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Is Brick-and-Mortar Rental Dying?

20 May, 2010 By: Stephanie Prange

The news at the national retail chains is grim. Movie Gallery, after twice filing bankruptcy, is liquidating all stores. Blockbuster Inc just reported a $65.4 million first quarter loss, and analysts again are talking bankruptcy.

Meanwhile, Netflix’s stock has hovered around $100 and the online pioneer is surging past 14 million subscribers. Coinstar, parent of upstart kiosk company Redbox, has 25,000 kiosks and sees a potential market for up to 60,000 units in the United States.

Is the brick-and-mortar rental chain dying? 

Certainly, the national rental chains have been buffeted, weighed down by paralyzing debt — Blockbuster from its spinoff from Viacom and Movie Gallery from its expensive acquisition of Hollywood Video. But, indications are, there are regional chains flying under the radar that are doing just fine. I recently got a call from a reporter doing a story on 40-store Movie Starz Video, which has locations in Virginia, Tennessee and West Virginia, and has been in business for 16 years. I’ve heard from a district manager at Video Warehouse with 60-plus stores throughout Georgia, Alabama, South Carolina, and Florida, who says his chain is doing just fine. Hastings reported a $1 million profit in the first quarter, a drop from last year, but still a profit. The chain has been able to compete with kiosks by matching the $1-a-night price on certain titles. It’s been a drag on the bottom line, but Hastings CEO John Marmaduke said more than 60 Movie Gallery (and Hollywood Video) locations nearby Hastings stores closed in the first quarter, which “over the long term …  will have a positive impact on our rental revenue.”

Back in late March, we did a story on independent retailers who also are holding their own (“Indie Rentailers: Hanging in There,” March 22-28) by offering customer service and lowering rental prices a bit to compete.

The studios, too, have begun to boost rentail, with Warner, Fox and Universal offering new releases to stores before Netflix and Redbox. The stores have other advantages over the two new upstarts. Renting a title at a store offers more immediate gratification than turning to Netflix, and more customer service (and sometimes less time in line) than going to a kiosk.

Don’t count the rental store out just because the two national chains bit off more debt than they could chew. Readers, please send me more stories of regional chains tending to business.

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