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Hastings CEO: Catering to ‘A Constancy of Change'

15 Jul, 2008 By: Erik Gruenwedel

In an entertainment retail landscape littered with failed brands (Tower Records and Video, Musicland), Hastings Entertainment Inc. stands tall, profitable and unique.

The Amarillo, Texas-based chain, with 153 stores throughout the Southwest, posted first-quarter (ended April 30) income of $3 million, up 20% from the prior-year period. The profit marked the fifth consecutive quarter Hastings posted comparable net income growth based on a blend of rental and sellthrough, including video games, movies, consumer electronics hardware, books and coffee, among other products.

The Entertainment Merchants Association in June named Hastings its retail chain of year.

This October, Hastings marks its 40th anniversary at an annual three-day summit that is as much a corporate overview as college football tailgate party (store managers wear their alma matter jerseys and sing fight songs) minus the free-flowing suds.

Going forward, Hastings is meldingits renowned eclectic product portfolio into 20 new research-driven company-branded concept stores that CEO John Marmaduke said not only invite direct interaction between the customer and product, but also have the look and feel of a multimedia shopping experience designed to entice customers to return.

It's the kind of store concept Hastings' competition to the south — Dallas-based Blockbuster Inc. — covets and has designs on emulating.

In a Q&A with Home Media Magazine, Marmaduke discussed Hastings' business and its “constancy of change” mantra that hasn't varied.

  • HM: Blockbuster has made it a priority to expand beyond traditional rental to include sellthrough of movies, games, food, hardware and related consumer electronics products. In short, they appear to be emulating your business model. Are you flattered or concerned?

  • Marmaduke: Probably neither. It's probably just recognition of what the customer wants. And [Blockbuster CEO Jim Keyes] is just paying more attention to the customers.
  • HM: Explain the new concept stores.

  • Marmaduke: Within a multimedia store you have a number of different shopping experiences, including software, hardware, caf? and consumables. And you have to find a d?cor and look that harmonizes and doesn't distract from those experiences.
  • HM: Will Hastings increase its consumer electronics footprint to include Blu-ray Disc players, DVD players and HDTV?

  • Marmaduke: Yes. We've been increasing our CE footprint every year. We're excited about the opportunity to introduce Blu-ray and HDTV to our customers. It could be a game changer.
  • HM: Do you stock other Blu-ray players besides Sony's PlayStation 3?

  • Marmaduke: We've been selling the PS3 already for some time since we are in the video game business and deal direct with Sony. So it's just a natural extension. While we like change, we spend our time focused on our customer and trying to get them what they want and not our sales philosophy.
  • HM: Can a DVD rental chain survive without pursuing sellthrough of related products, including consumer electronics?

  • Marmaduke: We've always sold DVDs. We have been strong in sellthrough forever because our customers wanted it. Even though it offered a smaller margin [than rental], we felt we had to give them what we wanted. It certainly turned out to be strategic.
  • HM: Is used DVD sellthrough important to Hastings?

  • Marmaduke: Probably not as big a deal with DVD movies as it is with video games. It certainly enhances the customer's shopping experience through either upselling, trading and sampling product more economically. It puts them in the driver's seat. Our sub-brand slogan is “buy, sell, trade, rent.” And that's exactly what we mean to do.
  • HM: The home entertainment industry is staking a lot of its future on Blu-ray. How important is the format to Hastings?

  • Marmaduke: As I said before, we think Blu-ray is a game changer. And customers get that [appeal of Blu-ray] when they see the side-by-side comparison on a flat-screen HDTV.
  • HM: Are you working with any of the studios or CE companies to offer point-of-purchase or educational kiosks for Blu-ray in the stores?

  • Marmaduke: Yes, we are doing the displays with Sony because we think Blu-ray is that important. We are also working with other CE companies, but Sony was our primary lead.
  • HM: Is the rental option for Blu-ray a good catalyst for wider consumer adoption?

  • Marmaduke: Yes. We have been renting Blu-ray since it came out, and we probably have the largest selection of any retailer I know of. I agree with Keyes that allowing customers to try Blu-ray is a great way of introducing them to the format without paying the higher retail price. You have to put yourself in the home of the non-early adopter video consumer. They already have a couple of standard-DVD players and maybe even an old VHS lying around. And when they get Blu-ray movies they are not going to just throw out all their DVD players.
    They are going to continue to rent both formats and not become a real avid purchaser of Blu-ray until they are convinced the selection and availability is up to the standards of DVD.And from their perspective, renting Blu-ray is low risk and high reward.
  • HM: Was there any educational process for store managers and staff about what Blu-ray brings to the home entertainment experience?

  • Marmaduke: Yes, we updated our store manuals. And we think it is as important to educate our customers, so we make our signage as educational as possible. But all the education and all the training in the world is not worth a fraction of just seeing the Blu-ray demo on the split screen Sony puts out. Seeing is believing. That's the game changer.
  • HM: Is Hastings pursuing a kiosk strategy both in-store and/or through third parties such as Redbox, The New Release and others?

  • Marmaduke: No, not right now.
  • HM: Will Hastings pursue a streaming or download strategy?

  • Marmaduke: We are totally re-engineering our Web site. Later this year and into 2009 we will align the site as more of a multimedia shopping experience, including digital delivery. We think digital distribution is a longer-term delivery channel, but we want to be there when our customers want it. I think right now it is for early adopters, and video-on-demand may end up being more of a portability issue than competitor to packaged media.
  • HM: What do you say to the studios that want to circumvent traditional rental with same-day cable VOD? Essentially, they want to put rental out of business while at the same time providing you with content.

  • Marmaduke: Obviously, someone at the studios hasn't run the numbers. The vast majority of movies they release do very little box office, don't make money, don't appear at a discount chain and rent very seldom on VOD, if they are even available. And the only income stream that is available to the studios is DVD rental. So why would the studios want to kill the only channel that gives them millions for their non-successful films? It just doesn't make sense.
  • HM: Some studios argue that the margins on cable VOD significantly exceed DVD rental.

  • Marmaduke: Maybe they should look at total dollars and not margin percentages. I think wiser heads will prevail. I think these are one-and-a-half studios talking up VOD. I'm reminded of what investor Warren Buffet once said: “Every industry has three cycles: Innovators that create the business, imitators that expand the business, and idiots that destroy the business.”
  • HM: What stage are we in now?

  • Marmaduke: I can tell you that the music industry is in the third stage, and I hope the video industry doesn't copy them.

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