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The trend in retail, Disney or otherwise

The trend in retail, Disney or otherwise

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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.

Copyright Disney. All Rights Reserved

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.

 Copyright Simon Property Group, Inc. All Rights Reserved

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.

 Copyright 2006 Simon Property Group, Inc. All Rights Reserved

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?

Copyright 2002 Disney. All Rights Reserved

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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