Blockbuster Inc. plans to close 282 stores in the U.S. this year to improve operating margins and expand domestic share, according to a Securities and Exchange Commission filing Thursday.
Blockbuster’s effort to accelerate closures of underperforming and marginal U.S. stores comes as the company is spending heavily to beef up its online-rental business to compete with rival online DVD rental service Netflix Inc.
“Traffic is just not what it used to be when Blockbuster was the big rooster in the hen house,” said Andy Cross, senior analyst with The Motley Fool.
In 2006, Blockbuster closed 290 U.S. stores and transferred a quarter of the revenue from closed stores to surrounding stores, the company said. It expects similar benefits to surrounding stores from the anticipated closures this year.
The company is aggressively seeking a new approach after years of ignoring Netflix, Cross said.
Netflix Inc. has 6.8 million subscribers who pay $4.99 to $47.99 per month to rent DVDs that they select online and are delivered through the mail. Blockbuster ended March with more than 3 million online customers.
“They are finally starting to wake up,” Cross said.
In November, Blockbuster introduced a plan called “Total Access” that gives its online subscribers the option of returning DVDs to a store instead of through the mail to obtain another movie more quickly.
“That’s putting a greater emphasis on our stores. If you look at Blockbuster Total Access, and the way that program works, our stores are becoming more important because of our online business,” Blockbuster spokesman Randy Hargrove said.
The added flexibility has forced Blockbuster — which has more than 5,000 U.S. stores — to invest more heavily in its DVD library, contributing to a $49 million loss in the first quarter.
Blockbuster’s goal is to grow its share of both the store-based and online rental business, Hargrove said.
In a separate SEC filing Wednesday, Blockbuster said it intends to modify its online service “to strike the appropriate balance between continued subscriber growth and enhanced profitability.” The company already has lowered its prices by a $1 per month for customers who agree to rent movies exclusively through the Internet.
“They don’t make any money on the online business, which is a smaller part of their current business, and they’re not going to make any money on that, definitely not this year,” Cross said. “I personally think they will continue to struggle.”
This week, Netflix settled a patent infringement lawsuit against Blockbuster, ending an attempt to thwart the rapid growth of its biggest rival.
U.S. District Judge William Alsup in San Francisco dismissed the 14-month-old case Tuesday at the request of both companies, averting a jury trial scheduled to begin in September.
Shares of Blockbuster fell 4 cents to $4.16 Thursday.
