Blockbuster Video: A Cautionary Tale for Bankers

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At least once a week, I'll find myself ranting about how kids today have no idea what it was like "back in the day."

That said, I don't think the stories I'll be able to share with future grandkids are nearly as impressive as my grandparents' were. My grandfather told stories of heading into the woods as a boy to hunt for their dinner each day. Telling future grandkids about how my generation roughed it before cell phones, email, GPS and DVRs doesn't carry quite the same frontiersman aura.

After reading last week that Blockbuster was closing its remaining 300 stores, I kidded with a banker group I was addressing that we'll one day have to explain to kids what video stores were.

One of the last surviving stores was just a few miles from our home. We visited that store only once or twice a year. Then again, that's no less often than we tend to visit a bank branch these days.

It's already easy to forget how large the video store industry was and how dominant Blockbuster had become. It's also pretty amazing to think that the Blockbuster saga – from first store opened to last store closed – took a mere 28 years to play out.

I know banks with carpeting older than that.  

At its height, there were 9,000 Blockbuster locations with almost 60,000 employees. A new store opened about every 24 hours. Their distribution system was as automated and impressive as any retailer's system.

And Blockbuster's ability to stock stores with movie titles geared toward individual neighborhoods' demographics was the envy of marketers everywhere. Their brand awareness was absolutely one of the highest of any retailer in the country.

Over the last few years, I've included a slide of a Blockbuster store in many banker presentations. This particular store had a sign in front that read, "Store Closing. Thanks for the past 15 years."

That slide tends to elicit both chuckles and a few "Aw … that's sad" responses from audiences. I then point out that I'm willing to bet the store in that picture was being run as efficiently as it had ever been run in the months leading up to closing.

Blockbuster operators didn't forget how to run a store. The product selection was as well-targeted as ever and there were more peripheral items to buy or rent in their stores than ever.

And yet over these last few years of using Blockbuster as a cautionary tale for all of us, I've found more than a few folks tending to be pretty dismissive of that idea. I mean, hey, Blockbuster's mistakes were obvious, right?

They should have acted earlier and more aggressively in the DVD-by-mail channel when Netflix challenged them! They should have committed to vending machine distribution when Red Box came on the scene! They should have … (Insert example of hindsight strategic genius here.)

When trying to pound the point a bit, I suggest to some groups that we shouldn't be too smug. At its peak, Blockbuster was more successful at what it did than most of us are at what we do. And they were better positioned in their industry than most of us could ever hope to be in ours.

But when walk-in stores were no longer the preferred channel of a significant percentage of video consumers, tectonic shifts occurred in their industry. And the very stores that were just yesterday a competitive advantage rather quickly became an albatross. That type of chain of events is one that bankers need to be especially on guard for.

It's a safe bet that some of the individual stores remained profitable. Was there an optimal size somewhere between 300 and 9,000 stores that would have been a sweet spot for the company? Did clinging too long to a once-dominate model prohibit the company from making the changes necessary to compete in a transformed industry?

I suppose intelligent folks can debate and agree to disagree. But it's almost always easier to spot the obvious strategy failures of companies outside of our own. And hindsight remains 20/20.

One of the reasons geneticists use fruit flies in their research is that their life cycles are short enough to easily study from start to finish. With all due respect to a once-great company, I'd suggest that Blockbuster can play the role of fruit fly for (slightly) slower-evolving industries, like banking, to learn from.

There are many reasons to believe that branches will continue to play a critical role in how and why consumers choose a bank for the foreseeable future, even as branch transactions decline. But the optimal size, location, and functions of branches in the next decade will assuredly be different than in the last.

The next chapters of the financial services book are being written. Whether our institutions will be success stories or cautionary tales will ride on the strategy adjustments we make – or fail to make – in the very near future.

Dave Martin is an executive vice president and chief development officer at Financial Supermarkets Inc., a Market Contractors subsidiary that offers design, construction, consulting and training services for retail banking programs. He can be reached at

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