With tough competition, Blowout vows to take it slow

Discount Store News, March 17, 1997

PORTLAND, ORE. -- Blowout Entertainment occupies a precariously narrow, but potentially profitable, niche within the world of entertainment retailing.

A recent spin-off of Rentrak Corp., a Portland, Ore.-based firm that leases video tapes to rental specialists on a payper-transaction CPPTJ basis, publicly held Blowout has 200 leased, store-within-a-store video rental and sales departments, mainly in WalMart and Kmart locations. Those two chains account for 94% of its revenues.

Blowout currently operates 160 departments in Wal-Mart and Wal-Mart Supercenter locations, B in Super Kmart Centers and 12 in Ralphs and Food 4 Less grocery stores in California. The company has rental outlets in 28 states.

The company, which began trading late last November on NASDAQ, also faces a gauntlet of formidable challenges, including a lack of profitability, heavy dependence on two major customers, a heavy debt load and encroaching competition from aggressive national rental chains such as Blockbuster, Hollywood Entertainment and Movie Gallery.

The firm has experienced tremendous growth in the past 15 months, president Steve Berns told DSN. Bems also said that he now wants to control the company's growth while expanding its markets.

But the company is looking to expand its business into supermarkets while seeking profitability for its core operations. It is optimistic about its future, despite the formidable numbers.

"During that 15-month period we consolidated three operations under one roof in Portland, Ore., and opened more than 100 new locations in Wal-Marts, Kmarts and Ralphs," Berns said.

Blowout's business is actually the consolidation of three separate entities: Entertainment One, an Effingham, III.-based company that pioneered the store-within-a-store concept for video at Wal-Mart; Super Center Entertainment of Dallas, which operated rental stores in both Wal-Marts and Kmarts, and a Rentrak subsidiary that operated video departments inside Ralphs grocery stores.

During the first nine months of 1996, Blowout opened 59 new stores, primarily in Wal-Mart Supercenters. An additional ll stores were opened through

Berns said that he wants to prevent Blowout Entertainment from blowing up by controlling the firms growth.

It's not our intention to go around opening as many stores as possible," he said.

During February, four new Blowout locations opened in new Wal-Mart Supercenters in Pennsylvania, Indiana and Virginia, and in an existing Super Kmart in Mississippi, Berns said.

Blowout's financials tell much of the story of just exactly how rapidly the company has developed.

Blowout reported a net loss of $1.7 million for the third quarter ended Sept. 30, 1996, compared with a loss of about $192,000 for the comparable period a year earlier. Total revenues for the third quarter were $7.9 million, compared with $3.1 million for the same quarter in 1995.

Revenue during the first nine months of 1996 grew nearly fivefold to $22.1 million from $4.3 million for the same period in 1995. For the nine months ended Sept. 30, 1996, the company reported a loss of $4.3 million, compared with a loss of $4.3 million for the comparable period in 1995.

Blowout has been selectively closing some its weaker locations and may soon exercise an option to close several more outlets.

According to Blowout's Securities and Exchange Commission securities registration statement for its spinoff from Rentrak, the company may close as many as 10 underperforming locations in Kmarts next month. It already closed 23 Wal-Mart locations and one Kmart location during the three months ending Sept. 30, 1996.

We intend to continue to work with the world's largest retailer, Wal-Mart, and hope continue to developing stores. We really want to try to duplicate the success we've had with the Ralphs chain by selectively going around the country and choosing strong regional grocers that have the No. 1 or No. 2 market share in their respective areas," Berns said.

At least 17 new outlets in Wal-Mart Supercenters will open in 1997, but there can be no assurance about the number of locations that Wal-Mart will make available to Blowout, the company said in a recent SEC filing. Blockbuster, the nation's leading video rental chain, also operates store-within-a-store video outlets in some Wal-Mart locations.

Since going public at $5, Blowout's share price has taken a beating and was trading at around $2 to $2.25 per share in mid-February.

"I doubt that the market is very receptive to any video stock right now," said Derek Baine, an industry analyst with Paul Kagan and Associates.

Baine said that Blowout's current low level of capitalization and history of losses will make it difficult for the company to achieve the growth it will need in a highly competitive environment. "The rental market is getting oversaturated," Baine said.

Another analyst who reviewed Blowout's business plan when Rentrak was considering spinning the business off predicted that few consumers would really want to rent their videos from within a mass merchant location and have to make two trips.