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Movie Gallery confirms store closings

SEPT. 25 | As part of an accelerated effort to conserve cash and reduce its cost structure to avoid bankruptcy, Movie Gallery confirmed it is closing 520 stores.

Although the possibility that the chain would file for bankruptcy protection has loomed for some time, chairman and CEO Joe Malugen indicated in the announcement that the closings are a means of bringing the company back to financial health.

“Closing these stores was a difficult, but necessary decision to help protect the future of this company,” he said. “These stores are being closed after evaluating a number of factors, including store profits and the terms of the leases at each location. This action will allow us to focus our resources on the approximate 4,000 stores that have a stronger operating performance and prospects for future growth.”

It was unclear how many employees would be out of work because some might take jobs at other Hollywood Video or Movie Gallery locations. Likewise, customers of the stores at the locations being closed could have their accounts transferred to nearby locations, according to the company. Movie Gallery has informed all stores whether they will be closed.

Inventory in the stores earmarked for closure will be sold off by the end of November, according to a Sept. 27 filing with the Securities and Exchange Commission. Movie Gallery said the annual revenue generated by the closing stores had been $180 million but that it could not yet determine how much it will cost the company to close the stores. The company worked with the firm Alvarez & Marsal in deciding which stores to close.

Store closings are taking place all around the country—from Arizona to New Jersey—and happening in some cases with little notice to customers and employees.

Passaic, N.J., store manager Glenn Dellapesca said his six employees were notified by the company of store closings on Friday but only learned this week that their store was on the list.

"I knew they were closing stores, but I didn't know which ones. It sounds like a spur of the moment deal," he said. “I think they decided yesterday."

News of the closings have reverberated over the Internet through MySpace.com with shared stories and about the closings as well as raiding by rival Blockbuster to hire displaced employees.

A Florida employee commented on MySpace that four different Blockbuster stores in her area had called to hire away employees.

"I hate Blockbuster," the author wrote.

Some of the comments sound like SOS's of dog fighting.

"We are going down. Rest in peace," issued an employee in Ann Arbor, Mich. The poster's was the second Ann Arbor store to close. An employee there said the Hollywood Video in Arlington Square had been closed for several months, and a call confirmed that the stores number is disconnected.

An employee in New Jersey wrote, "You can add Hoboken [store number] 030160 to the pile."

An employee in Cromwell, Conn., said by phone they were informed of the closings on Sunday. He said the DVD inventory would be sold at 30% off, starting Thursday.

Although Movie Gallery-branded stores are included in the mix, many of the stores being closed are Hollywood locations, which compete most closely with Blockbuster and have suffered since Blockbuster introduced its Total Access online/in-store rental program last November.

Movie Gallery has hired Great American Group to assist with the store closings. Great American is a liquidation and downsizing specialist whose previous clients have included the bankrupt Tower Records along with Musicland, Wherehouse and Kmart.

Movie Gallery, which has defaulted on loans in recent months and seen its stock price plummet to around 50¢, has made forbearance agreements with some of its lenders that last until Sept. 30. The agreements included the requirement that a store closing plan be made this month.

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