Movie Gallery filed for bankruptcy on February 2, 2010, announcing plans to close 760 stores. The company had previously filed for bankruptcy in October 2007, emerging from Chapter 11 in May 2008, with private equity firms Sopris Capital Advisors and Aspen Advisors as its primary owners. Movie Gallery’s website is asking consumers with rented movies in their possession from stores that have closed to return them “in a reasonable time frame” to one of the 1,906  stores that will remain open.

Lessons Learned:  Movie Gallery’s first bankruptcy was attributable to the unmanageable debt they took on in their acquisition of competitor Hollywood Video for $1 billion in 2005. The second Movie Gallery bankruptcy is due to bad fundamentals for bricks and mortar movie rental locations – even worse than anticipated by the two private equity firms who took it out of its first bankruptcy.  (Retail movie rental is turning out to be such a weak business that market leader Blockbuster is once again at risk of bankruptcy. ) The private equity firms would have done better to put their money in shares of Netflix, which has increased from $39/share in May, 2008 to a current price of nearly $70/share.