More than 4,000 jobs at risk after Christmas woe but analysts say video rental chain failed to keep up with the competition
The Blockbuster video rental chain became the third major high street casualty in a week on Wednesday, collapsing into administration and taking the total number of retail jobs at risk to 10,000.
The demise of Blockbuster’s UK arm, which began in 1989 with a single shop on Walworth Road in south-east London, comes after the collapse of the music store HMV and camera specialist Jessops, and adds 4,190 workers to those who face losing their jobs.
Blockbuster will remain open while its administrator looks for buyers, but its 528 outlets are among an estimated 1,400 shops that face closure.
As consumer anger mounts over HMV’s decision not to allow customers to redeem gift vouchers sold over Christmas, Blockbuster has promised to honour gift cards and credit acquired through its trade-in scheme, where movies, games and consoles can be exchanged for future purchases.
Without the expense of running stores, online rivals such as Amazon, Netflix and Lovefilm have eaten into Blockbuster’s profits by sending films through the post. More recently, the 7m internet devices that are now in British homes, from tablets to computers and games consoles, have seen video downloads take off.
“This has been the worst Christmas period on the high street in living memory,” said Glyn Mummery at the insolvency specialist FRP Advisory. “The new age of online retailing has caused a bloodbath in the electronics and entertainment markets for old-school retailers.”
Shopping centres will be hit hard by the retailers’ demise. According to the Local Data Company, the Broadway in Ealing, west London – which is home to five outlets belonging to the three companies – could be hit hardest by their demise.
January is a favoured month for banks to pounce on struggling businesses, while their tills are still full with Christmas takings. Retailers in electricals have been hit too – Comet’s collapse in December followed by the closure of four Sony Centre shops in the east Midlands last week.
“Blockbuster’s demise is inevitable,” said Ian Maude at Enders Analysis.
“Why would you go to a store for a frankly limited selection of films when you can browse Netflix for any film that’s ever been released, or watch it on Sky or Virgin?”
Founded in Dallas by the software entrepreneur David Cook, Blockbuster rode the VHS wave to open up a world of home viewing to cinema lovers in the 1980s, but it failed to adapt to changing times, to offer DVDs by post and downloads.
The global Blockbuster business filed for bankruptcy in 2010 and was sold at auction to the satellite broadcaster Dish Network in 2011. A spokesman said only the UK arm was affected by Wednesday’scollapse into administration, with the businesses in the US and other countries continuing to trade.
“In recent years Blockbuster has faced increased competition from internet-based providers along with the shift to digital streaming of movies and games,” said Lee Manning at the chain’s administrator, Deloitte.
Blockbuster did begin offering films to rent online from 2002, and continues to control more than 37% of video disc rentals, according to the British Video Association, but just 5% of those rentals are via its website.
In the UK, it was the last major video chain left standing, after others such as Apollo and Global Video faded. But it has been overtaken by Lovefilm, which now controls more than 40% of the rental market.
“It is shocking that the board and executive management failed to make bold choices,” said Ajay Bhalla, of Cass Business School. “When Amazon and Netflix were evolving, they had the muscle and the brand to match them. But they continued to run the business as usual.”
The UK group was still making profits in 2010, its most recent accounts show, but its revenues fell by more than £30m in a year to £231m, and profits before tax shrunk to £1.7m from £4.6m the year before.
Despite this, rewards for the highestpaid executive – the managing director Martin Higgins is the company’s most senior person in the UK – rose from £253,000 in 2009 to £613,000 in 2010. A spokesman said the firm was now trading at a loss.
“The big question is how many more retailers are struggling out there to the point of administration?” asked Matthew Hopkinson, Local Data Company director. “Those who are not will no doubt be looking to reduce their store numbers.”
He predicted that the national shop vacancy rate will rise to an all-time high of nearly 20% if all the stores belonging to collapsed retailers are not reoccupied.