First Blockbuster stores begin filling void left in wake of KPS failure

BLOCKBUSTER Video Hong Kong's managing director John Skinner has never set foot in an operational KPS store. Yet as the man in charge of the business that acquired KPS, he is entrusted with succeeding where KPS infamously failed.

'We feel very confident we have a good chance of success,' he said. 'We have 27 markets' worth of international experience.' A newcomer to Hong Kong, Mr Skinner had little time to prepare when Blockbuster beat 15 other bidders to acquire the assets of the SAR's home-grown video chain after it went into liquidation in October.

Blockbuster had been looking for a way to enter the Hong Kong market for some time - the opportunity with KPS was just what it needed.

'I can't say KPS kept us out of this market, but KPS gave us the opportunity [to enter],' he said last week, after the first two Blockbuster stores opened in Shatin and Kwai Fong.

Trade was brisk at both, with more than 4,000 people signing up for membership the first week.

A further four stores are due to open this month in Central, Wan Chai, Ngau Tau Kok and Aberdeen and another nine in March.

Blockbuster has made changes to the format: computer software is coming off the shelves, while snacks, drinks and Danish ice cream will be available.

The library of back titles is to be expanded, and retail sales will be given far lower priority than they had in KPS stores - by the time KPS collapsed, about half of the stores were given over to retail sales.

Perhaps the key change is the scale of the business. Blockbuster has chosen to open just 15 stores initially, down to pre-1997 levels for KPS, which had 38 stores in operation when it bowed out of the home entertainment business.

Mr Skinner said the market probably could support more, but Blockbuster would expand only when the initial 15 had proven the chain's formula worked.

'I have really no idea what the end result will be,' he said. 'We will continue to open stores [but] we want to make sure we have a very clear understanding of all the factors that make our stores work in this market.' Rents on all the store sites have been renegotiated, because all contracts KPS had with the landlords were made void by the acquisition.

The negotiations were not always easy. '[The landlords] were very quick to express their concerns,' he said. Most wanted to see evidence that Blockbuster would be different from KPS.

Blockbuster is limiting the number of staff per shop to eight, although there will be plenty of familiar faces in the shops - all of Blockbuster Hong Kong's approximately 150 employees, bar Mr Skinner, are from KPS.

Blockbuster has also chosen to keep store sizes small.

'[KPS] had very, very big stores in a lot of locations. We're not going to have any big stores, because the rental business in Hong Kong doesn't call for it,' he said.

The more modest approach of Blockbuster may work, but it still will face many of the problems KPS faced.

When the company went bankrupt last year, it blamed a string of difficulties, including political uncertainty, the currency turmoil, the economic downturn, the Copyright Ordinance and competition from Hongkong Telecom's video-on-demand.

The economy has yet to recover and many in the home entertainment business say the ban on parallel imports in the Copyright Ordinance is hurting sales.

Mr Skinner said he did not know what sort of impact the two factors would have on business, but the situation would be monitored.

Ultimately, he is philosophical about the collapse of KPS.

'For them to be in the business as long as they were, they must have done a lot of things right,' Mr Skinner said. 'I don't know what the dynamics were in the last 18 months that caused that to change.' Now, he has the backing of the US Blockbuster chain and its parent Viacom, which had 1997 revenues of US$13 billion, and which are determined to make the Hong Kong venture work.

'Blockbuster and Viacom are willing to invest what they need to invest to be successful,' he said.'We've been looking to get into Hong Kong for a long time.'