Justifying Brick-and-Mortar
I'm fascinated by corporate strategy; both observing what's publicly discussed and deciphering what's not. And the competition between Blockbuster and Netflix, both inside and outside the courtroom, has made for interesting analysis these past few years. Blockbuster was originally a brick-and-mortar-only merchant, whose rapid Walmart-like expansion resulted in the demise of mom-and-pop video rental shops both in Sacramento and around the U.S. Turnabout is fair play, though, as the increasing popularity of the Internet, coupled with Netflix's diverse DVD inventory (and the ease of shipping discs from that inventory to customers, versus the VHS predecessor), combined to 'put the hurt' on Blockbuster.
Blockbuster responded with its Online program, which was fairly successful, but by the time it launched Netflix had already amassed a cadre of loyal customers. I wasn't one of them. I signed up with Netflix when I got my first DVD player but later switched to Blockbuster Online, motivated by lower per-month subscription pricing, multiple per-month free rental coupons from Blockbuster stores, and the fact that the nearest Blockbuster store is only about a mile away.
As its business began to shift percentage-wise from brick-and-mortar to online, Blockbuster had a fundamental problem as compared to Netflix; the fixed cost of all those brick-and-mortar stores. Would the company shutter a bunch of them, I wondered, or would it find a means of justifying their continued existence? As it turns out, the company's response has incorporated both strategies.
Initially, Blockbuster Online shipped DVDs from central warehouses, like Netflix. Now, however, reflective of the fact that all of the remaining stores now (finally) tie into a centralized database, a DVD rental request will ship from a nearby store (and go back to that same store when you drop it in the mail) if the store's inventory contains it. More generally, inventory seems to be more fluid now; you can return a rental to any Blockbuster, not just the one where it originated.
The next step in Blockbuster's justify-stores strategy launched on November 1st. Blockbuster's Total Access program enables you, instead of dropping your rental envelope into the mail, to optionally instead take it to a nearby store. As a result, not only does the next rental in your online queue get mailed to you, you are able to walk out the door of the store with another free rental in your hands. Total Access launched while I was overseas, and when I returned home two weeks later I was bemused to see my wife, normally not an 'early adopter', already enthusiastically taking advantage of Total Access's additional-rental possibilities.
The benefits to the consumer are obvious. There are also benefits to Blockbuster, of course. Total Access is a differentiator versus Netflix. It lowers Blockbuster's postage and processing expenses. And it gets you in the door of a retail store, where you are confronted by all sorts of other profitable-to-Blockbuster temptations, such as purchases of DVDs, popcorn, candy, beverages and the like.
By the way, if you're a Netflix subscriber who's contemplating a switch; now's a good time for a test-drive. Blockbuster is offering free rentals through December 21 if you bring in the address flaps from your Netflix mailers into a nearby store.
