Rich Fiscus
7 Jul 2008 15:18
Blockbuster has decided to back away from their earlier plan to buy Circuit City. The offer, made more than two months ago, was always contingent on a review of the ailing electronics retailer's books. Apparently they didn't like what they saw and retracted the offer.
With this deal at an end the apparent next step for Blockbuster is figuring out if there's another similar company worth buying. Blockbuster's interest in Circuit City was predicated on the belief that their brick and mortar video rental operations are in need of a presence in a more traditional retail setting. They've already been working on kiosks for transferring video directly to portable media players and flash drives.
"We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand. We will pursue this strategy through our Blockbuster stores as a way to diversify the business and better serve the entertainment retail segment," said Jim Keyes, Chairman and CEO of the company.
The problem is the increasingly tight profit margins for consumer electronics. Even Best Buy, the undisputed heavyweight champion of US brick and mortar electronics specialty stores, faces slimmer margins as video game console sales grow and demand for other products like DVD shrinks.
Meanwhile chains like Wal-Mart are able to thrive on the same products. They actually thrive on the lack of diversity among console models because it because they fit nicely into a small electronics department. Lower profits per unit also benefit retailers with more varied products since they can offset low margins in one area with high margins in another.