Posted on: Thursday, August 7, 2003

Rental chain targets Neighbor Isles

By Andrew Gomes
Advertiser Staff Writer

The second-largest movie rental chain behind Blockbuster Video has established a foothold in Hawai'i and plans to expand in Neighbor Island communities.

Movie Gallery Inc., an aggressively growing Alabama-based company with about 2,000 stores in 49 states, recently bought Maui's two Cinemagic Video stores, and has a goal of opening three to five more stores on the Valley Isle plus additional locations on the Big Island.

The publicly owned chain, with revenue last year of $529 million, won't likely open stores on O'ahu because of the dominance of Blockbuster, according to LeAnn Hume, a Movie Gallery real estate manager.

Blockbuster has 18 stores on O'ahu, two on Maui, three on the Big Island and one on Kaua'i.

Movie Gallery typically avoids competing head-to-head with Blockbuster in major markets, instead focusing on small towns and suburban areas mostly served by independent movie rental stores and small regional chains.

Founded in 1985, Movie Gallery grew initially by franchising before reverting to company-owned stores and launching a campaign in 1992 to consolidate a large part of the industry through acquisitions of small chains and mom-and-pop operators.

The Maui purchase of Cinemagic was a typical move for the company, according to Jennifer Jordan, a senior research analyst at Wells Fargo Securities in Portland, Ore.

"It's a roll-up strategy of sorts," she said. "You go in and you get a base, and then you can build across that base."

Cinemagic was started by Rafael Ramos in 1984, and grew on Maui to five stores before shrinking to two locations, in Napili and Pukalani.

Hume said Ramos approached Movie Gallery, which was interested in acquiring the two stores.

"We're trying to get into all 50 states," she said.

The two Cinemagic stores are now undergoing conversion. Hume said Movie Gallery's growth in Hawai'i will more likely come by leasing retail space instead of buying other operators.

Movie Gallery last year acquired 265 stores and developed another 145. This year, the company projects adding 200 to 225 stores.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.