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.
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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.
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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.
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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?
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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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The simple fact is that people are not going to spend hundreds at stores when they have to pay $4 a gallon for gas to get to those stores. Unless we all decide we want cars that run on water, and someone actually invents that technology, spending will have to decrease in all areas of the economy. With increased demand from around the globe, and the very possibility that oil production is at a peak, we all have to get used to increased transportation costs, at the expense of the consumer economy.
That said, look for sales in areas where people don't use cars to stay robust. This includes Disney's store on 5th Ave. in New York. Taking the train into the City from such wealthy areas such as Westport, CT and Brewster, NY only costs about $25 round trip, so these people will have money to spend, and will be happy to as most NY suburbanites love an exciting Saturday in the city. As long as the prices are reasonable, expect sales for all chains at locations similar to Disney's NYC shop (i.e. areas close to mass transit and areas with strong arts/entertainment/sports districts in Chicago, Washington, San Francisco, Boston, and Philadelphia) to remain strong, but for sales at suburban malls to fall, as people won't want to spend money to drive to the mall to simply shell out more money.
I think you"ll see a move more and more towards retail experiences (think American Girl Place). Because unless you're shopping for a toothbrush or groceries, the internet is just a more convenient option with no gas prices attached. The future of the middle is in the internet.
When I think of how Best Buy is the closest retail spot for niche DVDs, I suspect its carrying appliances has helped it quite a deal. (It seems to be popping up all over NYC, actually). And now Blockbuster is looking to acquire Circuit City. It's a little odd but I think the appliance/electronic side of things can hold down a retail location better because it's something most people want a salesperson to help pick out and bring the thing home the same day.
Good points all. Let's explore a few of them, shall we?
1. Re. BestBuy vs. CircuitCity etc. etc. Most business analysts I've seen are basically saying that Circuit City is one of the most mismanaged companies in the entire retail universe, and that Blockbuster's late start at competing with Netflix and huge real estate committments make it an invalid too, and thus that this attempted merger is the often-seen hope of two weak companies that they'll be stronger together. We'll see, if it happens. One thing I do know--both BestBuy and Circuit City instituted interesting mixes of online/real-world marketing in the past few years but not for the reasons you might think. They both put in "buy it online, pick it up in the store" systems whereby you got the convenience of shopping and clicking-purchases online but saved the shipping costs by coming to your local store to actually pick up the merchandise. IN FACT, these transactions wound up costing them a bit MORE than either a purely online or purely in-store purchase did--more staff for the stores, less convenience and pass-along shipping costs online. So whyfor did they do it? Because they figured that getting the customer INTO the store who otherwise would have been waiting for the FedEx or UPS guy actually generated an approximate 30% HIGHER total "check" because of impulse buys or add-ons that they got "as long as I'm here" in the store but would not have purchased had they not been drawn into the store by the deal. My personal experiences with this system at Circuit City left me totally turned off by it because the in-store people were so slow and incompetent that it took longer to stand in the special "quick-pick-up" line than it would have if I'd just gone to the store anyhow in the usual way and gotten my merchandise off the shelf, but the THEORY that this kind of hybrid marketing will draw more sales is a sound one.
2. A lot of this has to do with the KIND of merchandise being sold, too. Some things are easier to shop for online. Some things may inspire you to seek out an "expert" in a store (such as high-tech stuff if you're not very high-tech) and some to seek out a "fitting" experience with clothing, for example. BUT....there are online trends that mitigate against these issues. First, the abundance of "expert" reviews and tech explanation sites online is often much BETTER than the caliber of in-store help, even in specialist shops that pretend to expertise they often cannot afford to train well enough or pay staff well enough to deliver. Second, liberal refund/return policies by online clothing people--led most amazingly by the thing that is hardest to "fit" by remote control: SHOES via online giants such as Zappos.com--takes a lot of the worry out of online purchases of this kind. But in general, it's like online shopping in general--5 years ago, many were afraid of it and/or of credit card security issues involved. Now, practice makes familiar and friendly, and more and more customers--especially in cities where retail is intensified and suburbs where the "big box" stores abound--are willing to take the lower and lower risk of being disappointed online.
3. Re. transportation/fuel costs for shopping trips. I get your point, CTman, but y'know, there are a LOT of people reading you in other parts of the country and choking when you call the price of a train ticket at $25 an "only" anything. It costs me about $60 to fill up my monster gas guzzler that gets about 18 mph in town and 22 on the freeway. But with 18 gallons filling it, that means a "range" on that one tank of about an average of 350 miles. Divide that by the approx $60 (which I never quite spend because I never get it utterly empty, of course, but we're using round numbers to approximate here) and that's about 17 cents a mile, roughly. So....$25 train ticket divided by 17 cents? I can go 147 miles (surely more than most round trips into/out of NYC from your area) and have a nice big trunk to fill--though of course if I was in NYC I'd be paying for parking and enduring the inconvenience of traffic etc. etc. and I, too, would rather take the train.
But the point of shopping malls and suburban "big box" conglomerations of stores was to save you and millions of others the trip in the first place. Retail stores moved with populations as they exited the cities. That was fine, but in the process, of course, what happened to the shopping EXPERIENCE as a BigBoxBrand store in California or Cleveland or Colorado or Canada looked, smelled, sounded, and tasted just like all the rest was a homogenization of that "branded" shopping experience, and when THAT tries to compete with FUN (Say, a Disney Store when they first came out--or a Rainforest Cafe or any themed retail or dining or drinking chain) well, especially once a "new" brand has matured into familiarity and is even more boring there's no competition at all. The hassle and expense isn't worth the return emotionally of the experience. So we stay home...and, as I wrote in the main article, hundreds of stores close and thousands of people look for new employment.
Human beings have congregated to shop, eat, and socialize since we first strolled over to the cave next door to kibbitz about the upcoming dino-meat crop. Village squares and country markets gave way to Petula Clark's "Downtown"'s, and then, in our post-WW2 era and especially since about the 1970's, the mall and the suburban big-box-based strip took over the task. That's why they put in the food courts and the multiplexes--all trying to simulate that old "downtown" experience of variety in ethnic foods, entertainment, and excitement. AND IT WORKED....and led to crowded parking lots, dullards for servers, and, when the original ideas were out there and popular, immitations and business concepts that boiled down to "Its just like X only we do it in BLUE instead of GOLD! We'll make MILLIONS!"
So....we're bored, the experience isn't worth the pain, the alternatives which don't have the same fun (although online networking/social sites are, in their own ways, substitutes for the communal village experience the malls once stood in for and, in THEIR own way, were inferior to as well) or the same excitement or the same originality and sense of the unexpected make up for it with predictability and reliability and safety and, yes, no train or car ordeal required.
What's next? Somebody will build a better...uh...you should excuse the expression on a Disney-themed site...mousetrap. When the shopping/eating/
socializing/entertaining experience is invented that is SO good to do and that OVERCOMES the downsides...and I certainly believe it will be since the basic economics say it'll kick butt financially....we'll go back out there.
Maybe it'll take non-petroleum-driven transportation. Maybe it'll take robot salespeople who juggle the merchandise. Maybe it'll take a "themepark" experience in shopping of the kind that Disney has been so good at creating and that companies like Disney are uniquely positioned to do because they can "test market" them in their themeparks then move them into the world at large.
Maybe it'll take merchandise we want so badly and that, to keep its cachet, they ONLY sell in stores---let's remember that "Sharper Image" began as a very "exclusive" and "trendy" and "cutting edge" catalog operation...and that their first and, they said at that time, only store was in the heart of Beverly Hills and only stocked their highest-end and trendiest toys. When they LOST that specialness, well...here they are bankrupt.
And THAT is the ULTIMATE lesson that I, for one, hope the Mouse folks will remember---you can only lose your reputation for UNIQUENESS and SPECIALNESS....ONCE. That goes for themeparks, restaurants, movies, or....retail stores.
I can't honestly see this changing the way Disney retail is opperated in theme parks. There are enough people that have to have souvineers from their vacations and enough people that walk in and out of stores to pass time while family members are in shows and on rides to keep them afloat.
Now the Disney Store is a different story. The stores seem to survive - hell, thrive -on Hannah Montana and High School Musical obsessed 'tweens. It's gonna be interesting to see how that groups ever changing tastes effect the stores. Maybe the smartest thing for Disney to do is move all off property retail to the web.
Re. in-park merchandise, Disney has an interesting problem to solve. On the one hand, having stores that are known for specific merchandise is a good thing: Want collector art? Go to THAT store. Want "villains" merch? Go there. Want "the big store with everything"? The "emporium" clone at a given park. The problem is...geography. WDW is just so huge and even very agressive shoppers won't/can't cover all the territory on the same trip. The answer? Well, you put the collector art stuff in 2 places...or 3...or 5.....ditto the other specialized merchandise, and oh, if somebody wants just a plainold teeshirt, well, they're HERE so why not add to the specialized store's revenue by adding that otherwise "emporium" stuff too? And before you know it...well....the blur begins. And then some suit says "Hey, we don't need all these places and people--its a waste! Let's SPECIALIZE! And the dance begins again.
Meanwhile, as we've all noted in other threads here, the "competition" from the generic Disney stuff outside the parks and at the local Wal-mart in O-town en route to the Airport is biting into the park merch action, and of course their generic-izing of all the park stuff inside hasn't helped at all, however much it may have streamlined the in-house distribution/inventory issues.
However, please note that in my article and follow-up I mentioned that the antidote to bad/stressful/boring/not-worth-the-trip retailing is EXPERIENTIAL retailing...and after all, there's a huge chunk of "experience" built into shopping inside a Disney park from the get-go. So on that score, they're way ahead.
One more point re. the fact that Disney Stores seem to be full of Hannah Montana etc. etc. or whatever the current hit is. Fact is, you can find this stuff elsewhere and sometimes cheaper. The reason why the D-stores do well with it by and large is....predictability of availability.
Consider the poor mommas out there: The kid is whining for a Hannah Doll. Mom KNOWS she can get it online but...that's a wait and the kid is WHINING. She knows she can probably get in her car and drive to Wal-mart or the "big box" strip and shop around after parking, burning gas, and dragging that same whiney kid past all the OTHER stuff they will THEN want, too. OR.................... hey, its a Disney thing, so its GOTTA be at the Disney Store. I can go on my lunch hour w/o the kid to avoid further temptation, be CERTAIN it will be there, and for that I'm willing to pay Disney's retail-retail price. The convenience and certainty of availability is worth the expense.
Of course, that was diluted when the merch of the SAME kind was found elsewhere that was similarly convenient and perhaps cheaper to boot, i.e. Wal-Mart etc. etc. The key for the Disney stores is to couple that convenience/availability/certainty factor with.....here's that word we've been using re. in-park stuff again: EXCLUSIVITY. The issue is...with 100 or more FEWER stores as part of the downsizing, can they (a) move enough merchandise to apply the same economies of scale to more exclusive items, and (b) with fewer places to shop for it at a Disney Store now-not-quite-so-near-you, will the convenience factor be trumped and thus removed?
Honestly, I don't get the whole "I'm not going shopping because gas is expensive" thing ... seems ridiculous to me. I haven't changed my shopping/driving/spending habits one single bit due to gas prices.
I drive a Chevy Tahoe ... the thing gets 14 mpg and has a 25 gallon tank. Okay, so I used to fill it up for $2.50 a gallon. That cost me (assuming a dry tank) $62.50. Now gas is $3.25 a gallon, so it costs me $81.25 a tank. A whopping difference of $18.75. Even if I fill my tank four times a month (which I do) that's an extra $75.
Whoopee ... are there there really people out there who's budgets were SO TIGHT that an extra $75 a month is preventing them from going shopping??? If so, here's a news flash ... you were doing something wrong. And bear in mind, this is with a HUGE, gas guzzling SUV. If you drive a Honda the costs are probably less than half that amount.
Anyway, I do agree with John Wayne that the retail model is changing. I don't think it has much to do with tough economic times, though, because as he points out these changes have been in the pipeline for awhile. They're not in reaction to the current environment.
I just think retailers are getting smarter about their store distributions. In retail, more is not always better. You often end up robbing profits from yourself.
While I'm in a similar situation to you, Pickstar, I think you're grossly naive to think that there aren't a boatload of people in the United States for whom $75 a month is a luxury. These are the people living paycheck to paycheck, who use check-cashing services so they can get groceries on payday instead of waiting for the check to clear, who can't save anything for retirement because there's nothing left over after rent, utilities, food, and clothing. And gasoline.
Two thoughts here.
1) The Internet is and will continue to drive future sales. The younger (iPod) generation has embraced buying stuff online and they like it. Retail spaces and especially shopping malls are going to become more and more empty as this generation matures. I can say for me and my family, we are already spending less time in the mall than we have in years past. We go maybe once every few months now, mostly centered around major holidays like Christmas and Easter to buy clothes.
2) Variety. The in-park stores are decling in sales because there is no variety between the different stores. It used to be that each store carried certain exclusive items and you couldn't find them at other places invluding the World of Disney. Furthermore, what they are carrying is junk that nobody really wants. Give us something new and unique that we can take home and actually enjoy and won't find online for half the price.
In order for businesses to stay competitive, they are going to need to be more adept at determining what this younger generation wants and then providing it quickly. Online stores are going to need to offer something unique that can't be found at the local retailer, and vice versa. If the retail stores want to draw people in, they need to offer something in the store that can ONLY be found in the store.
This new generation is smarter, yet more fickle than previous generations. They're not going to fall for the same old junk being crammed down their thoat by the big marketing machines. The marketing campaigns of past will not work with them, a new template/model must be created to meet their demands.
"While I'm in a similar situation to you, Pickstar, I think you're grossly naive to think that there aren't a boatload of people in the United States for whom $75 a month is a luxury. These are the people living paycheck to paycheck, who use check-cashing services so they can get groceries on payday instead of waiting for the check to clear, who can't save anything for retirement because there's nothing left over after rent, utilities, food, and clothing. And gasoline."
How do they afford a car, then??
I mean yeah those people are out there, but they CERTAINLY weren't doing a lot of shopping with that extra 75 bucks so I say again ... I don't think that's got anything at all to do with declining retail sales at some of these places.
It's not the added cost of filling your tank with gas that is preventing people from mall and/or online shopping, it's the incremental increases in everyday purchases that are preventing people from shopping for non-essential items. When gas goes up, then distribution costs go up. And that means that lower and middle class people are paying more for everyday items like groceries, etc. Therefore having less to spend on electronics, furniture, new clothing, entertainment and Disney Store purchases. That's the basic description of a complex economic problem.
Everyone thinks that what is happening RIGHT NOW is brand new and is a NEW trend.
NO! This is the normal "boom-bust" business cycle. You have retailers (Levitz now, Montgomery Wards a few years ago) that shouldn't have been in business in the first place. They are poorly managed, have too much debt, etc. When times are good then banks have LOTS of money to extend credit and these retailers can hide their problems. BUT when times are bad, those problems become apparent and the retailer has to close.
This is a good thing! It weeds out the bad businesses and allows better businesses to take over. The consumer ultimately benefits.
I think (and have always thought, even back in the 80s when the Disney stores first opened) that the Disney stores need to be unique. If there is a Disney store in every mall (like here in the OC) then why bother? Someone mentioned the American Girl stores. That is a good example. They are unique. They are BIG. There are only five of them in the entire US. Disney should follow a similar modified model. More than 5 stores, but less than 100.
"Meanwhile, as we've all noted in other threads here, the "competition" from the generic Disney stuff outside the parks and at the local Wal-mart in O-town en route to the Airport is biting into the park merch action, and of course their generic-izing of all the park stuff inside hasn't helped at all, however much it may have streamlined the in-house distribution/inventory issues."
Believe me, I'm in a position to tell you it's streamlined NOTHING. What the generic-izing of the park stuff has really done is maximize the profits in purchasing the products from lenders, leaving the guest with the best Disney can do with the worst stuff.
By the way, the latest rumor making the rounds among cast members is that the refurbishment of Villains N' Vogue at Hollywood Studios is going to leave that popular locale without the Villain's theming because we all know Villain's merchandise doesn't sell. You may all now proceed to slap your foreheads and groan. Keep in mind this is just a CM rumor and not official but it also fits in line with the current trends at Disney.
Jedited - Five American Girl stores? I thought there was only three (NYC, Chicago and Los Angeles). Where are the other two? (and I have keep those two a secret to my daughters)