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Blockbuster Pursuing CE Market Without RadioShack

Based on the results of a six-month test of RadioShack shops in 130 of its stores, Blockbuster is upping the CE quotient in all of its 5,000-plus outlets throughout the United States — without the aid of RadioShack.

The product roster, expected to be in place by year’s end, will likely include DVD players, VCRs, video game consoles, cellular phones and accessories.

Blockbuster’s decision to go it alone in CE follows RadioShack’s announcement earlier this month that it was pulling the plug on the pilot project. According to RadioShack chairman/CEO Len Roberts, the kiosks weren’t generating enough revenue to cover their high fixed costs, estimated at upwards of $300 million for a nationwide rollout.

Blockbuster, however, liked what it saw, and envisions CE as an important profit center that will help offset encroachments by video-on-demand services on its core video rental business.

“Through our work in consumer electronics and specifically our trial program with RadioShack, we were able to gain valuable insights in a very cost-effective manner that will enable us to establish a profitable program selling select consumer electronics that complement our core business,” said Blockbuster chairman John Antioco.

He said the RadioShack offerings included a broader range of products than Blockbuster customers wanted, and that the new program will “offer an assortment of products that are much more closely aligned with our core business and include more name brands than the normal RadioShack assortment.”

Antioco said that in the four RadioShack test markets (Austin, Texas; Las Vegas; Tulsa, Okla.; and Norfolk, Va.), the most popular selling products included DVD and VHS players, mobile phones, surround-sound systems and accessories like cables and connectors.

He added that Blockbuster “can leverage third-party supply-chain arrangements to maximize margins and minimize investment in inventory.”

According to Blockbuster senior VP/corporate communications Karen Raskopf, the move was also prompted by the success of the company’s existing CE efforts, including DirecTV, cables and connectors, and a series of DVD promotions held last summer and during the recent holiday season. Blockbuster has become the No. 2 seller of DirecTV in the 18 months since it was first offered there, she said, and consumer response to the DVD promotions — which included a free Philips player with the purchase of one-year rental card — was enthusiastic.

The company has also experimented with a “home entertainment-centric” offering in its international stores, including Canada where gaming hardware is regularly sold. Also working in Blockbuster’s favor is a trusted brand franchise, its 5,000-plus U.S. stores in high traffic locations, and its “superb distribution system,” Raskopf said.

“The results make us confident that we have a unique opportunity to profitably sell select, key consumer electronics that compliment our core DVD, VHS and video game software business,” she said. “There’s a market in the future for these types of products in our stores.”

The world’s largest video chain will spend the balance of the year examining merchandise mix, price points and developing a program that could put product in place by the end of 2002. Raskopf stressed, however, that Blockbuster is “not envisioning a huge offering — we’re not looking to be a Best Buy or Circuit City.”

She added that although the RadioShack project has ended, both Texas mega chains are “looking at other ways we can work together in the future.”