Magazine article American Libraries

Avoiding the Path to Obsolescence: Riches-to-Rags Tales in the Retail Business Hold Lessons for Libraries

Magazine article American Libraries

Avoiding the Path to Obsolescence: Riches-to-Rags Tales in the Retail Business Hold Lessons for Libraries

Article excerpt

Blockbuster was much in the news last fall, though not in the favorable light it once enjoyed. The cultural phenomenon and former stock market darling that once prospered through aggressive marketing, savvy exploitation of technology, and keen insights into customer preferences filed for bankruptcy in September 2010. Though some analysts thought the filing could give the franchise time to reinvent itself, others predicted that the onetime video-rental colossus is steps from the graveyard of retail obsolescence.

There is a lesson or two for libraries in this riches-to-rags story.

In the New Yorker's October 18, 2010, "Financial Page" column, James Surowiecki catalogs a few of the causes of the company's decline. Blockbuster was born in the age of the "category killer": bricks-and-mortar stores that "killed off all competition in a category by stocking a near-endless variety of products at prices that small retailers couldn't match." Many of these establishments are still healthy, Surowiecki explained. But others--Toys RUs, CompUSA, Circuit City, Borders Books and Music, and Barnes & Noble, for example--have either given up the ghost or seem to be in their death throes.

The internet has played an important role in this trend. Newer businesses that were born during the wired era have outplayed their older and less-agile competitors by more aggressively exploiting the advantages of networked technology. This has been especially true in the case of brands operating in well-defined niche markets, such as video rentals. Netflix simply beat Blockbuster's time--soundly. The ease of selection, delivery, and return--coupled with a recommendation system that, though not perfect, is better than the advice offered by the average in-store sales associate--provided a cheaper and more convenient way to access a wider selection of films.

The internet in particular and digital technology in general are key in this game. Because of Netflix's willingness and ability to harness technology, customers no longer needed to drive or walk to a physical store to browse aisles of limited-selection stock arrayed in broad categories in search of a movie for a quiet evening at home, or to experience disappointment that a movie was not on the shelf because another customer got there first or was late returning the item. Further, Netflix's customers are not forced to worry about pesky little matters like overdue dates and late fees.

Convenience above all

Early on in the wired era, Blockbuster seemed to have all the advantages--a strong brand, a great customer base, an experienced workforce, a large inventory, and market saturation via thousands of physical stores deployed across the country. It would have seemed a simple matter to build an effective e-commerce business on top of all this expertise and success in the traditional retail marketplace--"clicks and mortar," many observers thought, the best of both worlds. But this did not happen; in the end, none of the company's advantages mattered, and some of them turned out to be millstones.

Surowiecki attributed Blockbuster's failure to two factors. The first he termed the "internal constituency" problem: "The company was full of people who had been there when bricks-and-mortar stores were hugely profitable, and who couldn't believe that those days were gone for good. Blockbuster treated its thousands of stores as if they were a protective moat, when in fact they were the business equivalent of the Maginot Line." The second problem exacerbated the first: the "sunk-cost fallacy," which stipulates that "once decision-makers invest in a project, they're likely to keep doing so, because of the money already at stake. Rather than dramatically shrinking both the size and the number of its stores, Blockbuster just kept throwing good money after bad."

Blockbuster made an attempt to manage this change, but its past success acted as an anchor rather than a sail because it was not willing to jettison outmoded cargo. …

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