March 24, 2008
Disney Gets Back into Retail
By Tom Ryan
Walt Disney Co. said last week it wants to return to running its Disney stores in North America. Re-owning the stores “can be an important extension of the ‘Disney’ brand” and would serve as a launching pad for the company’s growing number of creative franchises, according to Disney.
On the other side of the bargaining table, The Children’s Place, which licensed the Disney Store chain for the U.S. and Canada in November 2004, appears to have no problem handing it back. Disney Stores recorded a $107.3 million operating loss in 2007.
Since the sale, Disney has grown dissatisfied with the sluggish pace of store remodeling under Children’s Place. But Disney itself had long struggled with its North American stores in the past.
As with Warner Bros., critics said Disney had opened too many mall stores and failed to change them often enough to preserve novelty.
But Disney asserted last week that it can run its North American stores profitably as a smaller operation just as it does in Europe, where it owns 120 Disney Stores. That “right size” is from 200-225 stores. Children’s Place runs 335 Disney Stores and intends to close the stores Disney doesn’t want prior to selling back the franchise.
Disney also said that the merchandise opportunity is much bigger now than when the company exited the business in 2004. Back then, sales relied heavily on venerable properties such as Winnie the Pooh, Mickey Mouse & Friends and Disney Princess. But the company now boasts 10 franchises, including High School Musical, Hannah Montana, Pirates of the Caribbean, and Cars. Directly running the stores enables Disney to more easily capitalize on these growing franchises.
“It’s much easier to launch franchises in Europe from a retail perspective if you have complete control, over the timing of the entertainment content, timing of the merchandise launches, and a retail outlet where you can really focus on those,” Mr. Foster said.
Howard Davidowitz, a retail consultant at Davidowitz & Associates, believes Disney’s move will prove a liability.
“I think they’re a disaster. They were losing a tremendous amount of money, and they haven’t been successful for the Children’s Place either,” he told The Los Angeles Times.
But Martin Brochstein, executive editor of the Licensing Letter, which covers the consumer products licensing business, said the stores had value for Disney as a promotional platform.
“In a perfect world, would Disney prefer to do it this way? Probably not,” he said. “But it’s not a perfect world. As a marketing platform, when they’re getting out a specific message and shaping the way these products appear to the public, it serves a purpose to them beyond the dollars and cents of operating a chain.”
Discussion Question: Do you think it’s a good idea for Walt Disney to take back its North American retail business? What do you think of their plans to reduce the size of the chain and exploit its newer franchise properties? What steps should be taken to bring Disney Stores back to profitability?
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Retail, when done correctly, is a customer experience. And if anyone knows about the customer, or should I say guest, experience, it would be Disney. They can add the entertainment aspect to the “retailtainment” concept like few others can.
Disney needs to combine a winning team of Theme Park experts with Retail Experts and sell not only merchandise, movies, park admission but the overall Disney band. Even at break even the stores can be a powerful brand asset if run well, maintained like the parks and offering merchandise found no where else at retail.
Like so many suppliers, Disney is frustrated with its down-stream outlets. The answer is not to re-acquire them. Disney has an ideal product line for online shopping. They can display everything they own and offer, unlike any store can. Then, like Amazon, they can arrange with the existing stores to deliver the product locally from their inventory or directly from their warehouse.
As a Disney Store cast member for 14 years, I have to say, this is a good thing for the consumer. Yes, Disney made many mistakes in the past and didn’t run the store efficiently and didn’t have good merchandise. When I first started there, the adage was “don’t hard sell, the products sell themselves, just inform guests on the features and benefits of the product.” When that stopped working, it was sell, sell, sell! Better management and an understanding of the shopping guests was what was needed.
When The Children’s Place took over, the merchandise greatly improved (the quality could still use some improvement) but only the Disney company and cast members can truly understand, represent and sell the MAGIC that is Disney.
I know that at my store, we are saddened to no longer be a direct part of that magic as we are all passionate about the brand and what it represents. My kids own tons of Disney branded items and my 3 year old has been to Disney World 5 times. It’s truly a brand that you can love your entire life.
It was a mistake to sell us in the first place. I hope they keep our store open but if not, I would still shop another one.
This really is a double edge sword for Disney. All of their outfits are first class operations yet they could never make the retail side work even with products that everyone wants. I would say that if they were to get back into the business, they would need a fresh game plan and perhaps a departure from how they manage their other properties.
Retail is a different and most times difficult beast and it takes a certain perspective to make it work.
Most consumers probably don’t have a clue that The Children’s Place operates The Disney Store as a licensee. So any dissatisfaction with the stores’ content or execution reflects badly on Disney itself.
As a company known for being protective of its brand equity, this makes a lot of sense as long as the content becomes relevant and the execution becomes crisp again.
I was always surprised Disney didn’t put more attention on their retail business when they had their own stores. However, as Apple has clearly demonstrated, brands can carve a profitable niche in retail if they focus on innovation and differentiating the customer experience.
Where Disney seemed to stumble in the past was poor merchandising–too much apparel in the wrong color, wrong size, etc. If they put the right people in place and employ any of the assortment optimization tools available, that should be relatively easy to fix.
As it was mentioned in the article, Disney’s lineup is even stronger now than it was a few years ago and has a better chance of drawing tweens and teens into the store.
Assuming they do get back into the business, I hope they focus more on a smaller base of stores and try to make them destinations and memorable places to visit–taking a cue from American Girl, Build-A-Bear and others. Given the challenging state of retail, the malls and strip centers could use some excitement.
The way I see it, we have an aging population with more and more baby-boomers retiring. We live in a very affluent nation with most older people retiring on huge social security checks, pensions, IRAs, 401ks, investments, and their homes paid off. They need to find a way to unload this excess cash and spending on their grandchildren is as much fun as machine-gunning quarters into slot machines at the nearest casino. So I think this would be a good time for Disney to exploit this cash cow. Especially while other retailers are struggling.
The niche that Disney Stores play in is a good one…almost inflation proof. In today’s society the kids get what they want even when the parents can’t afford it. Revamping of the Disney store so it is not targeted for the very young but through the teen segment (Hannah Montana) will drive more dollars.
I agree the stores are crowded and could use some merchandising help. The strong benefit is owning your brand.
I also agree that Disney needs to hire retail experts to run this division, because running a theme park is very different from running a chain of retail stores.
Mr. Brochstein has focused on the issue for Disney. If Disney approaches this as a regular retail chain, it will be disappointed. But, I believe Disney is approaching this as Mr. Brochstein suggests–a brand building opportunity.
Other than the theme parks, Disney has few opportunities to really control the brand presentation of merchandise. By owning and operating the retail stores, it can control the merchandising and brand message for the portfolio of Disney products.
These stores, as a whole, will probably not make money. They could, however, support the merchandise and increase the overall wholesale return from the sale of Disney products. In other words, the retail stores are an alternative use of marketing funds.
If Disney was focused solely on plush toys, the retail concept still wouldn’t make sense which is one of the reasons the stores did not work well for Disney prior to the agreement with The Children’s Place. However, with broader product lines such as those associated with Hannah Montana, the brand building concept makes a lot more sense.
Why not? They’d be a welcome sight…if they stopped “over-theming,” reduced clutter and modernized the product, that is.
A critical element for the the Disney brand would be to play to their new success with “Millenial” products, like Miley Cirus (Hannah Montana) and the Jonas Bros. and lay off the WWII cartoons, like Mickey and Donald. There’s certainly a ton of potential if they can stick to that course.
The retail trend for oil companies has been to get out of operating stores in order to focus exclusively on product distribution. BP and Shell have been leading this strategy with pretty good success. Part of the reason they are doing this is because they don’t want the headaches that go with retail.
Operating a retail store is much different than a theme park. If Disney isn’t going to invest in a retail infrastructure, that means paying employees above other stores in the mall, providing ongoing training and the same health benefits they provide park employees, I think there’s a much better chance that they will damage their brand than enhance it.
It once was the cream to have a Disney license for any given product. However, I am one that believes that when Disney had too many mall stores that the value of its brand declined to a degree. If the stores will continue to be a factor, then it’s best for Disney to have direct control.
Disney is a licensor, not a retailer. Each time it tries to do this in America (where it licenses all of its products already), it is competing with its licensees which is a losing game. On top of this, Disney doesn’t have the purchasing capability to effectively compete with today’s retailers or suppliers and create a value add that is different (and better) than the products that are made and licensed by other manufacturers and retailers.
When Disney sold their retail stores to Children’s Place in 2004, they were trying to unload its stores as part of a larger effort to dispose of non core assets such as sports teams. The once-profitable retail chain hit a high of 700 stores in 2000. Since then, Disney had been trimming the number of stores, while losing money on the operation.
Children’s Place saw the acquisition as strengthening their leadership in the newborn to age 10 category, while Disney believed Children’s Place’s commitment to quality, the Disney brand, and entertainment retailing would maximize the Disney Store opportunity. They were trying to sell the European stores as well, although that never occurred.
Fast forward almost four years and the times have changed. Children’s Place was never able to find the profitability key for the franchise and product design & innovation was lacking. They did not close enough poor performing units and actually increased the number of stores.
Disney recognizes now that owning a smaller number of well-run stores in good locations can be reasonably profitable and serve as a wholly-controlled brand-building platform. The keys though are “well-run stores” and “good locations.” If this can be accomplished through hiring a number of excellent retailers and taking advantage of the current economic situation to renegotiate leases in the best locations and close the unwanted stores, this move could be quite positive.
This move has great potential for Disney. The stores are an extension of the brand and when the brand doesn’t own the stores it’s difficult to make the brand extension work well.
With Steve Jobs on the board of Disney, there should be some expertise to make Disney stores work for the brand. I would expect to see remodeling and a reformulation of the merchandising approach.
Why not? Disney can offer many benefits to its system by incorporating the retail stores. Think about the synergies that could be realized by incorporation of retail. In addition to offering a true career opportunity to a retail clerk, which would be a major boon to anyone familiar with retail, Disney has the ability to integrate its motivation systems, training, merchandising and promotion.
Can you imagine a Disney trained employee integrating display and merchandise to take advantage of a new release of “Pirates of the Caribbean”? I can see nothing but good coming of this.
It isn’t whether or not Disney should do retail, it’s whether or not they are prepared to actually do retailing correctly this time.
Fewer Disney stores = better return on investment. The real problem: will a retail chain ever meet Disney’s capital hurdle rate? Licensing has a very high ROI. So does the sale of food, lodging, and merchandise within theme parks. But mall shoppers aren’t captive audiences. Owning stores to “build the brand” won’t win any appreciation from Disney shareholders. And the stores need to make a much higher ROI than typical retail mediocrities.
Disney may eventually find that selling and franchising the stores to another party will save a lot of capital. If there was a Disney theme park in every major city, would they be “special”? Would they be able to command over $1,000 in admission fees for a family of 4 to visit for a week?