Movie Gallery to Close All 2,415 Stores

Includes: BBI, MVGRQ, NFLX
by: Chris Rodriguez

Filed Movie Gallery's (OTC:MVGRQ) situation under Another Tech Takedown:

From Zero Hedge:

Movie Gallery’s Chapter 22 just turned into a 7. The WSJ reports that the firm has decided to shutter all of its 2,415 stores and liquidate completely. Previously, the bankrupt movie rental chain had hoped to continue operating with a trimmed down asset base, and close just half of its stores. Alas, the melting of the ice cube could not be stopped. This is nonetheless good news for liquidating advisor Gordon Brothers which just saw its bill double. As for main competitor Blockbuster, which itself is on the verge of bankruptcy (yes, those still do occur in the US, but the business must be really atrocious plus have no unionized workers anywhere within 50 miles of its operations), it is unclear whether the liquidation of Movie Gallery will be beneficial or merely too late. Tangentially, businesses all over America and the world which otherwise would benefit from the bankruptcy of their weaker competitors and flourish, are suffering just as much, courtesy of the no-risk/no-failure doctrine recently instituted by the administration, which has made Survival of the Fittest irrelevant.

More from the WSJ:

The Wilsonville, Ore., chain had hoped to restructure in bankruptcy court and continue operating around a smaller set of viable stores. The company employed more than 19,000 people when it filed for bankruptcy.
Reorganizing around smaller core stores was "honestly debated," said a person familiar with the situation. "It just never got any traction."
Movie Gallery, the second-largest movie-rental chain by outlets behind Blockbuster Inc., failed to rebound after it emerged from bankruptcy in spring 2008 owned by private-investment firms Sopris Capital Advisors and Aspen Advisors.
Consumers are now viewing movies streamed online or through on-demand cable services. Netflix Inc. has cut into revenues of Movie Gallery and Blockbuster through its mail-order service and online offerings. In addition, movie-watchers have turned to alternatives such as Redbox, a unit of Coinstar Inc. that operates movie-vending machines in grocery stores, among other places.
Movie Gallery’s financial woes trace back to debt it took on acquiring Hollywood Entertainment Corp. in 2005. It filed for bankruptcy in February under the weight of roughly $600 million in debt.
Blockbuster had weighed acquiring some better-performing Movie Gallery stores, but a deal never gained momentum, said the person familiar with the matter. A Blockbuster spokeswoman didn’t immediately respond to a request for comment.
Blockbuster is in the midst of negotiating with bondholders over restructuring debt and warned in a recent regulatory filing that it, too, could be forced to seek bankruptcy protection.

Here is an excerpt from a great comment to the ZH post:

….What I find astonishing is that this particularly train wreck has been coming for some time, but the video superstores continued to blindly believe that their business models were still viable (and are now astonished at how rapidly their businesses are disintegrating under the digital assault).

This is a big bummer for all of the CRE investors who thought it wise to purchase Hollywood Video buildings in outlying areas because they were getting a sliver better return. Stop chasing returns and focus on location. Tenants come and go. They are not making any more dirt.

Is there any question as to the near-term fate of Blockbuster Video (BBI)? I think not. Its just a matter of how long they can tread water.

I wonder if CoStar (NASDAQ:CSGP) has any thoughts on this….

Disclosure: I just sold a single-tenant Blockbuster Video building last week (see here) at a 5.94% CAP in San Jose, CA. Before you accuse me of stuffing some guy in a crappy deal, I’d like to say that the deal was a fair one, the tenant has equity in the lease and numerous other tenants have been contacting us unsolicited for several years to inquire about locating in the building. Again – location, location, location. Tenants don’t cold call landlords unless the site is a good one. Doubtful the owners of the Hollywood Video stores in Lancaster and Palmdale will have a similar experience.