After hiring high-priced executives to manage aggressive growth plans, a slump in the video-rental market drove Planet Video into bankruptcy. A business obit.
The Business: Independent video-store chain Opened: April 1994 Closed: July 1998 Primary causes of death: Hiring high-priced executives before cash flow could support them; an industrywide slump
Planet Video hardly ever ran out of good gimmicks in its rocket-ship rise to success. The Milwaukee-based chain of video stores didn't have truckloads of ad dollars like its big-chain rivals, Blockbuster and Hollywood Video. But Planet Video president Victor Seyedin, 48, and his brother Nader, 45, the company's marketing whiz, did know how to make a splash. To mark the release of the video of Forrest Gump, the brothers called in a squad of local hairstylists to offer free "Gump Cuts" at their five Milwaukee stores. And when Toy Story debuted, they sent actors in full military regalia out to the parking lot of one store, creating a mass public spectacle.
Such gambits, along with a fierce commitment to customer service and in-depth movie selection, paid off--at least at the start. A year after Planet Video's April 1994 opening, its five Milwaukee-area stores each were raking in average revenues of $750,000 a year, compared with an industry average of $400,000. In July 1995 the Video Software Dealers Association, the home-entertainment trade group, named Victor Seyedin retailer of the year among the owners of small-size chains.
Still, the company's fast start led to a dangerous overconfidence. Before moving to Milwaukee, Victor, Nader, and several other Planet Video partners had built a group of 19 video stores in Michigan, which they sold to Blockbuster in 1993 for a little more than $9 million. They envisioned duplicating that success on a grander scale in Wisconsin, and by late 1996 they had 22 stores operating in the state.
The partners' growth strategy called for roughly tripling the number of stores in two years by expanding into other Great Lakes areas, such as Buffalo and Illinois, where video rentals are strong. But the plan required more than $5 million in financing. How to attract potential investors? Planet Video brought in a team of video-industry pros in early 1997, including veterans of Blockbuster, to oversee its expansion drive. "We really needed an organization to take it to a higher level," recalls Victor.
That organization meant steep new executive salaries, however, and far higher overhead. Even before the new management could begin wooing investors, Planet Video's debt was piling up. The Seyedins might have scaled back expansion, but they could not easily retreat from the planned launching of 15 new stores in 1997 because the company had already committed to leases.
The problems worsened. The home-entertainment industry, strong through most of the 1990s, slumped badly in the first half of 1997. That made it harder for Planet Video to lure investors--the hoped-for outside financing never materialized--and its situation grew more desperate. Far from easing the liquidity crisis, the new stores sank under the weight of such problems as bad locations, poorly trained managers, and an inability to respond to the aggressively lower prices of competitors.
On May 8 the company, which had racked up roughly $12 million in debt, filed for Chapter 11. Without attempting to come up with a viable reorganization plan, it sold its remaining assets for just over $10 million to Blockbuster, which is expected to shut almost half of Planet Video's 35 stores. "It's a sad story," says Victor Seyedin, who notes that he and his brother invested their entire life savings in the company. "So many things went wrong." -- Susan Hansen