John Wayne : USA

The trend in retail, Disney or otherwise

John Wayne — Wed, 16 Apr 2008 01:00:00 GMT

In recent articles here on JHM, there’s been quite a bit of discussion about the fact that the Walt Disney Company has agreed to repurchase 100% ownership of its Disney Stores and that -- as part of the re-acquisition and repositioning of the once-strong retail division -- they are going to be closing 100 or more stores throughout the chain. We’ve also seen discussion here about worries about declines in in-park merchandise-per-guest spending and talked about shut-downs of venues for entertainment and retail at Pleasure Island.

Since the talk about Disney issues sometimes happens here, inevitably, in a semi-vacuum and since we tend to think of WDW and the other parks as “worlds” apart, I thought a look at the retail universe in general might shed some light on larger trends that are affecting Disney. Both to explain the current moves and to show that this is not specific to this company or these locations.

In the past several months many household name companies in various aspects of retail have either gone bankrupt, announced plans to do so, or announced the closure of many of their stores in an effort to reduce costs and eliminate slower-performing outlets. A large part of this, of course, is because these are public companies and must report to stockholders and show analysts growth numbers. Whereas, in the old days of privately held retail chains, the public airing of dirty financial linen wasn’t quite as much of a concern.

But the effect this will have on, for one example, the commercial real estate business and the look of malls across the USA will be profound. Consider the players you will not be seeing or will be seeing much less of on the retail landscape to get an idea of just how big this downsizing trend has become:

BANKRUPT: Sharper Image and Levitz furniture are the biggest of eight major chains to file during the past few months. Bombay, once a darling in the furniture business with huge sales figures and 360 stores and over 3600 employees, has filed and been liquidated, with only 20 employees left to close down the 38-year-old retailer. Linens ‘n Things is expected to file shortly, and they’ve got 500 stores in 47 states. Now of course some bankruptcies are the “The End” title card in the movie of the company’s life, such as Sharper Image which is definitely going out of business and liquidating not only its remaining stocks but also store fixtures and appliances across the country.

Others are about reorganization and temporary respite from creditor demands and look forward to a leaner, meaner return to the wars someday in the future…they hope. Among the companies taking this route recently are Wickes Furniture, the longtime catalog company Lilian Vernon, Fortunoff housewares, and Harvey Electronics. Whether these companies will actually re-emerge from bankruptcy is, of course, still in doubt.

But bankruptcies have ripple effects in other arenas. For example, when Sharper Image, which had a huge catalog and mail-order online business as well as its stores, went bust, it left United Parcel Service holding the bag on $6.6 million worth of unpaid shipping bills. Domain, a furniture retailer, left its shipper, On Time Express, unpaid for only $30,000, but for the small 90-employee company in Tempe, Arizona, it might as well have been millions.

By the way, when firms go bankrupt, it isn’t just their creditors, landlords, and big-time customers who get burned. Don’t expect to get any value out of any unused gift cards or certificates you got last Christmas that have been burning a hole in your pocket since then if the store they’re drawn on goes under. You’re last in line to get paid, and very unlikely to see any value at all.

DOWNSIZING: Disney is, again, not alone in closing many stores and leaving lots of malls with holes in their hallways. Foot Locker says it will close 140 stores this year, Ann Taylor plans to close 117, and Zales jewelers will shut down 100 more. Charming Shoppes, the parent company of Lane Bryant and Fashion bug, will close at least 150 stores, Wilson’s Leather will dump 158 of its lowest-performing locations, and Pacific Sunwear will see the sun set on a subsidiary chain it had been operating called Demo.

Other big companies are cutting back on expansion plans and, in the process, are sure to close losing locations too. J.C. Penney, Lowe’s, and Office Depot have announced slow-downs in expansion, with Office Depot in particular reducing a planned 150 store openings to 75. Overall, the International Council of Shopping Centers trade organization says they will see 5,770 store closings in 2008, up from 4,603 in 2007 for a rise of just over 25%.

And remember most all of these decisions have already been announced which means they are based on economic statistics that are already being eclipsed by the current figures you see on TV every day. What will those inspire managers to do in the next year forward? We’ll all see. The March numbers for sales in stores that have been open at least a year were what looks like a tiny fall of half of one percent…but that is the worst number for that stat in 13 years.

So … when Disney closes down its Disney Stores and shutters venues at the parks and surrounding them, they’re not really doing something so very remarkable unless you think that the pixie dust of “Disney Magic” grants immunity from the ebb and flow of economic times.

Will there be boom times again? Surely. Will new and more innovative and, perhaps, more cost-effective retail chains still undreamed of become the household names of tomorrow’s malls? Sure thing. And will Disney, which sells, after all, the EXPERIENCE of shopping at its parks just as much as it sells the merchandise bought, become just as innovative as we all have come to expect to survive and thrive in this brave new world of changing retail realities? I suspect they will, don’t you?

But for some sectors, some products, and some kinds of retailing, between online competition where no “bricks and mortar” and their accompanying employee, insurance, utility and rent expenses are concerned, some kinds of things we used to shop for in stores may just vaporize from the physical retail scene. Look what’s happened to music and video as downloading replaced retail and long-time companies such as Tower Records just plain gave up the retail ghost.

But what do YOU think? Will malls, stores, and on-property Disney shopping change forever, or will the old trends come back with better times instead? And what will all those displaced retail employees do to earn a living…and afford their next trips to Walt Disney World?

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Will Orlando soon follow Las Vegas' lead and begin offering deep discounts on vacation packages ?

John Wayne — Tue, 08 Apr 2008 01:00:00 GMT

With all due respect to the Orlando / Kissimmee / St. Cloud vacation area, the number one attraction for tourists, domestic and international, in the USA has been and probably always will be Las Vegas. Because of the need for workers to service that industry AND the no-income-tax status of the state and its mostly great weather, Vegas has also become the fastest-growing city in the USA drawing everyone from construction and hotel workers to retirees.

Every time somebody predicts a bust for Vegas or says that it has overbuilt and will have a comeuppance, the facts prove them wrong. In an article about Venetian-owner and multi-billionaire Sheldon Adelson this week, George Will noted a Life Magazine story from June of 1955 asking if Las Vegas was “overextended.” The city had fewer than 3,000 hotel rooms then, and today boasts 138,000 with 45,000 more under construction.

But …

Maybe the double-whammy of high gas prices (a VERY large percentage of Vegas visitors drive there from Los Angeles and nearby southwestern states) and a faltering economy due to the mortgage credit crunch is about to have an effect on Vegas’s fortunes. And this is important to watchers of things Mouse-ish because Vegas could be the “canary in the coal mine” for the entire tourism industry for the next few months and years.

What makes me think so? Simple. As a resident of the Los Angeles area whose front door is only about a 4-and-3/4ths hours drive across the desert from the Strip (Pax CHP!) I enjoy Las Vegas’s attractions fairly regularly, and have learned over the years that the economical way to do this is to get on the various casino hotels’ mailing lists for email “special offers” that often drastically reduce the price of rooms and throw in all sorts of goodiesand not just at the cheap or middle-of-the-road places, either.

Thanks to these e-specials, I regularly stay at the top-end resorts such as the Venetian, the Wynn, the Bellagio etc. etc. at rates that would shock anyone paying “retail” rack rate, and this is NOT some kind of high-roller gambling comp I’m getting, either. As much as I know it sounds like the old-time complaint that one buys Playboy “for the articles, honest!” I really am not much of a gambler, and enjoy Vegas primarily for the dining, the shows, and the spa’s and general relaxation that does NOT include crowding into hectic casinos or doing the forced-march madness of all those Strip-trekkers you see on busy weekends.

So what deals are they sending me lately? Let’s look at the email and see:

Photo courtesy of the Palazzo

ITEM: The Palazzothe Venetian’s new deluxe sister hotel/addition wants me to stay for what is a really low $179 per night with free drinks, special VIP check in, discounts on dining, free desserts and other goodies. The rack rate at this hotel is around $300 at a minimum.

ITEM: Mandalay Bay has dates in April, May, and June during which a 3-day stay will only cost 2 day’s pay -- a serious savings indeed.

ITEM: MGM Grand is having a “sale” for upcoming dates for $99 per night.

ITEM: The Mirage is offering 15% discounts on regular rooms, and 20% off on Premium rooms, 25% off on De Luxe, and a whopping 30% off on Tower and Penthouse Suitesthe ones that appeal to the highest of high-end travelers who, you’d think, they would not have to discount for at all, recession or no recession.

ITEM: Most telling, the admittedly not ultra-deluxe New York/New York has a 10%-off / $10 at Starbucks / $10 free gaming play deal in April, that escalates to 15% / $10 / $10 in May, then 20% off in June with 2-for-one breakfast at Il Fornaio, $15 off a spa treatment, free welcome drinks and a pass on the roller coaster.

Now the point of this article is not to play travel agent for you or to tout any hotel, and there is a side-issue of the fact that, thanks to “gaming” revenues, Vegas hotels (unlike those in non-gaming destinations such as Florida) can afford to discount the purely lodging-and-dining deals because they expect to make up in slot machines and crap table income what they may give up on room rates and show tickets.

Photo courtesy of the New York New York Resort & Casino

But the larger point is this: The fact that these major players who are usually ahead of the travel industry curve are already pushing spring and summer discount deals in March and April for the time of year when people take more vacations and when you would think they’d be fat, sassy, and full of guests… AND That the deals get BETTER as the summer gets OLDER and any gas-price/economic-crunch problems they anticipate get more impactful on people’s discretionary travel plans … Well, that makes you wonder:

Will DISNEY and the non-Disney hotels in the Orlando area do similar discounts this season to counteract the same economic trends? I’m betting YES. And before you say that more people fly to WDW as a percentage of the whole than drive to Vegas, remember that airplanes burn gas, too. And that rising prices for airfare are inevitable as $100-plus-per-barrel-oil becomes the norm.

I mention all this because if you’re thinking of a vacation trip to WDW (or anywhere) this summer, I suggest you do some serious shopping and looking for deals, because there will be more and more of them if Vegas’s already-being-promoted plans are any indication … And they almost always are.

But as Jim would say … What do YOU think? Will this vacation season, fraught with family belt-tightening though it may be, wind up being a bargain-hunter’s bonanza for voyagers to WDW or Disneyland? And will Disney itself, not to mention its competitors and independent hotels and packagers, respond like the wily Vegas folks have already done to encourage a “yes” decision AND an earlier commitment among vacationers whose leaner pocketbooks and reduced home equity may be suggesting a “not this year” response to their advertising seductions ?

UPDATE: As I was prepping Mr. John's article for posting on JHM, I actually checked in with a few friends who work in the hospitality industry in Orlando. And -- as it turns out -- Mr. Wayne is right. Over the past four months, the average cost of a hotel room in O-town has steadily dropped from being just over $150 a night to the current price. Which is under $125 a night.

When you see a price drop like that (Which -- FYI -- bucks the historic trends. Given that the theme parks are usually quite busy this time of year, the price of hotel rooms typically goes up during the month of April) ... Clearly something's up in O-town right now. So please keep this in mind as you make your travel plans for the coming months.

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