Blockbuster tests smaller store in NYC
Higher financing costs delay further expansion
By Danny King -- Video Business, 5/28/2009
MAY 28 | PHYSICAL: Blockbuster is getting higher sales from a smaller-than-average store in New York City with elements of its upgraded "Rock the Block" theme, though the chain will delay expanding the concept until it can reduce its financing costs, the company's chief said at a shareholders meeting today. The largest U.S. movie-rental chain also is about to launch a new advertising campaign.
Blockbuster's Rock the Block stores include a beverage counter.
The New York store, whose 2,000 square feet is about half the size of a typical Blockbuster location, gets some of the highest sales per square foot in the chain, Blockbuster CEO Jim Keyes said at the company's annual shareholders meeting in Dallas today. The company has opened about 30 larger "Rock the Block" stores, which include a greater focus on electronics, a self-service beverage bar and lower shelving. These are predominantly in the Reno, Nev., area.
Still, the higher cost of financing stemming from a refinancing agreement completed earlier this month will prevent Blockbuster from opening more "Rock the Block" stores until its cost of capital is reduced. The company said in March that it would try to cut costs for at least the early part of this year in order to trim its debt by about $100 million to comply with the new $250 million refinancing agreement, which extends a line of credit more than a year past its previous due date of August 2009.
"Our cost of capital is so high that it doesn’t make sense for us in the immediate term to roll out the Rock the Block stores," said Keyes, adding that the company's cost of capital is "significantly" higher than the 7% to 8% interest rate he called "normal."
Keyes also unveiled a new commercial at the meeting as part of an advertising campaign that's about to launch. The campaign, designed to compete with the online and television advertising blitz from competitor Netflix, also will promote Blockbuster's videogames products and services. The company said yesterday that it will start testing an order-by-Internet videogames rental program at some Ohio stores next month with plans to roll out the service to the entire chain by the end of the year.
Additionally, Keyes reiterated his earlier estimate that Blockbuster, along with partner NCR, will have about 3,000 kiosks in place by the end of the year as the chain tries to compete with movie-rental kiosk leader Redbox. The Blockbuster Express machines will have about double the physical capacity of a Redbox machine, will allow for both rentals and purchases of DVDs and videogames, and will eventually be retrofitted to allow for content downloads, Keyes said today.
