Blockbuster leaps into hardware sales - company adds Playstation 2 video game consoles to store merchandise - Brief Article - Statistical Data Included

DSN Retailing Today, Feb 25, 2002 by Doug Desjardins

DALLAS -- Blockbuster Inc. made a major move into the consumer electronics hardware market earlier this month by adding the Sony Playstation 2 game console to the merchandise mix in 3,000 of its U.S. stores. It is the company's first large-scale merchandise endeavor beyond the software trade.

Although this evolution toward hardware retailing did not come as a surprise to most in the industry; the magnitude of the deal demonstrates Blockbuster is entering consumer electronics on a scale that's greater than most had anticipated. During a Feb. 12 conference call with analysts, chairman and ceo John Antioco mapped out an agenda for the chain that includes doubling its video game revenues in the next two years and making consumer electronics a staple of its product mix. As part of this initiative, Blockbuster also plans to sell consoles from Nintendo and Microsoft in an effort to become a one-stop destination for home entertainment, Antioco said.

"During the coming months, we will be testing different consumer electronics offerings in our stores to create a model that works best for us," said Antioco.

Blockbuster started down this road on Feb. 15 when it introduced Playstation 2 to 3,000 of its 4,400 domestic stores. The chain also plans to add Nintendo's GameCube and Microsoft's X-Box consoles to the mix in the coming weeks. A Blockbuster spokesman said there is no firm date for when this hardware will arrive in stores.

Adding game hardware is part of an effort to capitalize on the booming video game market, which generated a record $9.4 billion in revenue last year. Antioco said the goal is "to grow the game business from what is currently 10% of our business to 20% by 2003," adding the effort may include opening stand-alone video game stores.

This move is also part of a larger plan to make sales of consumer electronics a standard part of its business. Blockbuster and RadioShack teamed up last year to test a store-within-a-store concept in 130 Blockbuster stores, but pulled the plug in January when they determined it was not cost-effective enough to warrant a chainwide rollout.

But Antioco said the test showed customers were interested in buying consumer electronics related to its core business, such as surround sound audio systems and accessories, such as video cables and connectors. Further evidence was provided during the holidays, when the chain's experiment selling DVD players produced better-than-expected results.

"We've demonstrated an ability to sell additional entertainment products in our stores," said Antioco. "And we're moving ahead with a plan to carry a limited number of entertainment-centric products." He noted sales of consumer electronics for Blockbuster worldwide topped $80 million in 2001, largely as a result of sales in markets such as the United Kingdom, Ireland and Australia.

Though its move into video game hardware was quicker than expected, it makes sense to analysts who track the chain. "This is just the next step beyond its RadioShack deal," said Michael Goodman, an analyst with the Yankee Group in Boston. "And it doesn't require a huge effort because all they have to do is clear some space in the video game section and display the consoles."

But while Blockbuster had great success selling DVD players during the holidays, it remains to be seen whether it can duplicate that success with game consoles during the regular buying season. "The challenge is going to be getting consumers to go there and buy them," said Goodman. "But at least they already have the core audience in their stores."