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APAR's WORKING WEEKEND: Out of Site -- Chain Locations at a Standstill

30 Mar, 2001 By: Bruce Apar

It reminded me of a classic commercial from another era, a commercial thattoday is a totem of political incorrectness. The spot's now-infamous tagline, uttered by a middle-aged man in a domestic setting was, "My wife, I think I'll keep her."

I'm speaking of Viacom's 180-degree about-face on unloading its roller-coaster ride of a subsidiary, Blockbuster Video. Maybe it has something to do with the new sheriff in Viacom town, upper-executive Mel Karmazin, who sees in the retail chain something his corporate partner, Sumner Redstone, didn't -- a future. You could almost hear Karmazin saying,"My retail Goliath, I think I'll keep it."

In years past, I recall asking Blockbuster chieftains, including theredoubtable Wayne Huizenga and current c.e.o. John Antioco as well, about itsinterest in having a private-label line of movies under the Blockbuster banner. It's a time-honored retail tradition, and one of the benefits of building a category-killer retail chain: to merchandise a proprietary brand of some commodity -- like Sears' Kenmore appliances -- with fatter profit margins than available from an outside vendor.

So, the only thing that surprises me about Blockbuster finally formalizing its foray into the supply side of video distribution is, "What took it so long?" Notwithstanding protestations from those for who big is bad, the endgame in being big is to exploit your size, dominate the market and leave crumbs for the competition. Anybody looking for compassion in storefront competition stumbled into the wrong profession. There are archetypes in every line of retailing: small bookstores bemoan Barnes & Noble; neighborhood hardware stores dis Home Depot; toy shops turn up their noses at Toys "R" Us; and so on down the line. Theirs is a very elite club that understandablyengenders envy and even rage.

It can be incestuous too, such as the recent news from License! Magazine (a sister periodical of Video Store Magazine at Advanstar Communications) that Home Depot is putting itsbrand on children's products that Toys "R" Us will carry.

What's most interesting about Blockbuster's strategy as a label -- DEJ Productions -- is that it has designs on selling its movies to other video rental operators, many of whom are not exactly charter members of theBlockbuster Fan Club. Whether or not a Blockbuster competitor decides to dobusiness with Big Blue depends on whether that retailer buys with the head orthe heart. Heads, the buying decision is based on the product itself and whether customers will find it appealing; hearts, the decision is based on who is selling the product, and the customer's interest -- and loyalty -- is secondary.

What may have taken Blockbuster this long to hang out its label shingle forthe industry at large is that with store openings at a virtual standstill, it needs to look elsewhere to replace the revenue growth that new stores represent. Hollywood Entertainment Corp.'s own spin in announcing its massivefirst-quarter losses of $1.5 billion is that it has changed its strategy fromrevenue growth via new-store openings to revenue growth in existing stores.

That probably has a little to do with the fact that, according to a page onelead article in The Wall Street Journal earlier this year, Hollywood doesn't have the money to open new stores.

If those two chains aren't adding storefronts to their operations in 2001, it's a fair bet we won't be seeing many new video locations at all this year. Will that contain, or depress, consumer spending on video rentals, orwill existing stores -- independents as well as chain outlets -- benefit by not having new stores siphon off their business?

The irony in today's video retailing environment is that, in the course ofHollywood's damage control to assure lenders it is being fiscally responsible, it almost seems as if it has gone from proudly announcing store openings to soberly announcing store closings. There'll be 43 of those thisyear, compared with less than 10 openings. As the chain looks to tighten its belt a few notches, we wonder if this Hollywood diet is a fad, or a new way of life? The same might be said of Blockbuster's DEJ Productions, whose fate,ironically, might lie in part with Blockbuster's competitors.

Comments? Contact Bruce directly at:bapar@advanstar.com

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