Blockbuster may cut more locations as part of bankruptcy
Sunday, October 10, 2010; 6:45 PM
Once a fixture of the American retail landscape, Blockbuster has been upstaged and undone by the rise of online and kiosk movie services. In the wake of its recent bankruptcy filing, the video powerhouse has left its fans and store landlords asking the same question: What next?
There are roughly 30 Blockbusters in the Washington area, many of which serve as anchors in neighborhood retail centers. For now, Blockbuster said it will keep the doors open to all 3,000 of its U.S. sites while attempting to reorganize its finances.
That might not be for long. The company said it is evaluating the portfolio "with a view towards enhancing the overall profitability of operations," according to the company's spokeswoman, Patty Sullivan.
There is little doubt that to enhance profitability, Blockbuster will shutter a wealth of its stores. Months before filing for bankruptcy protection, about 145 of its sites went dark, including several in the Washington area.
Blockbuster is now trying to cancel the unexpired leases on those stores, which it projects will save the company $19 million over the remaining terms of the contracts. A continuation of this strategy to any degree will place pressure on local retail vacancy rates.
On average, Blockbusters in this region range in size from 5,000 to 6,000 square feet, according to Thomas H. Maddux, a principal at KLNB Retail, who represented the company in deals throughout Washington and Baltimore. What's left of Blockbuster's local portfolio, he said, are store located in generally desirable areas.
Maddux said it is probable that nearly any location Blockbuster gives up will get snapped up, much like Circuit City's former sites.
"When Circuit City and Linens 'n Things closed, the best real estate got picked off pretty quickly. And Blockbuster has good real estate," he said.
Not too long ago, neighborhood retail owners clamored to have the video powerhouse anchor their centers.
"They were highly sought after because they generated a lot of traffic," said Maddux, who recalls a time when there were upwards of 200 Blockbusters in the metropolitan area. At its peak in 2004, Blockbuster counted 9,094 stores worldwide and recorded $5.9 billion in revenue, according to data from SNL Financial.
Around that time, Netflix was making its presence felt, amassing more than 2 million subscribers to its online movie rental service. Blockbuster soon launched a DVD-by-mail service, but it could never catch up to Netflix.
Meanwhile, Blockbuster is still trying to supplant Redbox Automated Retail's kiosk business. The company hopes to have 7,500 kiosks in operation by the end of this year; Redbox runs nearly 30,000 stands.
Analysts say Blockbuster was too slow to respond to new technology, which ultimately hurt its profits. Revenue was down 16.4 percent, to $1.7 billion, in the first half of this year. Some observers speculate that Blockbuster could emerge from its reorganization with few, if any, bricks-and-mortar locations.
"Blockbuster is a victim of a changing industry," Maddux said. "When the automobile was invented, buggy manufacturers were challenged. Same thing here."