The Shanghai Store To Aid Disney’s Revenue Growth

November 1st, 2013 by Trefis Team
+8.91%
Upside
114
Market
124
Trefis
DIS: Walt Disney logo
DIS
Walt Disney

Disney (NYSE:DIS) is planning to open its first China store in Shanghai in early 2015. [1] China offers a significant growth opportunity for retailers driven by the surge in middle-class consumers and the government’s focus on consumption. China is currently the world’s biggest consumer market and has seen a sharp expansion of U.S. retail in recent years. Disney Store is an international chain of specialty stores selling only Disney-related items, many of them exclusive. The store made its debut in 1987 and now spans 340 locations around the world. It is a business unit of Disney Consumer Products. Disney will benefit from international retail expansion as consumer spending rises, especially in developing economies such as China.

Shanghai To Boast Of The Largest Disney Store

The Shanghai store will be the largest ever Disney Store built with a massive 53,000 square feet area at the Lujiazui site. The store will have 10,800 square feet of retail area and a Disney-themed outdoor plaza area that will host outdoor events. The location of the store is in a well-known shopping destination of Shanghai, and Disney is expected to benefit from it. In the interior of the store, families and kids will be able to interact with their favorite Disney, Pixar, Marvel and Star Wars characters. [1] Disney is also coming up with a theme park resort in Shanghai, which is scheduled to open in December 2015.

 

Relevant Articles
  1. Disney Stock Has 2x Upside If It Rises To Pre-Inflation Shock Highs Of $202 Per Share
  2. Disney Stock Could Rise Over 2x If It Recovers To Pre-Inflation Shock Highs
  3. Will Slowing Streaming Growth Impact Disney’s Q3 Results?
  4. Disney Stock Could More Than Double If It Recovers To Pre-Inflation Shock Highs
  5. A Deep Dive Into Disney’s Streaming Operations After A Tough Q2
  6. What To Expect As Disney Reports Q2 Results?

 

China Is An Important Market For Retailers

China has been able to sustain growth as a result of rising income levels and increasing urbanization. This can be primarily attributed to the increase in disposable income driven by the substantial rise in labor costs. [2] The Chinese government itself has been focusing on streamlining the economy towards consumption. [3] These factors have resulted in rapid growth in China’s retail industry. China’s retail sales grew 13% year-over-year to $2.75 trillion in the first three quarters of this year. The overall economy grew by 7.8% in the third quarter, up from 7.5% in the second quarter. [4]

This is one of the reasons why several U.S. retailers such as Walmart (NYSE:WMT), Gap (NYSE:GPS) and Guess (NYSE:GES) are aggressively expanding in China. Over the past two years, Guess has grown its Greater China business by almost 75%. For the current fiscal year, the retailer plans to open about 50 stores in China. [5] Similarly, Walmart plans to open up to 110 facilities in China between 2014 and 2016, in addition to the 30 it has already opened this year. [6]

Disney’s Consumer Products Division Trending Stays Firm

Consumer Products and Interactive Media accounts for 12% of Disney’s value, according to our estimates. The company earns revenues from merchandise sales based on popular Disney characters, including products such as toys, games, apparel, footwear, books, magazines, etc. The division’s revenues have increased at an average annual rate of 11% from $2.04 billion in 2007 to $3.32 billion in 2012. [7] The company is expanding its stores internationally, and we believe this business will continue to grow as Disney’s popular brand image will help attract more customers, especially in new markets. We expect steady growth in this division and revenues to cross $5 billion mark by the end of our forecast period. The company enjoys estimated EBITDA (earnings before interest, taxes, depreciation and amortization) margins of 35% for its retail operations. With the expansion in Asia, we expect it to improve slightly and aid overall revenue growth for the division.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. The Walt Disney Company to Build the World’s Largest Disney Store in Shanghai, China, Reuters, Oct 25, 2013 [↩] [↩]
  2. Apparel In China, Euromonitor, Apr 2012 [↩]
  3. China vows to boost domestic consumption, USA Today, Apr 17, 2013 [↩]
  4. China’s retail sales up 12.9% in first 3Q, China Daily, Oct 18, 2013 [↩]
  5. Guess’ Q4 fiscal 2013 earnings transcript, Mar 20 2013 [↩]
  6. Wal-Mart to open up to 110 new China stores by 2016, Reuters, Oct 24, 2013 [↩]
  7. Disney’s SEC Filings [↩]