With a company tagline of "Play On," Dothan, Ala.-based Movie Gallery is indeed playing strong in the video rental business with quite a lot to celebrate in its 20th anniversary year. BY RENEE M. COVINO

In 1985, when Joe Malugen casually announced to his partner Harrison Parrish that “we just bought a video store” as a sort of hobby business, Parrish’s response was, “what’s a video store?” When he stopped to think about it, Malugen wasn’t entirely sure; in fact, he wasn’t really a big movie buff. “We actually owned a video store before either one of us owned a VCR,” he admits.

That’s not what you’d expect from this dynamic duo that today is running the second-largest North American video rental company—Movie Gallery—with annual revenues in excess of $2.5 billion and approximately 4,500 stores, having just completed its acquisition of Hollywood Entertainment Corporation on April 27.

But part of what makes Movie Gallery great today is its humble beginning with the two men who still remain quite modest themselves, right from their explanations of how they paired up.

To hear Malugen, who is chairman, president and CEO of Movie Gallery, tell it, “I was a struggling tax lawyer in 1978, and Harrison was nice enough to allow me to help him with the legal end of his multi-unit grocery store operation. A few years later, at about the same time in our lives, we both came to the conclusion that we needed a career change and came up with the idea to go into business together.”

Parrish’s version: “After I sold my grocery operation to a larger company, Joe and I become involved in several businesses together. He actually bought that first video store from a client of his at a time when I hadn’t a clue what it was all about.”

They both quickly—and literally—made it their business to learn, even though there weren’t too many people who were well versed in the intricacies of the video rental industry, especially in their rural area of the country.

“There was no Blockbuster at that time,” reminds Parrish, now co-founder and chairman of Movie Gallery. “It was a very fragmented industry with mostly “mom and pop” operators; there was hardly any presence of multi-store operators beyond five or six stores.”

So Malugen and Parrish decided to run their first video rental store (back when Beta was king and VHS was the new format) on a 90-day option-to-buy plan from Malugen’s client. “I told him that we’d run it for 90 days, and if at the end of that time we liked it, we’d pay him what he was asking, and if not, we’d settle up,” explains Malugen.

After doing a quick study of the industry and applying their business knowledge and entrepreneurial expertise, Malugen and Parrish saw store revenues increase 50 percent in the first month; in the second month they were up 300 percent, and in the third month, they increased 500 percent since the time the two took their new venture over. That settled it—the pair was now hooked on an “incredible” business that they didn’t even know existed three months prior, according to Malugen.

Meanwhile in the East, there was Erol’s and other “white goods operators”—appliance and electronics retailers—that had taken on video rentals as a sideline business. “Early on, Erol’s adopted the free-standing video store and was quite successful in growing that chain,” recalls Parrish.

He and his partner carefully followed that chain, and even today, humbly credit it and its acquiring company—the leading industry player—Blockbuster, of course—with taking the industry to where it is today.

“By the time Blockbuster made the acquisition, Erol’s was over a hundred stores,” explains Parrish. “So they were the first real entrepreneurs and then a few years later when they became Blockbuster, they really brought credibility and prominence to the industry that we probably wouldn’t be enjoying today had it not been for their business plan and the way they executed it.”

But that’s Parrish being humble again. In reality, Malugen and Parrish have done quite well for themselves and for Movie Gallery, all the while stressing a fun environment where company people “work hard and play hard.”

That philosophy was present right from the start when the two were looking for ways to grow their business and have fun doing it.

Initially, they thought it would be wise to sell franchises of the business, rather than opening too many company-owned stores. Their hook was a customized Silver Eagle Bus—in fact, it was singer Jimmy Buffet’s former touring bus—and they used it to lure in franchisee prospects.

“Basically, our early marketing plan was to entertain our friends on this bus and sell them a franchise,” says Malugen. “And that’s just what we did.”

But by 1988, the company began buying back the 45 franchised locations they had at the time, and converted them into company-owned stores—heading toward the business plan they use today.

The early days were also marked with ingenuity. Just like today, Parrish and Malugen were always thinking, and were always ready to try something new. And if it didn’t work, they’d try something else. You might say that they basically have that entrepreneurial gift of turning lemons into lemonade.

Take, for example, the story of their third company-owned store—which was actually a doublewide trailer. The way it came to be was purely by accident—followed by pure business genius.

“I had a business acquaintance who talked me into investing in a fried chicken restaurant in Destin, Fla., which was a hundred miles from Dothan,” relays Malugen. “He wanted to sell fried chicken on the beach from this double-wide trailer.”

In 90 days, the fried chicken trailer/restaurant was a failed business and Malugen’s acquaintance called him up to tell him to come get the trailer.

The plan was to have someone move the trailer back to Dothan to store it, but when Malugen made a few phone calls he found out that it would cost him $3,000 to have the trailer driven back home. That was a hefty sum at the time, and so in thinking of ways to reduce that cost, he got his brilliant idea. 

“I took out a map and picked a town halfway between Dothan and Destin, which turned out to be Geneva, Alabama,” Malugen explains. He called back the driver and found out that the trailer could indeed be delivered to Geneva at half the price—$1,500. Movie Gallery found a good location in the town and turned that trailer into its third video store, which is where it remained for 10 years—from 1986 to 1996.

After that, the company finally transferred the Geneva store to a strip center. “But it ended up that the trailer was the single-most profitable real estate for its cost in Movie Gallery history,” maintains Malugen.

But that was not the end of the trailer. After its long stint in Geneva, the doublewide chicken-restaurant-turned-video-rental-store was brought back to Dothan where it became an extension of corporate offices for almost five years until it was then finally sold.

“We just flat wore it out,” says Malugen. But its memory will go down in Movie Gallery history.

Many that work for Movie Gallery remember the early stories of the company, such as the tour bus and the doublewide, because they were right there. To hear many tell it, Movie Gallery is not a job, it’s a closely-knit family that they would never think of leaving.

No one is more adamant about that than Melissa Abraham, who was recently promoted out of the accounting department to concessions manager. But this is just one of numerous promotions/positions in Abraham’s 19-year career with Movie Gallery. When she was 16 she was first hired by Movie Gallery—and it was her very first job.

“Harrison interviewed me over the telephone and hired me to start two weeks later as a store clerk,” Abraham recalls. “My first day on the job I was serving punch to customers—it was Christmas Eve and they had (an actor playing) Captain America in the store. I never thought I’d stay this long, but now I can’t imagine leaving. I have grown up with the company as it has grown, and I feel extremely lucky and proud to be a part of getting it to the point where it is today. It’s a part of me. I have my husband, my kids and Movie Gallery.”

Abraham is also quick to praise her two leaders. “Harrison and Joe are so great and so accessible. I told Harrison they will have to kick me out the door in my walker when I’m old and gray to get me to leave.”

Hired just a bit before Abraham and in a more senior position, in the corporate office, Mary Ann Paul recalls being there on the day of the first store’s grand opening when four original “Star Trek” actors came with two tour buses and a full entourage. “Right from Day One, there was always something fun going on,” she maintains.

Paul worked in the corporate office the day Movie Gallery opened the first store. Like Parrish and Malugen, she didn’t have a video recorder in her house—“it was all new to me,” she says. Today, she is director of collections. “It’s been wonderful moving up with the company and seeing it grow,” she adds. “I’ve learned as the company has learned.”

Because they started with the company at around the same time, Paul and Abraham developed a special and close relationship that still continues today, even though they don’t see each other as often. The two work in different departments at opposite ends of the company’s corporate office “support center,” which was moved in 2000 to be under one roof—in a former JC Penney store in a mall space that Parrish and Malugen purchased.

“When we see one another, we still refer to me as the Queen and to Melissa as the Princess,” mentions Paul. “She’s just waiting for me to retire so she can move up to the throne.”

While the imaginary monarchy is just part of the fun, in reality, the two were honored in 2002, along with three other “old-timer” employees of Movie Gallery, as part of a special “founder’s club.” The five were recognized on stage for their long-standing dedication to the company.

“It was my proudest moment,” recalls Paul.

Ted Innes, the marketing director who is responsible for Movie Gallery’s local marketing success, which includes fundraisers in store parking lots complete with dunking booths and hamburgers on the grill, recalls his proudest moment: “We put together an eventful day opening our 2,000th store in Alabama. We got on an airplane and flew to the location, we had a ribbon-cutting ceremony with over a hundred people, including the mayor and other dignitaries, but then we flew back and did the most important thing of all—honored all the people back here at the office.”

The office was shut down and a photographer on a big crane took a group photo of all employees. Then, as a surprise, Innes and his staff had put everyone’s name on paper stars and secured them to the floor of the shopping mall where their offices were located. “There was unbelievable excitement as everyone went to look for their name as if they were Hollywood stars,” says Innes. “Then afterwards we had a big party with three bars and food and a little video presentation. Our brand promise is a fun store with the best entertainment value for our customers, and we practice that fun and connote fun back at the office. That’s why customers come to our stores, and that’s why employees continue to work for us.”

That’s not to say that it’s all fun and games. The play part clearly comes after the work part.

“We treat people with respect, like we would like to be treated, but we still hold them accountable,” explains Malugen. “We give them goals and plans, and we hold them accountable to those. They know what’s expected of them. We don’t have a lot of disagreements in this company because we set goals and rules upfront—everyone knows what they should be doing, so there’s no confusion.”

Nick Mitchell, senior vice president of store operations, is only too proud to concur. “We’re a very humble company because our focus has always been to take care of the stores. We’re there to support the stores—it’s not about us, it’s about the stores.”

In a changing video rental environment, Mitchell is constantly listening to the “field people,” the district regional managers, for example, who are looking at the movie trends in their region so that Mitchell and his team can react quickly to what the stores need.

“They’ve let us know facts such as Reese Witherspoon is from Tennessee and so her movies do especially well in certain pockets of that state; Sandra Bullock is from Texas, and so her movies do well there,” he says. “We make sure that towns like these have extra copies of movies with their hometown stars in them,” explains Mitchell. “Then if there’s a Fourth of July parade in a particular community, we want to know about it because we’ll be a part of that, too. We’re all about entertainment—we give stores budgets so they can participate in festivals, parades and anything that would be good for the community.”

Will that rural approach be affected now that Hollywood is part of the Movie Gallery reel? “Hollywood will be operating separately,” maintains Mitchell. “We’ll learn what they do well, and they’ll take some lessons from us. Basically, I expect we’ll share our best practices in the different markets.”

“There are good things about both companies so together I expect it to make a great company,” says Paula Armstrong, training district manager, who started with Movie Gallery when her video store was acquired in 1995. “It’s just part of our growth; we’ve acquired plenty of other companies and even though we all understand this one is larger, it’s still business as usual.”

The reason Armstrong and Mitchell can speak like this is because Malugen and Parrish have already held meetings and filled their people in on these sentiments—carrying out the ultimate open door policy. It certainly appears that Movie Gallery is still as humble—but also determined and creative—as ever.