Miscellaneous Musings – The Growing Influence of the Digital Age on Retailers

 

I couldn’t help but make a connection between three articles I read just recently. One article was about the woes of Blockbuster Video, the second was about the woes of Barnes & Noble, and the third was about the growth of video retailer, Redbox.

 

For the second quarter 2010 Blockbuster Video reported total revenue of $788 million. This was a decrease of nearly 20% from second quarter 2009 which saw total revenues of $982 million. During the same period, net losses went from $37 million to $69 million, an increase of about 87%. This has led to a downgrade in Blockbuster’s long-term issuer default rating.

 

Meanwhile, Barnes & Noble is fighting off a proxy battle with grocery store magnate Ron Burkle, and has recently announced that it is up for sale.

 

What is behind these three stories? Digital media. About a year ago I bought a Samsung Blue Ray DVD player with a feature that lets me connect to my wireless router. With a push of a button on the remote I can connect to my Netflix account and have access to hundreds of movies, documentaries, and TV shows. I no longer have to endure the hassle of going to my mailbox to retrieve a video, putting it back into the self addressed postage prepaid envelope and walking it back out to the mailbox when I am finished. And forget about driving to a video store!

 

While Movie Gallery and Hollywood Video are now defunct, along with most of the mom and pop video stores, Redbox is springing up to take over a niche market. You may have seen them on your way in or out of the grocery store. For only a dollar you can rent the latest films. The entire Redbox kiosk occupies about five to nine square feet reducing the real estate cost to next to nothing when compared to a Blockbuster. And, there are no employees to deal with other than the delivery driver who stocks the videos. Redbox recently had their billionth movie rental.

 

Barnes & Noble is adapting to the digital trend by offering e-books both online and through their brick and mortar stores. You’ve probably seen people reading their Kindles and iPads. No longer will people have to order a book that isn’t in stock and then come back a week later to pick it up. Digital is never out of stock, and an entire library is reduced to a hard drive.

 

Barnes & Noble recently announced they will be investing approximately $140 million in the next year to market their digital offerings.  That portion of its business has grown from 0% of market share in June 2009 to 20% one year later. The company predicts that digital sales will represent 50% of its total revenue and 75% of its total profit by the end of 2011. Meanwhile, Barnes & Noble has closed a 61,000 square foot space in New York, to be occupied by high-end discount department store retailer Century 21.

 

So, while Barnes & Noble and Blockbuster may be closing stores, Best Buy continues to expand. After all, you have to buy those digital media readers and accessories somewhere. 

 

I couldn’t help but make a connection between three articles I read just recently. One article was about the woes of Blockbuster Video, the second was about the woes of Barnes & Noble, and the third was about the growth of video retailer, Redbox.

 

For the second quarter 2010 Blockbuster Video reported total revenue of $788 million. This was a decrease of nearly 20% from second quarter 2009 which saw total revenues of $982 million. During the same period, net losses went from $37 million to $69 million, an increase of about 87%. This has led to a downgrade in Blockbuster’s long-term issuer default rating.

 

Meanwhile, Barnes & Noble is fighting off a proxy battle with grocery store magnate Ron Burkle, and has recently announced that it is up for sale.

 

What is behind these three stories? Digital media. About a year ago I bought a Samsung Blue Ray DVD player with a feature that lets me connect to my wireless router. With a push of a button on the remote I can connect to my Netflix account and have access to hundreds of movies, documentaries, and TV shows. I no longer have to endure the hassle of going to my mailbox to retrieve a video, putting it back into the self addressed postage prepaid envelope and walking it back out to the mailbox when I am finished. And forget about driving to a video store!

 

While Movie Gallery and Hollywood Video are now defunct, along with most of the mom and pop video stores, Redbox is springing up to take over a niche market. You may have seen them on your way in or out of the grocery store. For only a dollar you can rent the latest films. The entire Redbox kiosk occupies about five to nine square feet reducing the real estate cost to next to nothing when compared to a Blockbuster. And, there are no employees to deal with other than the delivery driver who stocks the videos. Redbox recently had their billionth movie rental.

 

Barnes & Noble is adapting to the digital trend by offering e-books both online and through their brick and mortar stores. You’ve probably seen people reading their Kindles and iPads. No longer will people have to order a book that isn’t in stock and then come back a week later to pick it up. Digital is never out of stock, and an entire library is reduced to a hard drive.

 

Barnes & Noble recently announced they will be investing approximately $140 million in the next year to market their digital offerings.  That portion of its business has grown from 0% of market share in June 2009 to 20% one year later. The company predicts that digital sales will represent 50% of its total revenue and 75% of its total profit by the end of 2011. Meanwhile, Barnes & Noble has closed a 61,000 square foot space in New York, to be occupied by high-end discount department store retailer Century 21.

 

So, while Barnes & Noble and Blockbuster may be closing stores, Best Buy continues to expand. After all, you have to buy those digital media readers and accessories somewhere.