Blockbuster’s Sequel to Success

In what may be the most watched retail turnaround attempt, Blockbuster Entertainment literally is revamping its entire management and operating structure in a high-stakes move to regain market share in the movie-rental and sales arena.

The once-vaunted chain literally hit the technology wall harder than almost any other retailer when factors such as Internet home shopping, instant downloads of movies, pay-per-view and a vast array of other changes—including a rather simple and low-tech new company and concept called Netflix—came exceedingly close to putting the company out of business.

A major part of the turnaround effort has centered on implementing new supply chain processes and solutions that not only cut costs dramatically but will result in customer-service upgrades that compete in the new world of customer centricity and service that Blockbuster must tackle immediately. Many of the major first steps taken in that quest were outlined by Scott Frost, former Blockbuster IT executive and current principal consultant at Frost Consultant Group during the Technology & Operations Store Summit (TOPSS) in Las Vegas in October. TOPSS is produced by Chain Store Age and Retail Technology Quarterly.

In what can reasonably be termed drastic moves to save the company, Blockbuster first undertook a massive end-to-end supply chain revamping initiative that included upgrading its merchandising system and store-allocation system, plus a redesign of its infrastructure. Blockbuster also implemented a new warehouse management system and other distribution upgrades such as automated pick/pack and ship systems. It also undertook a complete business process redesign involving sourcing, order placement and fulfillment, reverse logistics and more.

The results, according to Frost: a 28% reduction in overall U.S. supply chain costs and a five-year plan for ROI that realized 100% in just three years. Without citing specific numbers, Frost said the changes in business processes and implementation of new end-to-end solutions had shaved millions of dollars from store labor costs and shortened speed to market of new products, a crucial step in the hugely hit-driven market in which Blockbuster competes.

While Blockbuster has made strides in significantly upgrading its supply chain performance, the retailer realizes that all its efforts ultimately count only if customers take a different view of the brand—a challenge that represents the next and most crucial hurdle in the company’s turnaround efforts.

To that end, look for Blockbuster to invest in new business-intelligence tools, collaborating with suppliers to share predictive and real-time sales information, to upgrade its online presence dramatically and to leverage RFID technology to open up the plastic movie boxes and make shopping easier and more fun.

Yet even as Frost outlined the achievements Blockbuster has made in the last few years on the back end, a new management team, led by Jim Keyes, former CEO of 7-Eleven (with his former CIO Keith Marrow also coming on board), faces high hurdles to regain its former standing as a must-shop destination environment and one in which fast-rising sales and profit growth are the norm again. If the new team can achieve that goal, it clearly will have pulled off one of the more remarkable and heralded turnarounds today.

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