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Entrepreneur
Kurra Bewarse
Username: Entrepreneur

Post Number: 3346
Registered: 05-2011
Posted From: 65.35.45.47

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Posted on Thursday, March 04, 2021 - 6:59 pm:   

Disney making it "A Small World After All" by ramping up digital transformation (DIS)
Updated: 04-Mar-21 11:20 ET
The pandemic, and its forceful effect on consumer behavior, has extensively altered business strategies, capital investment plans, and workforce numbers and responsibilities for companies across the world. Few companies, though, are undergoing a more profound transformation than entertainment and media icon Walt Disney (DIS).

It can be argued that DIS's evolution began before the pandemic even struck when the company launched the ultra-successful Disney+ streaming service on November 12, 2019. The awe-inspiring growth of Disney+, which has accumulated nearly 100 mln subscribers since its debut, set the stage for the company's broader direct-to-consumer (DTC) transition.

By elevating the prominence of its streaming services (Disney+, Hulu, ESPN+), DIS is aiming to counteract any lasting changes and damage that the pandemic inflicted on its theme parks and studio businesses. The results so far have been better than DIS imagined, as DTC revenue surged by 73% in 1Q21 to $3.5 bln, generating an operating loss of $(466) mln. Originally, the company anticipated that the segment would post an operating loss of around $(1.2) bln.

With the Media and Entertainment division making huge strides in its digital transition, DIS is now upping the ante by putting its Parks, Experiences, and Products segment under the microscope. In particular, CNBC reported last night that DIS plans to close 20% of its brick-and-mortar stores while bolstering its eCommerce capabilities.

After witnessing the massive eCommerce growth recently achieved by retail giants like Target (TGT) and Walmart (WMT), it's hard to argue with DIS's logic. However, there is an experiential component to DIS's retail shops that creates excitement for its content, its characters, and ultimately, its parks and experiences. This intangible asset will be very difficult to replicate on a mobile device.

DIS is making a bet that the ongoing shift to digital shopping, combined with the savings generated from shuttering stores, will more than offset the value generated by its emotion-tugging stores. The company didn't provide any financial details or projections revolving around this move, but with consumer product sales up only 2% in 1Q21, the bar to hurdle is pretty low.

Given the powerful secular trend towards eCommerce, it seems like a slam dunk decision for DIS to ramp up its digital channel. The strategy will likely pay off in the long run, but it's not without some uncertainty. In addition to stamping out some of its "Disney magic" by closing physical stores, its decision to focus more on adult apparel collections and high-priced home products and collectibles isn't without risk. This decision likely stems from the surging popularity in new content such as "The Mandalorian", but it remains to be seen whether that strong viewing interest will translate into significantly higher product sales to adults.

Like a sudden drop on "Space Mountain", the pace of change at DIS has been breathtaking. So far, investors have really enjoyed the ride, as its DTC conversion has progressed exceedingly well. The move to a more eCommerce-centric retail model represents the next step in DIS's digital transformation, but the approach does carry some risk.

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