Maybe video stores aren't dead after all
Window display from a San Francisco video store.
Video stores have been in decline. Ten years ago, there were eight times as many as today — including national chains, like Blockbuster and Hollywood Video.
"You know, they were just poorly run businesses, in hindsight," Family Video's president Keith Hoogland says. "And we aren’t."
Family Video is the biggest player standing. Based in the Chicago suburb of Glenview and operating across the Midwest and parts of the South, the chain has 779 stores — a number that continued to grow in 2013, even as Blockbuster closed up its last company-owned shops.
The mega-chains grew fast and borrowed heavily. To make their debt payments and turn a profit, they had to grow. That got harder when competitors like Netflix and Redbox emerged.
"A lot of our movies, we get 30 days before Redbox and Netflix," Hoogland says. "This is still a new-release business, and people don’t really understand that."
Both Redbox and Netflix have made agreements with movie studios, promising to hold back on renting movies until weeks after they go on sale. Hoogland's stores also keep prices down — with older movies renting two for $1 — and pride themselves on customer service.
At a store near the company's headquarters, Mary Bart and her grown daughter Kimberly are picking out movies for girls night. Mary says they come here all the time. "We get our choices here," she says.
And they both just like the place. "It's the people," says Kimberly. "Right," says Mary. "It’s like the mom-and-pop you can just walk into."
Family Video has a secret weapon, according to Marty Graham is president of home entertainment for Rentrak, a company that tracks the movie, TV, and video industries.
"Family Video is first and foremost a real-estate development company," he says. The firm owns most of its stores, and the strip malls where they're located.
"You know how, in retail, they always say it’s location, location, location?" says Graham. "Well, Family Video is very good at picking out retail locations, and they have very supportive landlord — themselves — to work with."
So even thought Keith Hoogland knows the video-store business won’t last forever, he’s not worried.
"Our business is going to slowly shrink," he says. "It’s going to level off, and then it’ll start stair-stepping back down."
As that happens, he says, he can make his stores smaller, and rent out the space to other businesses.
Including his own: Family Video recently became the largest franchisee of a pizza chain called Marco's. The company already has more than 50 stores, with plans for almost 200 more in the next two and a half years.
The locations are strategic: "We’re putting them next to the video stores," says Hoogland. "It’s the pizza-and-a-movie concept."
That sounds like a winning strategy to Michael Arrington, who tracks home video for IHS.
"Pizza and a movie. I mean, how awesome is that?" he says. "That is the kind of thing that cannot get from Netflix and Redbox. And pizza is not going to get replaced by any technology, I guarantee you."