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5 Key Takeaways From the Collapse of Blockbuster

5 Key Takeaways From the Collapse of Blockbuster

Did you know that, as of this year, only one Blockbuster store remains on the entire planet?

It’s been nearly 10 years since the video rental giant filed for bankruptcy, and while Blockbuster is often viewed as a classic poster child for technological disruption, there’s more to it than that.

Retail Dive talked with former executives, franchisees and analysts about Blockbuster’s demise that are still relevant for retailers in 2019. Here are five key takeaways:

1. Debt can be crippling  

Too much debt can cripple anyone, and while it may not be possible to run a completely debt-free business, retailers should try to manage and reduce it as much as possible, suggests Business Know-How.

Blockbuster filed for bankruptcy after struggling to refinance the $1 billion in debt on its books. According to former CEO, Jim Keyes, Blockbuster ran up against its debt wall during a “period of financial turmoil throughout the economy.” Additionally, Grant Jordan, a former analyst, stated that Blockbuster’s debt left the company with less money to invest and few options when the debt came due.

In a low-margin business during an era of rapid technological growth, shifting consumer behavior and intense price competition, Blockbuster—like more recent companies including Toys R Us, Payless ShoeSource and RadioShack—got caught between their balance sheet and a changing market.

1st Takeaway: Companies burdened with debt have less money to invest in stores and technology.

2. It’s important to know your customer

“Knowing and understanding customer needs is at the center of every successful business . . . Once you have this knowledge, you can use it to persuade potential and existing customers that buying from you is in their best interests,” says Info Entrepreneurs.

Former Blockbuster franchisees indicated that the company possessed a wealth of valuable data on its customers, including details about their entertainment tastes and purchasing habits. In fact, every rental transaction was logged and stored before “personalization” and “big data” were even a thing.

“They were the first company to have demographic information that they could match up with what people wanted to watch. They never used it.”

~ Alan Payne, former Blockbuster franchisee

Several years previous to the bankruptcy, Blockbuster had considered upgrading its IT system so it could perform more customer-specific promotions, but neither corporate nor franchisees had the money to invest with the business in decline.

2nd Takeaway: Businesses that have access to valuable customer data need to use it…before it’s too late.

3. You need to know your business, too

Having a company vision means having a clear sense of purpose. It gives owners—and employees—a larger picture of their business.

“He who has a why can endure any how.” ~ Frederick Nietzsche

From time to time, the owners of Blockbuster had random ideas about what else it could be. In the mid-1990s, they thought Blockbuster could be a clearinghouse for books and toys, as well as MTV and Paramount merchandise. The idea tanked, destroying half the company’s value.

Two decades later, plans to sell Dish services at Blockbuster stores were abandoned and subsequent plans to merge Blockbuster with RadioShack and Circuit City—to transform it into a type of Apple entertainment store—never took off.

People within the company also argued over what the company was—a retailer or something else?

3rd Takeaway: Retailers without a strong identity can easily get lost.

4. Fairness = Great Customer Experience

At Blockbuster, late fees accounted for more than 15% of its revenue during the retailer’s heyday. The company unwisely tried to spin them off as rental renewals—you could be two hours late or two days late and pay the same price. But that only succeeded in getting the company sued.

Not only did late fees irritate customers, it made the rental process a stressful experience.

As CMS Wire suggests, customer experience is, at its core, a way of treating people. Great customer experiences have to be built on fairness.

By the time Blockbuster attempted to eliminate late fees and launch a Netflix-type subscription model, it was already too late.

4th Takeaway: Treat customers right and it will result in a great experience.

5. Learn to Adapt

According to a quote on the site, Awaken the Greatness Within, “To adapt is to move ahead.”

Blockbuster wasn’t able to do that when sell-through pricing on movies became affordable to all, not just video stores. Abruptly, Walmart, Target and Best Buy turned into fierce competitors that were selling movies for as low as $5 during a time when Blockbuster was blindly trying to rent new releases for nearly $4—and renting older movies for not much less.

“[Blockbuster] built a business based on a certain set of conditions. When those conditions changed, it found itself in constant scramble mode and never could quite get its ducks in a row to transform.” ~ Retail Dive

5th Takeaway: With an ever evolving retail landscape, it’s a bad idea to stick with the same old strategies that have worked in the past.

Conclusion

“Retail is an unforgiving business. It can be incredibly lucrative when you’re on your game,” says Retail Dive. “And it can be incredibly punishing when you are off your game or when the market changes delivery methods.”

Based on the five points covered above, Blockbuster was off their game even when times were good so they were ill prepared to survive when market shifts occurred.

Retailers that plan to succeed need to be motivated to take action and keep moving. It’s okay to make mistakes, but there’s no room for laziness, fear, ambivilance, or resting on one’s laurels.

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About The Author

Sherene Funk

Sherene Funk is the author of the contemporary romance Autumn in Your Arms and two small business e-books. She is a voracious reader who owns more books than she can ever read in this lifetime. A graduate of Brigham Young University, she worked in advertising for many years before moving to her current writing position at Rain Retail Software. She researches non-stop to see what successful retailers do and loves to share what she learns with small business owners.

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