Disney to take back namesake retail outlets
Walt Disney Co. said it was in discussions to acquire most of the troubled Disney stores it sold to Children’s Place Retail Stores Inc. in 2004.
Disney said its North American stores, which it had sold because of anemic performance, would play an important role in extending the Disney brand and would serve as a launching pad for the company’s growing number of creative franchises.
“When you’re in control of franchises and a retail outlet like the Disney stores . . . we can take bets early on ‘Disney Fairies’ or ‘High School Musical.’ We can launch a line of merchandise and let it take off from there,” a spokesman for Disney Consumer Products said.
Children’s Place made public its plans for “immediately” exiting from the Disney Store business on Thursday, when the Secaucus, N.J.-based retailer reported its fourth-quarter results. The struggling retailer said it reached the decision after evaluating the chain’s potential for earnings growth and capital needs.
Children’s Place said its wholly owned subsidiaries, Hoop Holdings and Hoop Holdings Canada Inc., are in advanced discussions with Burbank-based Disney, which wants to regain ownership and control of about two-thirds of the 335 Disney stores in North America.
Disney sold its stores to Children’s Place in November 2004, in an agreement that gave the retailer the right to run them in exchange for a licensing fee that Disney waived for the first two years. There was no upfront cash payment. Instead, Children’s Place pledged to spend $200 million to remodel the stores over a five-year period.
At the time, the arrangement was viewed a face-saving move for Disney, which, like Warner Bros., had opened too many mall stores and failed to change them often enough to preserve novelty.
But since the sale, Disney has grown dissatisfied with the sluggish pace of store remodeling. Children’s Place acknowledged that it had been unable to meet the timetable for renovations.
The Disney spokesman said the Disney Store business that the company is reentering in the U.S. and Canada is different from the one it largely exited in 2004. Back then, sales were hamstrung by limited merchandise opportunities, which relied heavily on tried-and-true properties such as Winnie the Pooh, Mickey Mouse & Friends and Disney Princess. The company now boasts 10 franchises, which produced $11.2 billion in retail sales in North America in fiscal 2007 -- nearly double the $6.5 billion in sales from fiscal 2004, according to Disney.
Nonetheless, Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investing banking firm, said Disney’s decision to take over its namesake stores would 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 said.
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.”
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