Hollywood Entertainment Grows By Making Video Rentals Exciting

PORTLAND, Ore. _ Hollywood Entertainment Corp. wants to make renting a movie as exciting as watching one.

In seven years, the Portland-based company has grown from one Hollywood Video store into a chain of more than 100 flashy superstores in eight states, including one in Oklahoma City, each boasting a larger video selection than the competition.

Mark J. Wattles, the company's 34-year-old president and chief executive, says the idea is to "capture the bright lights, excitement and energy of the motion picture industry."

During a period when technology threatens to supplant the video store with movies available through television on demand, Hollywood Entertainment has nonetheless grown into one of the nation's largest video rental chains.

The company began 1994 with just 25 stores and has grown to about 120. Wattles says the company plans to open 78 new stores this year, not including acquisitions.

"This has to be one of the fastest-growing public companies in America, and it's certainly one of the most profitable," said Bo Cheadle, an analyst with Montgomery Securities, a San Francisco based brokerage firm.

In the third quarter, Hollywood Entertainment's profits jumped more than fourfold to $2.5 million, or 19 cents a share, from $480,596, or 6 cents a share, in the same period a year ago. Sales rose to $22 million from $4.3 million.

The company's stock, which was valued at less than $6 a share in July 1993 when Hollywood Entertainment came public, today trades at about $26 on the Nasdaq stock market.

Hollywood Entertainment's beginnings were humble. Ten years ago, Wattles had just abandoned college and was struggling to make ends meet. His parents had given Wattles and his wife a VCR, which the young couple relied on for cheap entertainment.

Thinking there must be others in his shoes, Wattles borrowed money in 1985 to open a 500-square-foot video store with 300 movies in downtown Portland. Three years later, he founded Hollywood Entertainment.

Today, Wattles' typical store is 7,500 square feet with 16,000 movies.

The chain's stores feature a "Hollywood" sign outside and dozens of televisions with heart-thumping music inside. Neon lights give everything a high-tech glow. Each store generates about $1 million a year in sales.

"They have the best looking stores in the industry and that's what gives them the highest volume in the industry," Cheadle said. "There's no reason they can't jump all over the country with this concept."

But others wonder how much longer Hollywood Entertainment can remain in fast-forward.

In the battle of the superstores, Hollywood Entertainment already competes in some markets with Blockbuster Entertainment Corp., the industry leader with close to 3,000 stores nationwide and about 17 percent of the market.

"As far as I know there isn't anywhere in this great country of ours that isn't already well-served," said Will Lyons, editor of Short on Value, an Atlanta-based newsletter that recommends stocks for investors to sell or to sell short. Hollywood Entertainment is on its list.

A short sale represents a bet that the value of a stock will decline.

"Somebody who's first in the market with a good concept scores big," Lyons said, "but a `me too' strategy doesn't work."

Another question mark is video-on-demand technology, which could someday make choosing a video via television as easy as flipping between channels.

"Everyone is swearing the digital age is right around the corner," said Ken Thomas, a securities analyst for Red Chip Review, a Portland-based research firm that specializes in small capitalization stocks. "I don't mean next week or even next year, but soon enough to cause concern."

But Wattles says his company is flexible enough to accommodate any curves technology can throw at him. He expects other entertainment media _ including CD-ROM and video games _ to play an increasingly larger role in his stores.

Copyright 1995
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