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Chain with Illinois roots still growing after video-rental competitors stumble
[August 16, 2011]

Chain with Illinois roots still growing after video-rental competitors stumble

URBANA, Aug 15, 2011 (The News-Gazette - McClatchy-Tribune Information Services via COMTEX) -- The president of Family Video says he's fighting a widely held misconception that the video-rental business is "in free fall." Blockbuster, the nation's largest video-rental chain, filed bankruptcy last fall and was auctioned off this year to Dish Network.

Plus, Movie Gallery, which operated the Hollywood Video chain, filed bankruptcy last year and was subsequently liquidated.

In the meantime, Family Video -- the largest privately owned video-rental chain in the nation and the second-largest overall -- is still growing.

The Glenview-based chain, which had its roots in central Illinois, operates 751 stores in 18 states and is opening another 40 stores this year.

The company is expanding its video selections and branching into complementary businesses, and it's fixing its focus on two rivals that have shaken up the industry.

"Redbox and Netflix are our main competitors now," Keith Hoogland said.

But he believes in the long run, Family Video will outshine them, thanks to its emphasis on customer service.

Hoogland faulted Blockbuster and Movie Gallery for providing unremarkable customer service.

"Every experience doesn't have to be a 'wow,'" he said, but if a business wants to go from good to great, it has to "wow" customers at least once in a while.

That means having employees who recognize customers, know their tastes and can recommend videos they'll like.

"It's all about the customer service and experience," he said. "We've been pushing that really hard the last three years." Hoogland contends Blockbuster and Movie Gallery didn't understand the difference between retailing and "rent-tailing." "We're a business that sees customers six times a week. They're used to coming in and out, and they want to be called by their first names," he said.

Hoogland claims Blockbuster and Movie Gallery tried to act like retailers such as Best Buy, where people come to shop once a month.

When Blockbuster closed some of its stores, Family Video sought to open stores near some of those sites.

That was the case in Urbana, where Family Video reopened a store on North Lincoln Avenue -- about a half-mile from a former Blockbuster store on University Avenue.

Hoogland said he thinks the novelty of Redbox, which has put its rental boxes outside Walgreens and other locations, will wear off.

"I think all of a sudden, those machines that are out in the weather will not look so new," he said. At some point, the machines will begin to break down, and Redbox will be faced with replacing them.

"Is the next big thing a vending machine? I don't think so," Hoogland said. "Is the next big thing mail? I don't think so," he said, adding that would be like going back in time.

Meanwhile, Family Video is building up its video offerings.

"We're trying to buy a broader group of movies," Hoogland said. "We still buy heavy depth, but broad in scope. ... We've had a ton of success with lesser-known movies. I'm shocked by how well they rent and how long they continue to rent long-term." Hoogland said the recession hasn't hurt the video-rental business much.

"When times are good, business is good, and when times are bad, business could be great," he said.

Videos are inexpensive entertainment, he said. A new release rents for $2.79. For a family of five, that comes to about 56 cents a person. And videos that have been out at least three weeks rent for considerably less.

Plus, under the policy of some movie studios, Redbox and Netflix don't get releases until 28 days after the video is released to rental stores. Warner Brothers, 20th Century Fox and Universal are among the studios that have adopted that policy.

Hoogland said this has been the most profitable year for Family Video, and it's the latest in a string of years that were better than the previous one.

"We opened about 120 stores last year, our biggest year ever. But we won't do that again," Hoogland said. "We had been doing 50 to 60 (new stores) a year over the last seven or eight years." But opening 120 last year "stretched our management team a little bit," so Family Video is scaling back to 40 new stores this year.

The chain originally concentrated on Illinois, Indiana, Ohio, Wisconsin and Michigan, and it's now growing into the South and West.

"We're growing rapidly in Tennessee, Kentucky, Oklahoma and Kansas," he said, adding the chain is also eyeing Arkansas and Colorado and the northern parts of Mississippi and Alabama.

Most of the newer stores have a smaller footprint than the older stores, since today's DVDs and Blu-Ray videos don't take as much space as the older VHS and Beta videocassettes. The newer stores tend to be about 6,000 square feet.

Family Video generally owns its locations, Hoogland said, and often builds small strip centers that can accommodate not only its own stores, but also retail tenants such as a pizza place or doughnut shop.

The Lincoln Avenue store, for example, is paired with Hanger Prosthetics and Orthotics. The Champaign store has an adjoining Subway sandwich shop.

In East Central Illinois, Family Video also has two stores in Danville, plus single stores in Rantoul, Clinton, Paris, Mattoon and Charleston.

In identifying locations, Family Video looks for spaces "that are easy to get into" -- not necessarily the highest-traffic corners, Hoogland said.

The company employs more than 7,000 people, with each store typically employing eight to 10 people. Often, that includes a manager, an assistant manager and a manager-in-training, Hoogland said.

The company is pushing, where customers can buy used or new movies online.

Plus, the family owned business has branched into real estate, owning offices, complexes and shopping centers that don't have Family Video stores, Hoogland said.

Family Video has also started ITV-3, a cable television business in Pekin that uses fiber optics to deliver phone, Internet and video service to homes.

The company has also launched a chain of 24-hour fitness centers called StayFit-24, with six locations open so far.

Hoogland said the company is looking at other options -- perhaps acquiring a chain of pizza stores or becoming a franchisee.

The firm was founded in 1978 by Keith's dad, Charlie Hoogland, who remains chief executive officer and still lives in Springfield.

Also involved in the company as vice presidents are Keith's brother, Eric, and brother-in-law, Tim Reynolds. The company moved its corporate office to Glenview in 2003 but retains a "home office" in Springfield.

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