Same for physical DVD rental. Target those who don't just want to watch a film, but those who want to have a real life experience around it. Hold the equivalent of a book club, promote one DVD a week that all your members can rent for, say, 1 penny, then hold a weekly get-together to discuss the film. Promote the art-house side of things, quirky foreign films, all the things that are tucked away on the NetFlix submenus. Hell, why not, hold a singles evening once a month, there's plenty of single film nerds out there.
Any business model based around filling physical media with information and selling it is borked (so DVD/BluRay, books, CDs, newspapers, magazines, encylopedias, etc).
Your friend has somehow got to provide a physical/real-world experience that makes it worth coming to the store, and then work out how to monetise that (to avoid being the place where people go to talk about the films they streamed from Netflix this week). Retail is going through the same struggle, how to avoid becoming "Amazon's Showroom" so there are lots of people thinking about this at the moment.
But a good start would be to ask the existing customer base why they still use the store. Using that feedback it should be possible to work out what they have in common and thus identify the target market for the store.
The mistake would be to think that the business model is about renting movies. If the business is going to survive it has to become about providing a service that people will rent a movie to experience.