Financial pressures at Blockbuster Inc. raise questions about local stores surviving
A new round of financial pressures at Blockbuster Inc. is generating local questions about the national chain’s future.
The questions follow years of movie rental store downsizing as the industry shifts to digital product delivery instead of packaged media. Already this year, the Ann Arbor area’s Hollywood Videos have closed.
Blockbuster Inc. started a "Total Access" program that includes a mail option to compete with Netflix.
Source: Blockbuster Inc.
Area Blockbuster stores are located in Woodland Plaza, 2248 S. Main, and Traver Village, 2610 Plymouth Road, in Ann Arbor; 2547 Ellsworth in Ypsilanti Township; and 1305 E. Michigan Ave. in Saline.
The chain has already announced plans to close up to 545 stores this year through a major downsizing effort that started in spring.
“We have an expectation that they’re going to close most if not all of the stores,” said Tom Goldberg, co-owner of Woodland Plaza at South Main and Ann Arbor-Saline Road.
However, as of the end of last week, no closing notice has been given.
“We’ve had no formal notice or dialogue with them,” Goldberg said.
The Dallas-based Blockbuster announced early this month that its stock was to be delisted from the New York Stock Exchange. After missing a $42 million interest payment this month, it also reached an agreement with a majority of its investors to enter forbearance - a period where the lender will hold off on collecting an overdue payment - until at least Aug. 13.
That news followed a warning issued by the company in March that it could face bankruptcy due to its $1 billion debt.
In 2006, the chain operated more than 5,000 stores in the U.S. That number was down to 3,525 early this year.
Meanwhile, the chain is converting its business model to adapt to direct-to-consumer electronic delivery and movie rental kiosks, both of which - if successful - will further reduce the retailer’s need for prime store space.
Each closing would leave, on average, a 5,000-square-foot retail vacancy.
The local stores are performing well, according to real estate sources. That let them survive previous rounds of downsizing, even as real estate representatives sought rent concessions and renegotiated lease terms.
However, the chain's overall financial picture and the industry's direction may make a local round of closings inevitable, Goldberg said.
"It seems like it's in the cards," he said. "I suspect we'll see it by the end of the year."
Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.
Comments
JimB
Mon, Jul 26, 2010 : 10:30 p.m.
Don't be so fast to make assumptions about the 'brick and mortar' business model. There is a company called Family Video that has sharp growth within this industry. The key to their success is superior customer service and their debt load. http://www.dispatch.com/live/content/business/stories/2010/07/21/a-rental-success.html?sid=101
Jared B
Mon, Jul 26, 2010 : 10:05 p.m.
when Redbox popped up, I stopped going to Blockbuster. $4 for a week, or $1 per night? It doesnt take me a week to watch a 2 hour movie, so why pay for six extra days?
Marvin Face
Mon, Jul 26, 2010 : 9:06 p.m.
Gorc, no, not 1080p...YET. Soon. Very soon.
Gorc
Mon, Jul 26, 2010 : 7:12 p.m.
You can't stream 1080P
Marvin Face
Mon, Jul 26, 2010 : 6:56 p.m.
I agree w/Andy Jacobs. DVD/Blueray/hard copies are a thing of the past. I stream HD content direct to the 60" via high speed wireless from Netflix, Amazon, and others. At a moment's notice. Whenever I like. Sending things through the mail and waiting is so 2008.
Gorc
Mon, Jul 26, 2010 : 5:53 p.m.
Brick and mortar vs. Online purchases Seems that online wins almost every time. Except for banking....why?
Soothslayer
Mon, Jul 26, 2010 : 5:13 p.m.
Pffft, drive anywhere to get a video? What the heck is a DVD or even a Blue Ray disk for that matter? Hard media is DEAD just like the iPod killed CD's years ago. You can watch whatever you want whenever you want via the many Interweb services, most are very reasonably priced.
javajolt1
Mon, Jul 26, 2010 : 2:34 p.m.
Another looming demise (already in progress) is unfortunately Borders. This will be met with gnashing of teeth by the Ann Arbor faithful, but the handwriting is already on the wall for another Pfizer-like crash and burn. They have been divesting themselves of their unwise acquisitions at a breathless pace, they were very late to recognize the importance of of the web - all but giving it to Amazon.com. And let's face it, Borders came to national prominence on the strength of its efficient inventory control system. I was shocked to go into the flagship store and see nearly all movies and music gutted. The store looked tired and dirty. Some will want to believe it could never happen (remember: Jacobson's?) but its happening right now. the only thing not accelerating its demise is Borders keeps finding investors to buy its debt. Get ready for the other shoe to drop!
AlwaysLate
Mon, Jul 26, 2010 : 1:09 p.m.
Blockbuster has only themselves to blame. They are following in the footsteps of Hollywood Video. Surly staff High prices ($5.50 per movie in Saline) New releases always unavailable Out of the way locations Slow to respond to new trends and competition Blockbuster was really big once. But, they got arrogant and lazy.
Thornhill
Mon, Jul 26, 2010 : 12:17 p.m.
@Thom Haneline Second paragraph, second sentence.
Lokalisierung
Mon, Jul 26, 2010 : 11:27 a.m.
Good riddence. Blockbuster was notorious for strict policies, stiff penalties, etc etc. I'll be glad when they are gone. Hollywood was better, but still outdated. I of course feel bad for the employees at the packard hollywood, who were very nice people.
MyOpinion
Mon, Jul 26, 2010 : 11:13 a.m.
Another kiss of death for Blockbuster and this goes for the brick and mortar bookstores is that it mostly just carried new movies and popular older movies. That met the demands of 80% of the public. That's the same problem with brick and mortar book stores. I try to buy from local stores but for as many books as they have in their stores they are mostly carrying best sellers and a fairly weak selection of older books. And, it is sometimes pretty frustrating to find the book on the shelf due to their quirky cataloguing and less than knowledgeable staff. So, Netflix and Amazon are the new models.
Ian
Mon, Jul 26, 2010 : 10:47 a.m.
A couple of things people may not be aware of. The movie studios want Blockbuster to hang around because Blockbuster rents and sells DVDs. Studios make far higher margins when they sell DVDs compare to when they are rented. That is why some studios are giving Blockbuster 28 days lead on new releases. Unfortunately for BB, they don't have the money to advertise this advantage. Also, if the US Post Service cuts Sat. deliveries, BB's brick-n-mortar may get more traffic. No Sat. deliveries may mean no movies for the weekend. This is a possiblity in the near future.
chris glahn
Mon, Jul 26, 2010 : 9:30 a.m.
Blockbuster has another huge store in Chelsea and I wonder how long that will be open
Pika
Mon, Jul 26, 2010 : 9:26 a.m.
They are way behind the curve on their business model. I'd say they will be gone by January 1. If you need store front space I know some property that will soon be available for rent.
debling
Mon, Jul 26, 2010 : 9:23 a.m.
It's been clear to me for years that the business model of having a brick and mortar video rental store was finished. I'm surprised Blockbuster had not repositioned to take advantage of online video rentals. Netflix has done a good job of riding this wave.
Jon Saalberg
Mon, Jul 26, 2010 : 9:15 a.m.
Not to mention that a cursory perusal of eBay, half.com and Amazon's discount listing will locate virtually any DVD at a fraction of the retail cost. I've paid as little as $4 for a DVD from eBay, including shipping.
javajolt1
Mon, Jul 26, 2010 : 8:54 a.m.
Blockbuster's business model died when the Netflix business model was born. No way Blockbuster survives the year. That's obvious. They were too late to the party. Bricks and mortar is VERY expensive. They won't be the last chain to leave vacancies behind either. As long as a store isn't selling something you have to touch, taste or examine, like Zingerman's or a high-end clothing store, more and more will be leaving commercial spaces and vacancies behind. Each time this happens, it gets more difficult to find a replacement business to take the space. The only exception I've found to this rule is Apple. Hey...won't this potentially lead to the involuntary "greening" of America? That is....if someone levels these commercial spaces and puts in a park!
earthchick
Mon, Jul 26, 2010 : 8:30 a.m.
I had been a long-time Netflix subscriber when, a few years ago, Blockbuster offered a deal that was better than Netflix. For a similar monthly fee, you could order direct-by-mail DVDs through Blockbuster online. When you were done with a DVD, you could either mail it back (as with Netflix), or you could exchange it at a local store for another DVD - and still get the next DVD in your queue mailed to you. It was a great deal - better than Netflix because you could immediately get a new DVD rather than wait for the mail. I loved it. Then the terms changed. If you exchanged your DVD in the store, you had to return the DVD you got in exchange before you would get the next one in your queue in the mail. And then there were further changes, more fees, always some change in their pricing structure. I suppose that their competitive edge over Netflix was financially unsustainable for them. I ended up canceling and going back to Netflix.
Ian
Mon, Jul 26, 2010 : 8:16 a.m.
Blockbuster Mobile Store! Interesting development. I wonder if products and services will be offered at local brick-n-mortar. If so, there is some life left in local stores. Assuming it is successful and bond holders approve. At least they are trying new concepts. http://mobilestore.blockbuster.com/mobile/verizon-wireless.aspx?referringdomain=blockbuster
Renee
Mon, Jul 26, 2010 : 8:15 a.m.
Blockbuster has a kiosk in front of the Speedway gas station on Stadium. Rentals there are only $1/night.
InsideTheHall
Mon, Jul 26, 2010 : 8:15 a.m.
Those store fronts will sit vacant for a long long time. Nice to see capitalism working. Good ideas and innovation have life spans and then the next cycle begins bringing more perceived value to the customer willing to spend money.
clownfish
Mon, Jul 26, 2010 : 7:48 a.m.
A good reporter would have also included the information about how all the Hoolywood movie rental stores have also recently closed as well, in order to expand the depth of the story. You guys make USA Today look the the NY Times. Already this year, the Ann Arbor areas Hollywood Videos have closed. with a link to that story. A good reader reads the whole article.
timeatwork
Mon, Jul 26, 2010 : 7:02 a.m.
why would i spend $6 on a 2 day rental when i could buy the new release for less than $20 in many cases....even for many blurays. not to mention the redbox at the grocery store...all the functionality of a blockbuster, but for only $1. or the fact that i can rent on-demand for the same price without leaving my house. or that for a little more than the price of a single movie at blockbuster you can get a netflix subscription. movie rental stores will go first. and not too far behind them will be the book stores.
stan
Mon, Jul 26, 2010 : 7:01 a.m.
Hopefully, the soon to be vacant stores will not sit vacant for a long period of time. Blockbuster is currently charging $4 for any rental with an option to buy for a few dollars more.
Thom
Mon, Jul 26, 2010 : 6:58 a.m.
Sorry - "Hollywood". My bad.
Thom
Mon, Jul 26, 2010 : 6:57 a.m.
A good reporter would have also included the information about how all the Hoolywood movie rental stores have also recently closed as well, in order to expand the depth of the story. You guys make USA Today look the the NY Times.
Brian Bundesen
Mon, Jul 26, 2010 : 6:48 a.m.
With the growth and ease of use of Netflix, On Demand, and increased selection at the Library, it is difficult to imagine how the big box retail model can survive. Retail rental rates and long term leases signed at the peak of the real estate market must be killing them. Very unfortunate to lose jobs and have more empty storefronts.