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Blockbuster might close 20 percent of its U.S. stores


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POSTED: Wednesday, September 16, 2009

SAN FRANCISCO » Blockbuster Inc., which has 22 stores and about 220 employees in Hawaii, might shut down as many as 960 stores nationwide by the end of next year, shedding more dead weight as the struggling video rental chain tries to reverse its losses and fend off rapidly growing Netflix Inc. and Redbox.

The cuts outlined in documents filed yesterday would leave Blockbuster with about 20 percent fewer U.S. stores. The previously confidential documents didn't name endangered stores.

Blockbuster hasn't made final decisions on the possible store closures, Chief Executive Officer James Keyes said yesterday.

Keyes described the closures as a possibility as Blockbuster sets up more DVD-rental kiosks in the stores of other merchants — a concept popularized by Coinstar Inc.'s Redbox.

Blockbuster hopes to have 10,000 kiosks nationwide by mid-2010; it had just 500 at the end of August. “;We could have fewer physical stores and still have more rental points for our customers,”; Keyes said.

Blockbuster's shift serves as another reminder of video stores' waning appeal as consumers buy and rent movies through the mail, on the Internet and through cable connections and stand-alone kiosks.The shift has threatened to turn Blockbuster into a dinosaur.

The Dallas-based company has been trying to embrace the other technologies, but that hasn't been enough to justify keeping so many stores open, prompting consideration of much deeper cuts to save money and keep lenders happy. About 18 percent of Blockbuster's stores are no longer making money, according to the documents filed with the Securities and Exchange Commission.

Blockbuster is thinking about closing 810 to 960 stores before 2011, up from the 380 to 425 stores that normally would be closed during that time span, according to the filing.

As of mid-August, Blockbuster had closed 276 stores. If Blockbuster hits the high end of its target for store closures, the number would represent 22 percent of its 4,356 U.S. stores.

Blockbuster also indicated it will convert at least 250 stores into smaller outlets; however, Randy Hargrove, a spokesman for Blockbuster, said specifics have not been worked out.

“;Our goal is to close as few stores as possible,”; Hargrove said. “;And, we'll try to transfer as many employees as we can to other stores.”;

Netflix's DVD-by-mail service, launched a decade ago, has hit Blockbuster particularly hard as more households have embraced the concept of picking out their rental choices online for mail delivery. Redbox also has been hurting Blockbuster with its kiosks that rent DVDs for $1 per night.

In a research note yesterday, Barclays Capital analyst Douglas Anmuth said Blockbuster's accelerated store closures should bolster Netflix. Investors seemed to agree as Netflix shares surged $1.58, or 3.7 percent, to $44.86.

Blockbuster's cost-cutting plans also pleased Wall Street as its shares gained 9 cents, or 6.8 percent, to $1.42.