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HIVE EXCLUSIVE PROFILE: It's Sweet Home Video, Alabama, for Movie Gallery's Joe Malugen

27 Jul, 2001 By: Ed Ochs

It's springtime in Dothan, Ala., 1,049 miles from Wall Street, and Joe Malugen, chairman and c.e.o. of Movie Gallery, the country'sthird-largest — and fastest-growing — video specialty retail chain, mixes blooming trees and flowers and video rental as easily as you'd mix a mint julep.

“Springtime is the best time of year in Alabama,” Malugen says in a soothing Southern manner, “because it is warm but not humid... the lakesand beaches are best because you don't fry outside like you do in the summer. Unfortunately, people don't watch many videos during thespring.”

Malugen can rock people to sleep with a dollop of his downhome good nature.

“He makes you feel comfortable right away,” says Michael Lightbourne,executive v.p., Rentrak Corp. “Joe is at his very bestwhen he meets with you, using his low-key, casual approach. In fact, you might want to count your fingers to make sure they're all there aftersuch a meeting.”

“One thing I learned early on was not to let Joe's easy Southern nature lull you into forgetting how sharp a businessman he really is,” says Vern Fross, senior v.p., sales, Ingram Entertainment. “At a time whenall retailers were trying many different ways to compete, Joe didn't gettoo caught up in the copy-depth program of the day. He found a niche market, understood his customers, went about satisfying them, and has built a successful retail chain. And he did it quietly — when was the lasttime you heard anything negative about Movie Gallery?”

Movie Gallery is not only on the move in a big way, the company also recently moved its headquarters into newly renovated offices on MainStreet in Dothan.

“We landscaped a garden and added a small fountain, which is outside my office window,” Malugen says, “a big change from operating out of sixseparate buildings spread out all over Dothan. It is nice to finally have all our people together.”

This kind of togetherness could be bad news for competitors. Malugen lives close to the office. But he's a night owl, “so I am strictlybusiness when I get to the office about 9 a.m.,” he says.The long hours have been paying off for Malugen and those who hitch their wagons to his new Dothan post, but no matter how far or high thechain may fly, Malugen will most likely always call Alabama home.

Joseph Thomas Malugen, 49, was raised in Bonne Terre, Mo., a small town of about 3,000 people. He received his B.S. degree in businessadministration from the University of Missouri-Columbia, his J.D. fromCumberland School of Law, Samford University, then ventured north for his L.L.M. in taxation from New York University School of Law.New York life taught Malugen a few things about the world and the big picture, which would serve him well in the coming crusade.

Though he had practiced tax and corporate law since 1978, his interest was always in having his own businesses. He had several real estateinvestments and was a co-owner of a long-distance telephone company withHarrison Parrish, now Movie Gallery's president, before they founded Movie Gallery in 1985.

“It wasn't exactly a jump into video,” he explains of his fateful evolution. “It was more like I fell into video. I had a client who wasin the video business and wanted to get out of it. He knew my business background and basically talked me into buying his store. It didn't take me long to figure out that if we could recreate the Dothan store in other small towns, we could have a nice business.

“After I saw Blockbuster go public, I felt like there would be the sameopportunity for Movie Gallery. My goal was to get it large enough to attract public capital. It took us until 1994 to reach that level.”

Volcanic changes in the industry over the past decade have not cooled Malugen's passion for the business.

“It is satisfying to know that we have created a lot of jobs and careers for our people and that we were right to keep pursuing our plan in the face of those who didn't believe in the industry and those that felt that Movie Gallery's business plan was flawed,” he says. “It's alsosatisfying to know that I still have a good job while the tech experts who thought we were a dinosaur and told me I would be out of a job soon are calling me looking for jobs.”

Movie Gallery is on a roll and expects “low double-digit” growth in revenues through the rest of the year. But where is the company rolling to? Malugen, president/partner Parrish and the MGs are far along ontheir stated mission to “be the dominant entertainment source for video and video game rental and sale in rural and secondary markets in theUnited States.”

Suddenly, Wall Street is watching. And beginning to talk, as one national news story put it, about the “little-known company with scant analyst coverage” whose shares had gone up more than 300% this year, outperforming the market.

You can tell by what he doesn't say and how he says it that Malugen gets a special, if quiet, kick out of shocking the suits on Wall Street, watching dot-coms splatter on the cobblestones while Movie Gallery gallops ahead. “Not that I want to see them fail,” he says. “But we are proud that we have succeeded in the face of many doubters. It's good to see that investors are looking at profits as the driver for investments, rather than promises of future success.”

Movie Gallery is proud of its roots ‘n' retail approach to building business. Every press release lionizes the chain as “the leadingprovider of movie and video game rentals and sales in rural and secondary markets.”

Even so, or because of it, financial analysts in New York and film marketers in Hollywood have been slow to embrace the notion of a videochain they don't see on their neighborhood streets.

“The backbone of America is the thousands of small towns across the country that have been overlooked by many retailers, “ Malugen contends.“These people are great customers for Movie Gallery because they have never had the entertainment options available to those in urban areas.

"It looks like Wall Street is finally recognizing the potential of ourstrategy.”

Being far from the glare of the spotlight has its advantages, too. At least with Malugen you know what you're going to get every time, industry leaders say.

“Joe is a straight shooter, which is not all that common when your core business is based in Hollywood,” says Robert Wittenberg, executive v.p., sales, MGM Home Entertainment. “Joe is a funny, laid back individual who is interested in determining the best and most profitable way to run hisbusiness. He makes decisions based on his experience and judgments based on more than just analysis. He doesn't play to the camera or WallStreet. Joe cares about the welfare of his people.”

“The one word that always comes to mind in dealing with Joe Malugen is ‘gentleman,’ says Joe Amodei, president of USA Home Entertainment. “It's not a word that is used often these days but one that exemplifies what dealing with Joe and Movie Gallery is allabout. Tough but fair, open-minded to suggestions on how to make our partnership work better and a real grasp of what works well for hischain are other attributes Joe and his staff carry with them. It is a pleasure to work with him and also to have him as a friend of USA Home Entertainment.”

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