Would you like some Wild Hogs beef jerky? How about pouring yourself some new Slurpee flavors, like Hot Peach Fuzz or Berry Blades of Glory? If these aren't scenes from a Blockbuster
Ever since retail veteran Jim Keyes took over for John Antioco as CEO, investors have been wondering when Keyes would start surrounding himself with his 7-Eleven cronies. Well, change is a-coming at the struggling DVD rental chain. COO Nick Shepherd will step down at the end of the month, while CIO Keith Morrow and senior VP of merchandising, distribution and logistics David Podeschi are coming in. Morrow and Podeschi held similar positions at 7-Eleven under Keyes, until the chain was acquired by foreign investors.
Companies have several executives, but think about those two posts for a little bit. Information. Merchandising. Those were the areas that spurred 7-Eleven's revitalization. They also happen to be the keys to turning Blockbuster around.
We want information
Information is a big part of any retailer. It's no surprise that Wal-Mart ushered in a new era of efficient inventory control by mandating that its largest suppliers adopt RFID shipment standards.
7-Eleven's turnaround under Keyes was sparked by the company's ability to translate sales data into actionable tactical maneuvers. One of my favorite anecdotes is the story Keyes told The Motley Fool Radio Show a few years ago:
In the old days, we had a very difficult time knowing how many doughnuts to order. Doughnuts 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.
Keyes massaged the data behind the problem into an opportunity:
We could never stay in stock because it was always a guess. 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.
Maybe Blockbuster's rentals aren't weather-related, but do we know whether rainy days translate into more rentals of romantic comedies? Do hot days inspire the rental of penguin flicks?
Information alone may not be enough to save Blockbuster, but it's unlikely to make things any worse. Revenues fell by 3% in the company's latest quarter, despite the runaway success of its margin-munching Total Access subscription service. Yes, the closure of stores is also weighing on the top line, but isn't that a sad statement in of itself?
Blockbuster's inability to know its customers has left Total Access a profit-killer. It could have used mail-delivered rentals as a loss leader to get patrons inside its stores for free exchanges, but it's failing to convert those customers.
Merchandising, where the movie's real money is made
This brings us to the second key hire at Blockbuster. Total Access is a hit, with 3.6 million subscribers and counting. However, Blockbuster is unlikely to ever match the low-cost operating efficiencies that find Netflix
Blockbuster's best shot to matter is to make its registers ring with improved merchandising. You can give the old regime a little credit here. Blockbuster is built for the impulse shopper. Its new releases line the side and back walls, forcing you to walk through the store to get to the candy that everybody wants. Even when the store is empty, getting to the register usually involves snaking through a line of pre-viewed clearance items and concession snacks.
Now let's see what a real merchandising pro can do to make the process ring up grander sums, yet still satisfy the customer. I proposed several in-store improvements two months ago, but I'm gladly yielding the floor to someone who actually has an enviable track record of making this work.
Am I wrong to get excited about Blockbuster? Trust me, I was cynical even before being bearish on Blockbuster was cool. But now I get the feeling that the company finally has the right pieces in place to make this turnaround work. It won't be easy, but if the company can be saved, these are the people to do it.
Maybe it's Kool-Aid I'm sipping, but it's coming out of a Big Gulp cup, with even more capacity for Blockbuster's upside potential.
Here's how Keyes can turn it around:
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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's disclosure policy prefers foreign films and movies involving monkeys.