Monday, October 5, 2009

Blockbuster Eschews Stores, Favors Kiosks

DALLAS-Store closures and kiosk openings were the prime themes of the presentation made by Blockbuster Inc. at the Deutsche Bank 2009 Leveraged Finance Conference. The mega-entertainment chain's executive vice president and chief financial officer Thomas M. Casey acknowledged that the company is moving away from the "old model" of 5,000 square foot stores, and into the new one of small kiosks, with plans to have almost 10,000 kiosks in operation by the end of 2010.

In the meantime, between 810 and 950 retail stores will be shuttered between now and then. "We have the benefit of short-term leases in existing stores," Casey explained, adding that cash flow also comes from liquidating inventory. The challenge, however, is transferring revenue from closed stores to stores still in operation, he remarked.

The reason for the closures is, of course, economic. Blockbuster's financial troubles have been well-documented, as the company has struggled with the economic downturn and encroaching competition from NetFlix Inc. and Redbox Automated Retail, LLC. Casey acknowled that "the story of 2009 has been to preserve cash, get refinancing done and live to fight another day."

The combination of store closures and debt restructuring should put Blockbuster in a pretty good position to join rival RedBox in the kiosk arena. Casey said Blockbuster's relationships with the major studios, as well as brand recognition will help it compete handily with Redbox, which has a claim to fame of offering movies through kiosks in grocery stores.

"The customer goes to kiosks as an impulse buy, and the dollar-a-day proposition is attractive," Casey remarks. "We really believe that's an emerging window."

These 5,000 sq ft spaces will be comming available soon. We will have more information on what spaces will open soon.

Amy Wolff Sorter

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