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The High Street as we know it is being brutally and violently gutted by a big bully called Administration. Household names are toppling like badly placed dominoes; what’s to blame — the recession, the internet, or all of us just being scrooges?
Blockbuster is a good case in point of a business model that got crushed by the internet. For those of you who’ve lived in a cave or something for the past 20 years, before it went bust (*sniff*), Blockbuster rented DVDs and games to people. If you’re planning a date, a night in or a day skiving off work, you pop down to the local ‘buster and pick up a DVD or three, and then return them five days later. Simples, really.
At the heart of this business model is convenience. Fundamentally, Blockbuster wasn’t all that different from a tiny little corner shop — it might not have the greatest product range, and it might not have the cheapest prices, but because it’s close to home you go there anyway.
Sadly, when video-on-demand (and especially streaming services like Netflix and Lovefilm) became widely available, Blockbuster was stuffed. With the internet, Blockbuster’s convenience advantage was well and truly nixed — it’s a lot easier to mash a couple of keys and get a video that way than trekking down to your local video store.
The problem is, that once Blockbuster lost its unique selling point (the convenience), it didn’t really do anything to re-invent itself. Running a real bricks-and-mortar chain is expensive, but often worth it if you can get an advantage on your internet competitiors by running the aforementioned physical stores. Blockbuster didn’t get an advantage; it was just pissing money down the drain, doing exactly what iTunes and Amazon were doing, but at far, far greater cost.
On the internet, there’s no prize for second-best. No one uses MySpace, because Facebook is a better service with more people on it and better functionality. (And, cue the fanboy arguments.) Equally, there’s absolutely no reason for eager movie-goers to use Blockbuster when there’s a simple (and better alternative) in iTunes. Back to my analogy of the corner store, and the internet’s moved my imaginary Blockbuster-corner-shop — whereas before it had a nice little local monopoly because it was the only thing close to your house, now the corner shop is sitting right next to a couple of massive (virtual) supermarkets in the shape of Apple and Netflix. In this case, consumers have jack-all reason to go to the piddly little corner shop (Blockbuster) when they can just as easily go feast on the entertainment delights of iTunes or Netflix.
This is a concept that traditional businesses with internet competitors are failing to grasp. In the world of physical shopping, you can build a store, and even if it’s not the absolute best, you’ll still get at least some customers, because it’s closer to their house or something, and they might be ignorant of the superior store down the road. On the internet, you’ve got easy access to every store and service, and services like Google Shopping finding the cheapest price for you. It’s a cut-throat place, business on the internet. If you don’t give customers a really good reason to use your service, you’re screwed.
And this is what’s happened to the physical stores. As they’ve started to experience competition from the internet, they haven’t totally stood still — Blockbuster launched a DVD-by-mail service way back in 2002, HMV launched a web store in 1999 and Jessops have been doing mail-order for zonks. But it just isn’t enough for a physical chain to simply put an extension of itself online — it’s the worst of both worlds: the cut-throat world of internet retail with the massive overheads of running a chain of stores.
Sure, you can have stuff like “click and collect” that keeps some of the convenience of a brick and mortar store, but that doesn’t work for places like HMV and Blockbuster, because most of the time they’re not competing to put a physical product in your hand — they’re competing to get media onto one of your electronic devices, and like it or not, tacky high-street stores aren’t the best way to do that anymore.
So, what should HMV and Blockbuster have done to stay afloat? Truth be told, I suspect Blockbuster would have been in a better place had it ditched physical stores and moved to purely online streaming. A few years back, it had (still has?) a reputable household brand, a fair bit of cash, and most importantly, good relations with the film studios. Had it busted out an awesome online store in the mid-Noughties, with the emphasis firmly on rentals of recent releases, it could well have survived. Apple, Lovefilm and the like might dominate video-on-demand now, but a few years back when Blockbuster moved into online services, there was still room for a competitor to the big bullies.
As for HMV, I reckon simple divide-and-conquer would’ve worked — split into two parts: an online store, aimed at selling dirt-cheap CDs, DVDs and digital downloads; the physical stores would reduce their CD range dramatically, and move more towards a purveyor of audio technology, and all that quirky hipster stuff like posters and actual physical vinyl records (which are still awesome, by the way).
Although I’m a little bit sad to see HMV go (from a purely sentimental standpoint), the move towards online retail is good for the average chap. The internet allows the market to perform like a capitalist market should, with the sort of perfect competition that economics professors have wet dreams about. Sadly, if long-standing physical stores want to stay afloat, they’re gonna have to learn some new tricks real quick.
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Good article.
With Blockbusters its funny how they have become the “small business”. I remember when they first starting popping up around the UK putting the local video stores out of business. Often the local indi store would have a much better feel inside but no matter blockbuster always won in the end. The boot is deffo on the other foot now.
“good article” was my first though too, I even scrolled back up to find out who wrote it.
In my opinion a lot of the high street’s problem lies in residential property.
Residential property prices in the UK are dramatically inflated by people investing in property (and the banks ignoring people defaulting on their mortgages), which has had a knock-on effect on the price of commercial property.
The problem is, the residential prices can be supported, for the moment, as everyone needs a place to live and if you can’t buy it, you’ll have to rent it.
Commercial landlords, and property valuers need to realise that whilst population is ever increasing and housing demand booming, the physical retail sector is dropping. They need to lower rents and commercial land prices, to make the High Street viable again.
The only problem being, the market is now so messed up and skewed, that cheap commercial property would be bought up and converted to housing, probably with the government’s blessing.
The government banning investment in an essential thing like housing is, in my opinion, the only thing that can change the fate of the High Street and property in general in the UK.
Couldn’t agree more. The convenience of buying online compared to leaving the house and going to a physical shop goes without saying. Even the cost of getting to a city centre or parking there is outrageous these days…. £10 for 3 hours parking in Newcastle upon Tyne.
The price of renting an army of huge individual city centre retail spaces must be astronomical, a cost constantly chipping away at your profit margin. This is a cost Internet-based companies can avoid completely, as they can be based in a cheap, single warehouse, well out of town. I’m convinced this is the factor that makes all the difference.
Keep ahead, adapt with changes or die. Simple really if you think about it. (This applies to Sony and Panasonic as well)
Just to further elaborate on your article. Take LoveFilm. OK, we ridicule it for not having the best or latest selection of films for on demand BUT (and this is the big BUT) I think it would have been in a similar position to Blockbuster had it not decided to go the instant route.
They had the foresight to see that physical media was on the way out, so looked at furthering their proposition so that now their business model is split (just like Netflix in the US) and eventually, the physical rental side will just diminish altogether.
Blockbuster and HMV did not see that or invest enough in that side of things so got left behind.
What you say is true, and everybody’s best guess is that Internet channels of various types will replace the way we get TV, movies and games EVENTUALLY. That said, it’s very hard to predict the future, especially when it comes to the uptake of technology. I guess HMV were just playing it safe; It’s not as if HMV didn’t have a website and online services, they just decided to keep hundreds of physical stores open on the high street too.
When I was last in HMV there were plenty of people looking around and queuing to buy things, so I wouldn’t say physical media is dead just yet as some people simply don’t (and never will) understand Internet-based streaming and download services. I’ve found that buying physical CDs online is cheaper than buying the MP3 version of the same album, with the added bonus of having a physical backup copy of the album and much better sound quality… But that’s me, and I’m not an iTunes user.
However, on a very personal level, I’ve recently been very frustrated by HMV. I wanted to buy the Alien Anthology blu-ray from HMV about a year ago as I had an HMV gift card to use. They said they had it in stock, as you’d expect in a huge HMV, but when I went in to buy it they said it’d been stolen from the warehouse. It then took weeks to order another copy in, and I repeatedly reminded them it was “In stock” on their website.
After this sort of experience it’s a wonder anyone ventures into a town centre to buy physical media, given the wealth of online stores which have everything imaginable in stock.
I’m not that different from you. I still support buying physical media. I have a Blu Ray player and I think the quality is still superior, for now and especially compared to some of the so called HD that gets streamed.
Music less and less so, year by year I notice notice how litle physical media I buy for music. The last time I did, it just went into the computer, got converted to MP3 and it’s been sitting there since. As a side, Amazon has got it right with their new buy the cd and get a digital copy. Now think about it, if HMV had this vision, maybe things would be different.
I think that is a great bridge between physical and digital media, but I know companies would just rather make the money twice instead of giving 2 mediums for the price of one. I mean take magazine and books. Why cant you get the digital version for free or for a little extra? It boils down to revenue (ok its more than that, but thats the crux of it)
In business, the ones that succeed are the ones that takes risk. OK sometime it doesn’t work, but if it does you have a big slice of the market to yourself for some time.
It’s pretty unlikely that HMV won’t survive their administration. GAME fell into the same problems last year and is still ticking over. The fact is that the industry will want HMV to survive and one way or another, credit deals will be worked out/the business will be sold and the company will continue (likely with a heavily reduced number of stores).
What HMV (or its new owners) need to do is take heed that not taking the online side of their business seriously will lead them down this path again. I don’t feel that GAME really has cottoned onto that, and instead has moved their business further into being a pawn shop for trade-ins.
Competitively running an online store against Amazon would be HMV’s saving grace, and they should be making every effort to move towards that place.
Especially with play.com leaving the stage.
It also wouldn’t hurt HMV to at least sort themselves out as an online distributor of UltraViolet content (and to push it more in store). It’s a solid compromise for stores and users in giving people a physical product, but also easy access to a digital stream of said product. (And far more realistic than expecting a full on brand new Lovefilm/Netflix streaming service).
To be fair, a bunch of the Blu-Rays I bought in there for Christmas pressies are tied in with UltraViolet — it’s just that a fair few people just don’t need the physical discs any more
Ideally, if you were to purchase an Ultraviolet product from HMV digitally, they should ship you the physical disc for it too. (Under the assumption they were distributing the digital media). It’s a bit unfortunate for the standard that it’s a one-way street.
HMV probably wouldn’t do it, though, given that Tesco (one of the main forces behind UV) don’t – and they could at least afford to!
I wonder if it’s actually a certain mount of hubris from their management, thinking that past years are an indicator to future successes without paying much attention to grand changes in the market or otherwise being unable to manage a transition to take advantage of new developments.
Maybe throw in middle-aged/baby boomer luddites that are probably as ignorant about their actual product as they are about their online competition that basically run everything in the Western world because they are squatting on the top jobs and not allowing younger, more adaptive people to rise up the ladder.
It goes hand in hand with the concept that companies you’re interviewing with can be “afraid” of seeing a wealth of experience on your CV, because it can only mean you’re after their jobs in the end.
Corporate management is an old boys’ club, and failures like this are the only possible way to shake that up.
Come on, it’s not like HMV and Blockbuster at their height could not afford to hire developers or a software house to build their own on demand model. I mean take BlinkBox, those guys started off very small, but once again they smelt the tide turning towards on-demand, and even though they are still relatively small compared to Amazon/Netflix/Itunes, they’ve got enough customers for a viable growing business.
This was copied from a facebook comment I read, the writer of this comment is a well-respected hardcore / hard dance engineer who ran a record store back in the day. Might help to assuage any feelings of guilt or regret over the closing of HMV.
“HMV have been killed off by being undercut ruthlessly by Amazon and others. It’s very ironic as they had a no vinyl policy in the early 90′s. They turned their back on it and went out of their way to undercut independent stores. In the case of where I worked, we had some of the biggest sales in the country. They would come in and copy our sections for labels we knew about and then undercut us. Noom, Tinrib, etc. We had to stop doing sections like that so that they couldn’t copy us. They also bought things sale or return just because they were big and that way they could stock whatever they wanted and just return it if it didn’t sell, where the regular shops could not. So to sum up. HMV have had every opportunity to get it right. Sale or return records and destroying the indy shops as well. It is sad we cant buy on the high street but they should not be viewed as some kind of ‘nice’ or ‘keeping it real, last ones standing’ store.”
Re: the Amazon/HMV argument – HMV Canada, under different management, is doing stellar this year, and they have to contend with vastly better Amazon.com/Amazon.ca rather than its poor, neglected UK cousin.
The real problem is not the internet for the most of the stores listed (apart from Blockbusters).
For the others, about 5-10 years ago they trapped themselves through greed and bad planning. When retail spend was up and people had money in their pockets, these companies expanded the fastest way they could i.e. by taking out lots of property leases. These property leases are generally long term deals lasting 10 to 25 years and the amount to paid each term is set at the beginning of the lease and based on the values at the time. If the landlords were to price those properties now they would have to set their lease a lot lower because the foot fall and spend is down.
Skip 10 years on and the likes of Jessops, Comet and HMV know they have to scale back their operations and move more online, but they cant. The landlords are holding them to their 10-25 year leases. As a result they can either carry on running the shops making a loss or they can close the shops they dont want and still have to pay the full rent and rates on them.
If they were able to dump these properties, and down scale their operations, each of them would have done so and they would still be a viable business today.
ahh blockbuster blockbuster. what a dead company its been for 5 years. me and my partner we went to one a few weeks ago. DEAD. he only wanted to look at films but i was too creeped out.
Another factor is poorly trained highly unmotivated staff that don’t really give you that service that make you feel loyal to the shop. Coupled with high prices its not a great shopping experience. Also we are now spoilt for choice with online shopping various vendors and unlimited items.
I think I must be the only person under 35 who still uses the High Street. I don’t want to have to wait a fortnight to find the time to go to an industrial estate in the crappy party of town to collect my parcels. Some of us aren’t lucky enough to have a desk to get things delivered to at work.
Evolve or die, that is rule to business! Blockbuster had the finance to do what Lovefilm did, just not the brains to do it first. Shame for the staff who lost their jobs.
I think this is really sad. There’s a Blockbuster not too far from my house, and I’ve been going there since I was little. The staff are always lovely in there and their selection is pretty decent.
The thing is that I don’t care about their movie selection really. I mean streaming movies online outstrips them completely but there’s one area where they do have the leg up in my opinion: games. No-one else really rents games like they do. You go down to one of their stores, and you can grab a game straight away and keep it for a few days. The internet won’t be able to kill that; game demos really aren’t the same thing and getting a game in the post just isn’t instantaneous like Blockbuster. It’s sad because it really gave you the chance to try a game out fully before you decided to buy it. You can’t really get that anywhere else.
Luckily, I went down to my Blockbuster the other night and their one is one of the few profitable stores. The staff said they should remain open (much to my relief). If they did shut down they I’d be more than a bit upset.