The Region Where Disney Stores Are Thriving

Two years ago Disney rocked the retail sector with the unexpected announcement that it would close almost all of its iconic Disney Stores to focus instead on online sales. There was one big exception.

Disney pioneered the concept of retail entertainment with the launch of its first store at the Glendale Galleria in 1987. Its outlets revolutionised retail as they were home to small cinema screens showing clips of classic cartoons whilst catchy Disney songs played from hidden speakers. Merchandise sat on shelves themed to film sets and there were occasional appearances from cuddly Disney characters.

In 2010, a renovation by the designers of the Apple Stores added screens in the shape of trees which showed fireworks at closing time to mimic the experience found in Disney’s theme parks. They also brought in touchscreen kiosks giving 3D animated views of products, and ‘Magic Mirrors’ showing animated Disney princesses who told stories to kids.

It put the customers in a heightened state of emotion and Disney made the most of this captive audience as it sold park tickets to them there. This gave the stores a key role in Disney’s business model and they were wildly successful. So much so that according to Disney’s filings, in 2003 its stores had more visitors than all of its parks and resorts combined. Disney Stores were rolled out around the world and, as the graph below shows, at their height in 2000, there were 741 outlets worldwide.

The rise of online shopping cast a dark spell on the business but the stores soldiered on until the outbreak of Covid-19. Most markets used the pandemic to reduce their reliance on bricks and mortar but the smartest operators saw it as an opportunity to expand as prices were far from their peak.

In December 2020, less than three months before Disney announced its shift towards e-commerce, it signed an agreement to launch Disney Stores in a completely new market. Instead of bringing the curtain down on the deal when Disney’s retail strategy changed, the local operator of the stores decided to press on with them. It has gone from strength to strength.

Remarkably, one of the few regions which Disney hadn’t launched its stores in also has one of the highest concentrations of High Net Worth customers with a high level of affinity for the brand. The region is the Middle East and, historically, it has been overlooked by Disney. Instead, the media giant has favored other emerging markets like Russia, where the first Disney store opened in 2017, and China, which is home to a huge Disney theme park in Shanghai.

Disney hasn’t had a happy ending in either market as it had to pull out of Russia in the wake of the Ukraine war whilst its chief executive Bob Iger admitted to CNBC in 2021 that some of his optimism about China has “eroded” in light of its tension with the United States.

Given that Disney heavily invested in China and Russia, despite the troubled track record of both countries, it seems like a staggering missed opportunity not to have even opened a single store in the Middle East, which is home to retail wonderlands like Dubai and Abu Dhabi. This opportunity hasn’t just been missed by Disney’s parks, experiences and products division but also its media arm. Its Disney+ streaming service only launched in the Middle East in June last year, two and a half years after its US debut. The wait only served to drive up the demand and the platform has been a resounding success in the Middle East. Other brands have been far quicker to seize on it.

As Forbes has reported, Warner Bros. has capitalized on the lack of Disney parks in the region by launching its own in Abu Dhabi in 2018. It is now common to see Warner Bros. merchandise lining store shelves across the whole of the United Arab Emirates (UAE), which comprises Abu Duabi, Dubai and five other states. It isn’t the only brand which has seen the potential.

The UAE is home to more American chains than perhaps anywhere else in the world outside the US. They are found at all price points and not just in retail but food and beverage too. Starting with national chains which are rarely found in other countries, the UAE has outlets of Applebee’s, Black Tap, Blaze Pizza, Buffalo Wild Wings, California Pizza Kitchen, Chuck E. Cheese, Dickey’s Barbecue Pit, IHOP and even Orlando-based casual dining chain Tony Roma’s, once owned by Clint Murchison Jr., founder of the Dallas Cowboys.

Then there are regional US chains which are found across the Middle East, such as Kelly’s Cajun Grill, Famous Dave’s Midwestern barbecue restaurant and Minnesotan java joint Caribou Coffee. It’s even more surreal at the upper end of the spectrum as Dubai is home to some restaurants which only only have handful of locations in the US. Upscale eatery Sarabeth’s has five Manhattan outlets and one in Dubai. You can also eat liquid-nitrogen popcorn at a branch of Denver’s Inventing Room and tuck into Jamaican food at Miss Lily’s which only has one US restaurant in New York’s East Village.

Even the fast food joints aren’t just the usual suspects as it’s common to see Hardee’s. Charleys Philly Steaks, Church’s Texas Chicken, Cold Stone Creamery and Popeyes across the Middle East. It’s the same in retail with chains like Bath & Body Works, OshKosh B’gosh, See’s Candies, Williams Sonoma and Nectar Bath Treats, a Las Vegas-based seller of sculpted soaps whose only international outlets are in Dubai and Abu Dhabi. This is just a tiny selection of the US brands with branches in the Middle East and it made the lack of a single Disney Store even harder to justify.

Surprisingly, even though many of these chains aren’t seen as being high-end in the US, they are treated with reverence in the Middle East and are often located just steps away from ultra-upscale stores like Tiffany, Rolex and Omega. From the look of the sign above the door, right down to the wallpaper, decorations and light fittings inside, the American chains are almost always sparkling-clean carbon copies of their US counterparts.

The background music is the same, the dishes in the restaurants look the same, smell the same and taste the same as the originals. The only exceptions are the lack of pork and alcohol which are both forbidden in the Middle East. As we have reported, restaurants and retail outlets are thriving in the region as malls were only closed for a short time due to the tough approach the local governments took to the pandemic. It made the region less reliant on online shopping and kept many of these brands in business, though the spoils don’t all go back to the US.

These chains are franchises run by local operators to make expats feel at home. This structure also maintains consistency as it means that the outlets can continue trading even if the franchisor goes out of business as has happened with a number of the UK brands in the UAE. A massive 90% of the country’s residents are foreign which is why there are so many franchises of international brands. One operator leads the way in this field.

Kuwait-based Alshaya Group runs 2,800 stores and holds the franchises to many leading American brands including American Eagle Outfitters, Pottery Barn, P.F. Chang’s, Starbucks, The Cheesecake Factory and Victoria’s Secret. In December 2020 it added Disney to its roster when it announced a new five-year collaboration to roll out Disney store ‘shop-in-shop’ concepts across Alshaya-operated stores and online in the Middle East. It took more than the wave of a magic wand to pull it off.

Disney’s skilled director of Consumer Products for the Middle East, Sonal Patel, led the talks with Alshaya which began in 2018 and continued through the pandemic. “That was tough,” said Patel in an interview from her home office. “That was done from where I’m sitting now actually. We managed to sign one of the biggest deals we had in the region from home.”

Patel began working in the retail sector in 1995 with British brand Dorothy Perkins and, after six years, moved into merchandising with department store BHS. After that she took a role in the same field at the Disney Stores’ European head office in London where she planned the ranges, managed stock and improved turnover. Patel then moved to Dubai to work for The Landmark Group, one of the largest retail organizations in the region, where she managed three of their brands. In 2014 Disney came calling again and she jumped at the chance.

“There was an opportunity to head up the hardlines licensing business,” said Patel. “It’s very different [than retail]. I knew Disney, I love the brand, and I was excited to work with partners to grow our Disney in-shop presence.” Her hard work paid off and then some.

In July 2021, Alshaya opened the Middle East’s first-ever Disney Store shop-in-shops in Kuwait, Abu Dhabi and Dubai where they are mainly located in branches of erstwhile British department store Debenhams and childcare retailer Mothercare.

The initial six outlets had a bright new style and sold plush toys, clothing, costumes and more. They are known in the retail industry as concessions – dedicated spaces within a single-brand store that are used by non-related but complementary brands. Looking like slimmed-down Disney Stores, they have sections themed to its most famous franchises, including Pixar, Marvel and Star Wars.

“We all grew up with Disney and we all have a favorite character. We are delighted that Alshaya Group has been able to collaborate with The Walt Disney Company Middle East to bring the magic of Disney, not only to a new generation, but also to life-long fans,” said Alshaya’s chief executive John Hadden.

A retail veteran with more than 20 years of experience, Hadden started his career as director of store development for Starbucks in Europe, the Middle East and Africa. He then became Senior Vice President of retail property at Alshaya and rose through the ranks until he took the top job in June 2020. Along with Disney’s hard-working public relations team in Dubai, he ensured that word soon spread about the new stores and it had a magic touch.

Within just four weeks of opening the first shop-in-shops, Alshaya had launched a further 26 in the Middle East and, according to its website, the total now stands at a staggering 76 with 25 in Saudi Arabia, 24 in the UAE, 11 in Qatar and 16 in Kuwait. However, perhaps the most spellbinding development came in November last year when the Middle East’s first-ever standalone Disney Store opened in Kuwait just as Disney was closing its shops elsewhere around the world.

Kuwait’s 800 square meter store sits inside The Avenues which, with 1,100 stores, is one of the world’s biggest malls. A huge screen in the shape of a scroll sits above the entrance to the Disney Store and plays scenes from classic cartoons. Inside, sketches of Mickey and Minnie line the walls, a huge banner shows the fairytale castle that stands in the middle of Disneyland in California and a silvery statue of Dumbo hangs from the rafters. It brings the Disney Stores bang up to date and clearly hit the spot as 1,000 shoppers turned up on opening day alone.

“We couldn’t be more delighted with the opening of the first standalone Disney store in the region,” said Hadden. “This stunning new landmark is more than just a store; it’s a destination that brings memories to life and truly offers a one-of-a-kind retail experience to children and families that only Disney can deliver.”

Summing up the importance of the opening, Patel said “our stores represent our entire brand and help guests engage with products and staff.” She added that “it’s been very nice to drive background presence in the region and understand the cultures and how we can provide them with Disney magic that makes sense for that market.” She also praised the efforts of her boss as well as Disney’s local, regional and global teams that supported the launch. “This was new to everyone, so we were all finding our feet, but we learned a lot as a team.”

No corners were cut as the store stocks Disney branded home decor and even has lines which are exclusive to the Middle East. It is a far cry from other regions.

The latest financial statements for The Disney Store in the UK show that in the year to October 2, 2021, revenue fell 4.4% to $125.5 million (£100.9 million) as pandemic restrictions kept stores shuttered in the early part of the year and the closures began after that. By the end of 2021, it had just one flagship outlet left on London’s famous Oxford Street. The closures led to a $8.2 million (£6.6 million) cost saving which, in turn, boosted net profit by 124.2% to a record $9.2 million (£7.4 million). This alone shows the success of its shift to online sales through its shopDisney website which kept revenue coming in to the company.

In contrast, as the graph below shows, although its revenue was 39% higher when it peaked at $174 million (£140 million) in 2015, its net profit was far lower at just $3.7 million (£3 million).

This came at a cost as the financial statements note that “with the company’s focus shifting to its e-commerce store, significant investment has been made in computer software to support this.” Accordingly, the net book value of the company’s software rose from just $231,000 (£186,000) to $2.6 million (£2.1 million) in 2021 whilst the value of its tangible assets dropped from $2.6 million (£2.1 million) to $1.1 million (£917,000).

The effect was even felt in the financial statements of Disney’s US parent company which revealed that in 2021 it incurred “$0.4 billion of asset impairments and severance costs related to the shut-down of an animation studio and the closure of a substantial number of Disney-branded retail stores in North America and Europe.”

The transformation still isn’t complete as the Disney Store on the historic Champs-Élysées in Paris is even due to close in May after 30 years, despite Disneyland Paris being just a stone’s throw away.

Not so in the Middle East as Patel said that the success of the store in Kuwait “has definitely paved the way for future models across the regions.” It really is a whole new world.