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Blockbuster Stores’ Stunning Reversal

This post originally appeared in Business Insider

Video rental chain Blockbuster, owned by Dish Network, announced yesterday that it will shutter its 300 remaining U.S. stores.  This closure puts an end to what must rank as one of the most precipitous falls from dominance to irrelevance that has been seen in some time.

In 2004, as it prepared for a spin-off from owner Viacom, Blockbuster was a juggernaut with 9,000 locations.  By 2010 competition from Netflix and others had forced it into bankruptcy (and an ugly, challenging bankruptcy at that).  Now, less than 10 years from the date of its spin-off, the company that defined the U.S. video rental market in the 90s will be gone, with the name living on in a few assorted Dish offerings only.

There are few better illustrations of just how fleeting strategic advantage truly is in a dynamic market.  Blockbuster’s day in the sun was long, but the company was blinded by its success and failed to see the ways in which Netflix and other competitors cut at the very heart of its value proposition.  By the time Blockbuster management recognized their error, it was too late.

And now a brand that rose to prominence by giving consumers more control over their viewing options has been put to rest, killed in part by a failure to see that the video rental store itself was at best an intermediate step toward our current on-demand offerings.  Blockbuster had the resources and the brand to make the leap, but not the vision.  There is a lesson in Blockbuster’s failing for us all.

When Failure is the Best Option

This article originally appeared in Business Insider

The fate of Borders Group appears to be sealed.  The final bidder is a group composed of liquidators Gordon Brothers Group and Hilco.  The stalking horse bid of Najafi Companies fell apart when vendors balked at the resumption of normal terms (imposing an enormous liquidity need to manage the company as a going concern) and other lesser indications of interest from various parties came to nothing.

With 399 remaining stores and 11,000 employees, the economic and human costs Border’s failure are significant.  But this is also a moment to take heart: value maximization has won out, and despite the sinking feeling that I am sure many parties to this liquidation may experience as they dismantle what was once a category-killer, the fact that creditors focused on the numbers in black and white and made the decision that maximized value is a net positive for the U.S. business community and U.S. society at large.

As a turnaround and restructuring professional I have been on the ground at many companies that have been in deep distress.  Lenders furious, trade creditors threatening to stop shipments, talent fleeing for the lifeboats, gallows humor among the executive staff distress.  Skilled turnaround professionals can and have done wonders in these situations.  I have seen (and played a part in) my share of corporate turnarounds, with companies that were seemingly dead revitalized after the trial by fire of deep distress.

But I have also seen the opposite, the value destroyer that is a failure to acknowledge that a company is dead.  With stories buzzing about the latest astronomical social media company valuation or the newest M&A coup, we sometimes forget that companies can, and do, die.  It is not always obvious that a company is dead; revenue continues to flow, meetings continue to be held, but slowly the underlying economics turn, the capital structure becomes untenable, and finally a catalyst (in this case, yet another weak holiday season) reveals that the situation is no longer redeemable.

Yes, the liquidation call (see article, pg 3) is a difficult one to make.  But for a company that is the least bad option.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at: david@abraxasgp.com.