Among the first wave of casualties executed by AOL Time Warner last week was the 130-store Warner Bros. retail chain, a seemingly solid business concept that faded into a dud.
The decision comes on the heels of the Walt Disney Co.'s recent decision to shut 13 percent of its 740 retail operations worldwide. Clearly, the novelty of movie studio retail stores, initially such a smash hit with consumers, has soured. AOL Time Warner says it will look to sell its retail stores.
Good luck finding a willing buyer, said Isaac Lagnado, president of New York City-based Tactical Retail Solutions Inc.
"They're not saleable, in my mind, unless they have some wonderful leases," he said. "I can't imagine many retailers will be interested in the product. Department stores are getting rid of specialized items."
Disney still reports profits at its retail stores, but margins are declining.
Sondra Haley, spokeswoman for Disney Store Inc., stopped short of saying the decision to substantially shrink the chain was driven by a falloff in sales.
"It's a reaction to the retail industry and shopping trends," Haley said. "Any business has to be responsive."
Some observers say the problem with studio retail stores stocked with one brand of merchandise is the short life span of what are essentially licensed novelty items. Others say the merchandise is inferior, and still others assert that the target market is too limited, particularly in today's hit-driven world.
Yet there remain those who remain convinced that all is well at the Disney and Warner retail stores.
Cindy Chong, general manager of the Glendale Galleria, said she'd be happy to keep both Disney and Warner Bros. as tenants. Chong said both stores have performed well at the mall and are model tenants. Disney's first retail store opened there in 1987, to throngs of jostling customers.
"The stores that stand out to consumers are the stores with brands that stand out and appeal to a certain lifestyle," Chong said. "The brand that's developed, in many cases, is more important than the product."
Officials at Warner Bros. did not return calls seeking comment.
Disney's Haley said that despite the closings, the company is still committed to remodeling the remaining stores to keep up with retail trends. Two prototype stores opened last year in Costa Mesa and Cherry Hill, N.J., and customer input about those two stores will drive design updates. The changes include eliminating the closed windows at the front of stores and installing high-tech amenities such as Internet kiosks and video monitors.
Disney and Warner are not the only entertainment giants to struggle on the retail front. In 1999, Viacom Inc., parent of Paramount Pictures, closed its flagship Entertainment Store on Michigan Avenue in Chicago. That followed its December 1998 announcement that it would close its 15 Nickelodeon stores, choosing rather to license its characters to third-party merchandisers.
That's a more logical approach, according to Lagnado.
"Fundamentally, one of these things could be viewed as a manufacturing-and-licensing program, where they make deals with, say, J.C. Penney," Lagnado said. "There is nothing wrong with that. I think there is business in that."
Clearly, Lagnado is no champion for entertainers turned retailers. He said problems arise when an entertainment company tries to go it alone in operating a retail operation. Such stores are typically set up in high-cost locations, with high staffing costs and products that aren't competitive, he said.
"When a small stuffed toy is selling for $17.99 where a comparable, better-made one is selling for $9.99, you're charging a premium for a character," Lagnado said. And only so many customers are willing to pay that premium.
Howard Wong, vice president of leasing at Jones, Lang, LaSalle Inc., said another problem related directly to the merchandise is ubiquity.
"Today, not only can you get a Warner Bros. product or Disney product at (their) stores, you can also get them at department stores and discount stores and through many other channels," Wong pointed out.
While that may be so, Haley pointed out that 90 percent of merchandise at Disney stores is exclusive and not licensed to other retailers.
Disney's move to revamp its retail stores, Wong said, is meant to open them up and increase traffic. The stores could use a shot of fresh style, as well, he said. The shelves have featured the same products, mostly apparel with a stock of rotating characters, since the stores opened, he said.
Aubie Goldenberg, a partner in the retail group of Ernst & Young, said Disney and Warner Bros. have been affected by a compression of the market for their merchandise. Many adult consumers now have their Mickey Mouse sweatshirts and Wile E. Coyote boxer shorts, leaving children and their short attention spans as the primary potential customers.
"I don't think it's a failed premise. I think it's under pressure now," Goldenberg said, comparing the concept to themed restaurants, such as Planet Hollywood and Rainforest Caf & #233;, which relied too heavily on fleeting novelty.
Even though Disney and Warner Bros. remain major, stable brands, today's young consumers are more impressed by fads and popular hits than history and longevity. And relatively speaking, Disney still has a much stronger brand identity among children than Warner Bros. has.
"The one that's got the best shot of doing this is Disney because they've got a brand that's more readily identifiable," said Richard Giss, partner in the consumer products group at Deloitte & Touche. "You say Warner Bros. to children and they don't know who the characters are. You say Disney, and they immediately say Mickey Mouse, Pluto, Donald Duck, Little Mermaid."
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