Disney Pays to Give Away the Stores

Yesterday it was announced that Disney finally got rid of its' Disney Stores retail chain, with The Children's Place Retail Stores Inc. taking over the remaining 313 Disney Stores in North America.  This deal deserves immediate comment, because there is much more (less?) than meets the eye here.  You've heard the old saying, "Giving away the store"?  Well, Disney didn't just give away the store here - they paid somebody to take the Disney Stores off their hands.  Let's recap some of the details of this deal, as provided by The Wall Street Journal and CBS.MarketWatch.com (details here):

For their part of the agreement, The Children's Place will take over the stores, put $100 million into remodeling them, pay Disney an unspecified amount for "inventory and other working capital", and give Disney royalty payments on its sales.  Thus, The Children's Place is paying only for tangible, physical things it gets to keep, like the stores' inventory or the physical improvements it makes to the stores.  And while they will be paying a royalty on future sales (which sounds to me like a licensing fee for use of the Disney name and characters), they are paying Disney absolutely nothing else:  nothing for the physical stores themselves or the improvements Disney out into them, nothing for locations and leases, nothing for intellectual property, nothing the brand name or reputation of the business, and nothing for the existing customer base.

In other words, the global economic marketplace has decided that The Disney Stores are worth nothing - only their remaining physical inventory has any value.  Thus, Disney took a once-promising - and profitable - concept, and by overextending it and then mismanaging the turn-around attempts - drove it into the ground.

Admittedly, in the short-run, Disney is probably better off without the Stores.  Under Disney's recent management they were losing more than $100 million a year, and now that drain has been stopped.  Still, Disney's shareholders end up with nothing from this deal, except an estimated $30 million a year in royalty payments - barely noticeable in the company's $1+ billion annual profit.

But it gets even better:  not only is The Children's Place paying nothing to buy the Disney Stores' business, Disney is giving them a two-year grace period on those royalty payments.  Effectively, Disney is giving them $60 million over the next two years to take the Stores off their hands!

(Personally, I'd love to know how much Disney would pay me to take some of their other money-losers like California Adventure or Disneyland Paris.)

As a Disney fan - and as a shareholder - I find this to be disgusting.  The Walt Disney Company took a promising concept, then overexploited it until the wheels came off and it was worth nothing.  If the Disney Stores were the only time they did this, it would be upsetting.  But since the same pattern has now happened over and over again with this management team (Who Wants To Be A Millionaire immediately comes to mind), this failure is inexcusable.