I recently spent a couple of days in Raton, NM. It's quite small but they have a thing there called the Whittington Center. It's a gigantic place to shoot, museum, store, and library on all things having to do with shooting. (How it got there is a fascinating political story that I'll leave for another day.) I'm retired and I love to shoot but it was that library that drew me in. I spent hours and hours there, finding new gems and old, every time I scanned a different shelf. I would literally consider moving to Raton just to have easy access to that specialty library...if it weren't for the fact that I spent enough time there to discover that Raton is an armpit of a place.
In the large metro area where I currently live there are a couple of niche stores that are doing at least OK. I can think of two stores that sell just vinyl records. I can think of one that rents rare DVDs, has an extensive anime section, even has some old stock on tape that never made it to disc, and sells a small selection of high-value, carefully-selected hardware to equip your home theatre. They have employees who seem to know *everything* and can make a dozen recommendations based on scanty evidence. I've brought three discs to the front counter and said "I've seen these. I liked them. What else would I like?" Within three minutes, an employee will have sprinted me around the store and put a dozen other titles in my hands (guaranteed I haven't even heard of half of them) and I can pick at random from that pile with no fear of disappointment.
I'm definitely willing to pay for that kind of service. It's just too bad I retired and I'm too far away from them to use them now. (In fact, I've been away for so long that I don't know if 2 of the 3 examples I just gave are still in business and I don't want the potential heartbreak of looking them up online to see if they still are.)
That brings me to my last point - location. Most DVD stores that were successful back in the day did so by being where there were the most people. Everybody was renting DVDs so you just had to be located where the most people were to be found. There were even DVD stores that did rentals inside major shopping malls.
Times have changed. Joe Average is no longer your customer. If the store in question is in a place with good traffic flow but no *specialty* traffic flow, then they're screwed, doubly so since not only is the customer base falling but the location rents are probably higher *because* of the good traffic flow.
The first idea that pops into my head is that specialty equipment stores that sell guns, weightlifting equipment, cosmetics, whatever, etc., tend to have a shelf somewhere with a couple of "how-to" discs to buy. The selection is always lousy and the discs are for purchase only. I wish someone would come up with a way to put a smaller, lower-tech version of a Red Box in every speciality store in the country. Said kiosk (or just a shelf of DVDs with bar-coded labels that somehow communicate with whatever vertical app the store is using to sell all their other stuff) would rent out "how-to" and specialty DVDs to those people who are interested in the goods sold by that particular store.
Wherever there's a successful brick-and-mortar store, there's the potential to sell and rent DVDs with highly-specialized content to the customers of those stores.
Why not abandon the "DVD store" concept? Bring the stock to the customers instead of making the customers come to the stock. I know one gun store that tried this with books and it failed but only because it took up too much room. On a per-square-foot basis, keeping a book store inside a gun store is stupid; there's so much more profit in just adding more display space for high-dollar-markup guns. With DVDs, though, we're literally talking less than two square feet of floor space for a tall, rotating rack.
Just an idea. I hate to see the OP's friend go out of business without at least an idea or two on the table.