Now that convenience store veteran Jim Keyes has taken over for John Antioco at the head of Blockbuster (NYSE:BBI), it's time to talk about what the struggling DVD-rental giant needs to win its way back into investors' fancy.
Blockbuster is in trouble, but I'm not some empty-handed critic. I've got a few tips to help turn the company around.
Yes, I tried to breathe new life into Blockbuster's online push two years ago. Now it's time to pump up the body of its offline presence. Blockbuster's bricks-and-mortar stronghold is the one thing standing between it and Netflix (NASDAQ:NFLX). It is also the moat that can help the company stand out from online juggernauts that are angling for the digitally delivered dollar.
Thinking outside the chute box
Park yourself in front of a Blockbuster and watch the flow of customers. How many of them simply deposit their rentals through the slot in front of the store and move on? Way too many, and that's a problem.
A quick return means no subsequent rental and no chance to sell them something else once inside. The slot-box convenience is important. Getting rid of it would anger patrons. However, the key here is to get folks to want to come in.
Toward that end, I'm throwing out five ways to make Blockbuster stores more magnetic. I realize that many of them involve carving out shelf space that the company sorely needs. Then again, what's wrong with stacking new releases a little deeper or bunching older catalog titles a little tighter?
If the payoff is worth it, the sacrifice is a cheap price to pay for attracting the masses again.
1. Let the kids play
I've seen parents shoot the chute because they have kids in the car. Sure, Blockbuster has kid videos, but there is rarely anything for them to do once inside while Mom and Dad pick out DVDs. Why not steal a page out of the Barnes & Noble (NYSE:BKS) playbook and install wooden railroad play tables? Get film studios to subsidize celluloid-themed play tables, kid-sized computer kiosks, or other flick-based diversions. The key here is creating a secure destination where kids want to go, as parents and grandparents make their selections.
2. Get back into the game
Video-game rentals aren't as financially lucrative as DVDs. They cost more. They age quickly. Digital delivery is coming on that front, too, as platform makers turn to larger hard drives. It's not pretty, I know. However, one of the hottest specialty retailers right now is GameStop (NYSE:GME). Rival Movie Gallery (NASDAQ:MOVI) may have had mixed results with the GameCrazy store-within-a-store concept at some of its Hollywood Video locations, but I feel that Blockbuster is ubiquitous enough to get it right in scale. In short, the thinning video game shelves should stand out from the bland flick-hugging racks. Make it exciting. Over at GameStop, trade-ins and used gear sales carry higher margins than actual retail sales. There are huge opportunities for Blockbuster to appeal to a younger audience in the gaming community.
3. Food for thought
Dinner and a movie? Why does Blockbuster assume that movie buffs want the same candy, soda, and microwave popcorn assortment that they associate with the local multiplex. The reason most cinema houses have limited finger food eats is that crowded, dim-lit auditoriums aren't conducive to chowing down. The rules are different at home. Obviously, it's a stretch to turn a video store into a commissary. While it would be neat to see larger stores give home-meal replacement a shot -- making Blockbuster the ultimate one-stop shop -- there is no reason why it can't stock non-refrigerated meals with long shelf lives at even the smallest of stores. You'd be surprised at the variety of shelf-steady complete meals that are available these days. It's more than just Spam and Chef Boyardee.
4. That's entertainment
Living in South Florida, I remember when the earliest of Blockbuster Video stores opened. I was at the grand opening of the retailer's first store in Miami, a media-grabbing event complete with celebrity impersonators. What's wrong with winning some of that magic back? Why can't it roll out a red carpet over a decked-out flash-popping aisle stocked with nothing but Oscar-nominated pictures? Why can't it install photo booths where patrons can take snapshots next to superimposed celebrity images? How about coupon-dispensing movie trivia kiosks? If you're going to sell Tinseltown, do so with personality.
5. The Keyes to the castle
The final key? Well, that's Keyes himself. Don't underestimate his impact, even in a sinking company. He was a frequent guest on The Motley Fool Radio Show when he was at the helm of 7-Eleven.
One of my favorite exchanges was when he discussed how he helped update that company's process for ordering doughnuts.
"In the old days, we had a very difficult time knowing how many doughnuts to order," he said. "Doughnut sales will actually differ based on the weather: A rainy day, a sunny day, hot temperatures, cold temperatures ... these will affect the sale of even a chocolate-glazed doughnut versus a regular-glazed doughnut or a cream-filled doughnut."
It's a problem that turned into an opportunity.
"We could never stay in stock because it was always a guess," he continued. "Now, when making tomorrow's order, we can look at 8-10 days of actual sales data and compare the weather pattern on those to the sales data. Then we actually forecast tomorrow's weather for the store. When the managers are making tomorrow's order, they are placing that order with knowledge about previous sales patterns and the external factors that could affect tomorrow's sales. It helps us stay in stock and it helps us reduce the write-offs. The bottom line is the shareholder benefits and the customer benefits from this use of technology."
I'm not suggesting that Blockbuster doesn't have its reasons for stocking the Lemonheads next to the Twizzlers. I'm just confident in the data-mining skills of Keyes to find the optimal product mix.
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Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
