With the recent influx of companies providing mail-order DVD services, some might think the reign of video rental retail stores is coming to an end, but the team at Hollywood Entertainment knows this isn’t the case. According to Sherif Mityas, president and CEO of Movie Gallery Inc., Hollywood Entertainment’s parent company, the home video industry is an $8 billion a year market, and $5.5 billion of that capital still depends on brick and mortar retail outlets.
However, that also means $2.5 billion has been lost to other arenas, and to keep their company in a strong position in the industry, Mityas and his team continue to reshape their business strategy to complement the market.
In 2005, Movie Gallery acquired Hollywood Entertainment, which operated 1,300 Hollywood Video locations and 550 Game Crazy stores across the US. Although Movie Gallery stores (there are approximately 1,600 total) are more commonly found in rural areas and Hollywood Video outlets are popular in urban locations, the two brands operate with a single business strategy.
“We have an integrated team in the field and integrated marketing and merchandising strategies for both brands,” Mityas said. With a combined annual revenue of $2 billion and 33,000 employees, the North American retailer has an abundance of resources at its fingertips.
As part of the company’s plan to compete with at-home-delivery DVD service providers, Mityas and his team are developing an online program that will allow customers to order movies and games online. Details of the project aren’t available yet, but Mityas said the program, which will be rolled out before the end of the year, is different than any in the market today.
The introduction of companies like Netflix forced Movie Gallery to change in other ways too. “Those companies forced us to change the way we market to our consumers,” Mityas said. “When marketing, we have to focus on the key differentiator, which, today, is immediacy. If customers aren’t planners, they can go to the store and rent a movie or game whenever they decide they want one. They don’t have to place the order days ahead.”
Additionally, the team at Movie Gallery developed a subscription program called Powerplay that allows participating customers to rent movies and games without due dates and late fees. The program provides customers with the ability to rollover their subscription dollars month to month so they don’t lose any value as their renting needs vary.
The team at Movie Gallery is also expanding its Game Crazy brand in the year to come. The brand currently has 600 stand-alone stores and 1,400 outlets inside Hollywood Video locations across the US where customers can buy, sell, and trade video games.
The decision was made based on the recent growth of the gaming market, which Mityas said occurred for two reasons. “Games are affordable,” he said. “In tough economic times, someone can purchase a used game that provides hours and hours of entertainment.” The second reason he believes the video game market exploded recently is because of a growing user demographic. A decade ago, the industry’s key customers were males between the ages of 18 and 35. Today, the market has opened up, and companies are targeting men and women of all ages.
“Today, everyone from grandmothers to five-year-olds are playing video games of some sort,” Mityas said. “The introduction of both portable and more interactive systems contributed to this growth.” Mityas named Nintendo Wii and handheld DS systems as two examples.
Despite a recession, the team at Movie Gallery is confident its business will continue to grow in 2009. “More than anything, the recession helps our business,” Mityas said. “A family can come into one of our stores, grab two movies or a video game and popcorn, soda, and candy for less than $20. The ability to stretch their entertainment dollar is a big deal for US families right now.”
When Movie Gallery acquired Hollywood Video four years ago, it set the pace for the immediate future. In the last few years, the video rental industry continued to become more of a monopoly. Initially, independently owned and operated stores closed. Soon after, many large chains began to follow suit.
“You need to have scale to survive in this market as it becomes more difficult to compete head to head,” Mityas said. “We’re winning our fair share of these situations because we concentrate on providing customers with a great overall experience. Once you build a relationship with a customer, you make it difficult for them to leave.”
The team at Movie Gallery provides its customers with quality customer service by focusing on standardized training in its stores. One program in particular, called Project Exceptional, ensures the company recruits qualified employees and formalizes the type and frequency of training they all receive. The program also helps standardize stores’ appearances in terms of both merchandising and cleanliness.
In addition to standardizing the performance of front-line employees, the company’s senior management team was also reorganized recently. “Our entire executive team is fairly new, including myself,” Mityas said. “We all bring new ideas to the organization, which are critical to our growth. Looking to the year ahead, we’re all very excited.”
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