. Along with a larger library of movies, they're also looking at increasing the download speed of movies, and making it more convenient for customers.
Making the Blockbuster stores a destination is a good idea. As Keyes says though, offering a great service, selection and convenience when they get there will still be what determines the success of the company this time around.
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