This week, Blockbuster filed for Chapter 11 bankruptcy protection. Under Chapter 11, companies can basically cancel their debts and start fresh under a new corporate name and legal structure, which is exactly what Blockbuster plans to do. They will erase about $1 billion in debt, but will keep their stores, kiosks, and online business open over the next few months while the bankruptcy process unfolds.
Part of that reorganization process will involve closing hundreds of stores; at least 500 and possibly as many as 800 are expected to be shuttered, according to the company. The announcement was no surprise to anyone paying attention to Blockbuster’s problems, since the company announced back in August that they would file bankruptcy sometime this month.
LionsGate majority shareholder Carl Ichan will end up owning a majority of Blockbuster after the reorganization, and CEO Jim Keyes is expected to keep his post. The big change, beyond the financial structure, will be a much greater emphasis on kiosks and online rentals rather than stores.
Blockbuster’s troubles, although significant to the video rental industry, and to anyone accustomed to using their brick & mortar stores to rent movies here locally, are a symptom of a much larger trend that has been equally damaging to many other businesses, and that has provided new, exciting opportunities to other companies. That trend is towards more convenient solutions that allow consumers to shop, enjoy entertainment options, eat, recreate, learn, etc, from the comfort, safety, and security of their own homes.
Blockbuster’s troubles really began when Netflix started offering to mail movies directly to the consumer’s home, rather than requiring them to travel to a physical store location to rent movies. It didn’t help that Netflix was also willing to allow renters to keep movies as long as they like without late fees. After a while, Netflix began offering downloads for movies so that consumers not only could get the movie in their home, but they can access the movie anytime they like, instantly on their television.
Cable companies, such as Cox, are now offering on-demand services allowing consumers to also access movies, concerts, and lots of other content, instantly, with a only a few touches of a button or two. There are also many websites that offer all kinds of content for immediate download, as well as television programs, etc.
Entertainment is only one of the many industries quickly adapting to the developing consumer trend towards what I call cocooning, where more and more, individuals, and especially families, are spending more time in the home, and less time going out and spending money. The restaurant industry, which I have written about recently, is also seeing the effects of this trend. Take-out orders are now accounting for as much as 10% of total restaurant revenues, and that percentage is growing each year, at about 3 times the rate of growth for the overall industry. Companies like Restaurant Revolution Technologies, which I wrote about recently and which offers effective solutions for restaurants to help them process phone-in orders, are capitalizing on this quickly developing trend.
The travel industry is suffering from a combination of the trend towards stay-at-home vacations, terrorist threats, unpleasant airport procedures, increasing airline charges for everything from carry-on luggage to pets, and rising ticket prices. The Consumer Travel Alliance, Business Travel Coalition and American Society of Travel Agents on Thursday delivered a petition to the Transportation Department with 50,000 signatures from consumers who want airlines to spell out fees more clearly. In addition to requiring airlines to fully disclose baggage and other fees, the new rules call for refunds of fees and reimbursement for expenses when bags are lost or not delivered on time. Airlines would also have to give notice when baggage fees are increased, and notify passengers buying tickets whether they must pay to check up to two bags.
The travel industry effort to support government rule changes, called "Mad as Hell about Hidden Fees," began two weeks ago. It claims that fees can boost ticket prices by 26 percent when one bag is checked and by 54 percent when a passenger checks two bags and chooses a seat with extra legroom. The group wants all ticket outlets to have the same information on fares and fees for travelers. More than half of all airline tickets are sold by third parties, such as travel agents and websites like Expedia or Orbitz.
The Transportation Department said Monday that U.S. airlines in the second quarter made $893 million on baggage fees, $594 million from reservation change fees and $618 million from charges for things like frequent-flier sales and transporting pets.
To me, the airlines are shooting themselves in the foot, just like the U.S. postal service, raising fees when new, more attractive alternatives are surfacing for consumers. The latest travel trend is towards the stay-at-home vacation. Many are making plans to take time off of work, only to cocoon in their homes, with the phone disconnected, computer turned off, (except for those movie downloads), no cell phones, and no visitors. I think this trend is not only an interesting commentary on the changing cultural attitudes of the U.S. public, but also a warning for many industries that change is here and they had better adjust, or accept a similar fate as with Blockbuster.
One interesting angle to possibly help explain this trend is the influence of the Internet and technology on our daily lives. More and more, we are opting for virtual interactions in place of actual, in-person contact. Just about everyone I know would prefer to work at home, and to only communicate with their coworkers (if at all) via phone, email, or at best (or worst) by video. The younger generations are even more comfortable with technology, or to look at it from a more negative (and possibly realistic viewpoint), more dependent on it. This would suggest that the future could bring even more reliance on in-home solutions for our daily needs, and even more opportunities for the companies that can find ways to offer innovative ways to entertain us without ever leaving our cocoons.
Shopping is yet another pastime that American love (including me). These days, you have to be crazy not to shop online. I recently bought a new couch at a store in Ventura (not online). It was an impulse purchase, which I regret. I love the couch, but unfortunately, this was one of the few times I have purchased something in recent years without first checking pricing and availability online first. After looking for the couch online, I realized that I overpaid by more than a few hundred dollars, and could have had the couch shipped to my door free of charge (I paid for delivery as well).
Although I am mad at myself for my stupidity, I recognize the bigger picture issue, which is that stores that charge significantly more for items that consumers can find online for less, cannot stay in business relying solely on people like me who make impulse purchases. They will fail. It is inevitable.
There are some businesses that just cannot be replicated online, and those businesses will survive. But I am finding that increasingly, even businesses like hotels that I would have placed in the “can’t be replaced” category are being replaced indirectly, as consumer attitudes and tastes evolve. The take-away for local businesses should be that the trend towards cocooning is here to stay, and will only expand. If the business is at risk due to this trend, owners need to search for solutions to alter their business models to address consumer needs and desires, lest they end up like Blockbuster, searching for a new start in a race that already started long ago.