When two brands can’t cut the mustard, they might try to make a sandwich
Troubled movie rental chain Blockbuster announced today that it has offered up to $1.3 billion to buy troubled electronics retailer Circuit City. While the announcement of this shotgun sandwich led to a lot of head scratching on Wall Street, Blockbuster said the deal would deliver new customer value in electronics and digital media. The company was a bit short on specifics, but did mention a new combined business based (very loosely) on “digital convergence” and Apple Stores.
Little brand logic behind the deal
Frankly, it’s hard to see any compelling brand logic behind this move. Based on their recent poor performance, the two companies haven’t figured how to sustain deep connections with customers in their respective markets. At best, joining up might deliver some rather “iffy” value streams, like Circuit City upselling movie subscriptions with sales of DVD players. It’s hard to see what new kind of customer this unlikely combo could create. The comparison to Apple Stores is far too stretched to be credible.
Synergies questioned
Indeed, many Wall Street analysts wondered what real “synergies” the deal would produce, and whether these two companies could produce any such synergies.
From Reuters:
‘It’s not quite clear to me what (Blockbuster’s) intentions are, how they would finance it, what’s the strategic rationale for the deal,’ said Dennis Bryan, a partner and portfolio manager with First Pacific Advisors, a Circuit City shareholder.
‘The world is littered with remnants of bankrupt retailers,’ said Michael Pachter, an analyst with Wedbush Morgan. ‘It’s a bad idea.’ . . . ‘Blockbuster has not yet completed its own turnaround. . . . . Circuit City has serious problems and I’m not sure if Blockbuster management has demonstrated it has the skills to turn those around.’
Failure meets fiasco?
Columnist John Paczkowski labeled this proposed buy-out, “failure meets fiasco.”
Like what, exactly, are the synergies between a foundering movie rental chain and a foundering electronics retailer—aside from the fact that they’re both, you know, foundering? If it’s Blockbuster rental kiosks in Circuit City stores, the alliance would seem doomed to failure. Wait. It is Blockbuster rental kiosks in Circuit City stores.
When brands are reduced to “assets”
There’s a large amount of deal making behind the proposed buyout, involving agendas of activist and dissident shareholders on both sides, as the Wall Street Journal notes. In this context, brands play no proactive role in either business. They’re reduced to “assets,” just as customers are reduced to “sales.”
The problem with the asset approach to brands is that if often kills innovation. Brands become part of valuation packages. They no longer create value themselves. Perhaps that’s one reason why both companies are in such trouble to begin with.
