The country's largest freestanding movie rental retailer, Blockbuster (NYSE:BBI), announced a major store closing initiative that could result in the elimination of 22% of its current freestanding store base -- part of a longer term effort to become a multi-channel provider of media entertainment.

Currently, the Blockbuster chain consists of 4,356 (3,750 company-owned and 606 franchisee-owned) movie rental stores in the U.S., where its primary competitor is Movie Gallery. To compete with the Netflix movie rentals by mail service, which stands at about 10.6 million subscribers, Blockbuster created a comparable "Total Access" program, which has only 1.6 million current subscribers. The youngest new format for Blockbuster is kiosk rental units, designed to compete with Redbox. While Redbox had more than 15,000 kiosks in place by the end of June, Blockbuster currently has a network of only 497 kiosks. The company has also developed Blockbuster On Demand, which offers digital movie rentals in-home.

For the long term, Blockbuster's plan is to have a smaller overall store base (its current average store lease is 2.5 years) with fewer large stores and more small, urban stores. Aside from growing its Total Access and On Demand subscriber base, Blockbuster plans to forge ahead with kiosk units -- it is shooting for 2,500 units by the end of 2009 and 10,000 units by the end of 2010 (Redbox is aiming for 20,000 units by the end of 2009).

Blockbuster plans for its total 2009 store closures to amount to 580 to 685 stores and for 2010, the retailer expects another 230 to 275 store will close. The retailer is avoiding lease termination costs, as many of the stores will close as leases naturally expire. In its January 2009 annual report, Blockbuster said it had 4,585 U.S. stores, so it has already closed 229 this year. During 2008, it closed 270 U.S. stores and during 2007, it closed 339 U.S. stores.

According to CoStar Tenant, the average store Blockbuster has opened this decade is about 5,700 square feet, with the typical range between 4,000 and 8,000 square feet. Based on the average, we can estimate the 960 store closures could amount to nearly 5.5 million square feet of vacated retail space; plus keep in mind Blockbuster is focusing on closing its larger stores. The retailer's "smaller" store format is about 3,000 square feet.

The continued loss of Blockbuster stores will be yet another blow to retail landlords. This time, neighborhood and community shopping centers will be the most impacted, as the retailer's stores typically serve as junior anchors in corner or outparcel locations for grocery-anchored shopping centers.

Blockbuster's primary retail competitor, Movie Gallery (also owns Hollywood Video) has been closing plenty of stores as well. The retailer filed bankruptcy in late 2007 and emerged in May 2008. As of December 2008, Movie Gallery operated 3,290 retail stores, which is down 1,510 stores from its peak in 2005.

Since the beginning of 2007, Blockbuster has reported a total net loss of $485.3 million -- comprised of a $14.8 million loss for the first half of 2009, $385.4 million loss in 2008 and $85.1 million loss in 2007.