Children's Place May Acquire Disney Store Chain

LOS ANGELES – Walt Disney Co. (DIS) said Thursday it was in talks to sell its money-losing Disney Store chain in North America to Children's Place Retail Stores Inc. (PLCE), a fast-growing mall-based clothing retailer focused on young children.

The sale would remove a financial burden from Disney as it has shifted strategy in consumer goods from running its own chain to designing and then licensing products to major retailers like Wal-Mart Stores Inc.

Retail analysts said Disney and Children's Place would be a good fit, giving a high-value brand to a defr business and this would be a phenomenal fit for them," said Gilbert Harrison, chairman of investment firm Financo Inc.

Secaucus, N.J.-based Children's Place, with 700 stores and its own branded clothing line, said in a statement it was in talks to acquire and operate the approximately 335-store Disney chain in the United States and Canada under a long-term license, though no formal deal or letter of intent had been reached.

Children's Place has increased its store count by about 30 percent annually in recent years and has found a niche selling clothes and accessories for children up to about 10 years old.

Disney Stores (search) sell products ranging from Mickey Mouse T-shirts to Disney's Princess line of little girl products and movie-related merchandise.

Burbank, Calif.-based Disney could sell the chain -- estimated to lose $50 million per year -- at a loss, hoping to make that up down the line with a royalty stream and the exposure to the Disney brand that the stores provide, financial analysts have said.

Disney spokesman Gary Foster declined to say if there were other bidders or when a deal might be struck. Disney's auction of the stores, announced in May 2003, has already dragged on beyond the one-year target.

"We've made great progress. This would be a very complicated transaction because of licensing agreements and brand issues. We are very patient and will make sure it is the right deal for both parties," Foster said.

Disney expanded its retail chain too quickly in the late 1990s but since then has completely revamped its retail strategy. It now channels most of its product sales through big retailers, squeezing out middle-men distributors as it struck direct deals with the companies.

At the same time it has closed hundreds of the mall-based Disney Stores and scaled down the size of the outlets in a bid to bring the chain back to profitability. The company is also trying to sell its profitable European chain, but the Times of London recently reported that talks with two bidders broke down.

Kathleen Heaney, a retail analyst with Maxim Group, said the Disney stores delivered higher revenue per store than Children's Place.

"For Disney it makes a lot of sense. They get out of the hassle of managing real estate and retail stores and will just continue with a high-margin revenue stream," she said.

Children's Place said total sales for the four-week period ended May 29 rose 18 percent to $57.2 million. Total sales for the 17-week period ended on the same date rose 23 percent to $283 million, while comparable store sales rose 14 percent.

Disney's Fifth Avenue store in midtown Manhattan and its stores at the Disney theme parks and on its studio lot in Burbank are excluded from the auction.