Blockbuster pursues CE, as RadioShack deal dies - Consumer electronics launch in 2002 - Brief Article

DSN Retailing Today, Jan 21, 2002 by Doug Desjardins

DALLAS -- Video rental chain Blockbuster Inc. ended its store-within-a-store test with RadioShack Corp. this month, while simultaneously announcing plans to launch a narrow line of consumer electronics later this year.

In an amicable parting, Blockbuster and RadioShack said the 130 "RadioShack Cool Things" mini-stores that opened in Blockbuster outlets last June provided valuable consumer data for both chains, but showed the retail giants serve a different type of customer. The stores operated in four test markets, including Austin, Texas, and Las Vegas, Nev., and carried an array of products that ranged from cellular phones to DVD players.

"What we learned is our customers were not interested in the breadth of product RadioShack was offering, but some products sold very well," said Karen Raskopf, senior vp of communications for the Dallas-based, 5,300-unit video rental chain.

RadioShack spokeswoman Kay Jackson said the test was a learning experience. "It showed Blockbuster consumers have an appetite for certain consumer electronics, and sales at Blockbuster don't cannibalize our sales," she said, adding they are working to maintain some type of business relationship.

When the two chains announced their deal in February 2001, the plan was to roll out the store-within-a-store concept to as many as 5,000 Blockbuster outlets over a two-year period if the test was a success.

The decision to end the pilot program came as no surprise to some retail analysts. Deustche Banc Alex. Brown analyst Dan Wewer released a report several days before the announcement that predicted the "plan to roll out the store-within-a-store concept may not materialize." The indicators Wewer cited included a $3 million write-off RadioShack had planned for the fourth quarter for store fixtures used in the pilot program.

Yankee Group analyst Adi Kishore said he was somewhat surprised because of the success Blockbuster had in its ventures selling DirecTV and DVD players, but said the chain's decision makes sense.

"It's not that the test program with RadioShack didn't work," said Kishore. "I think it showed that products directly related to video and DVD rentals will sell better in that environment."

Blockbuster has been dabbling in home entertainment offerings outside of its video rental business since the fall 2000 when it began selling DirecTV service. Last summer, it sold DVD/VCR combo players in 2,000 stores and had great success selling DVD players chain-wide during the holidays. It currently sells video game consoles in its stores in the United King-dom and Australia, and cellular phones in in Ireland.

Though Blockbuster has not discussed what home entertainment products it will introduce to stores later this year, the list will likely include video game consoles, DYD and VCR players, video cables and connectors, and surround-sound audio systems: popular items in RadioShack test stores.

"We're going to focus on home entertainment products that complement our core business," said Raskopf.