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AOL Time Warner Is Shutting Down Its Warner Bros. Retail Store Chain


The highflying Warner Bros. Studio stores--once a splashy marquee for Bugs Bunny, Batman and other Warner corporate symbols--are kaput. This week, the Beverly Center and Palo Alto stores closed, as did the flagship store on New York's Fifth Avenue.

It's a Wile E. Coyote run-off-a-cliff ending for a supposedly foolproof strategy of wringing additional money from Warner movies and television shows. Days after completing the merger that created AOL Time Warner, Warner's new parent announced it would sell or close its 130 stores, including 23 in California.

Warner officials would not provide financial details. The company has never detailed the performance of its 10-year-old chain. Industry sources, however, said the stores were considered very successful in their early years.

But analysts said it's clear that results in recent years have been disappointing. Stale merchandise and a shrinking market doomed the stores, they say. And AOL Time Warner executives showed no patience for a retail "distraction" that added little to the bottom line.

From the beginning, the Warner stores were as much about pedaling an image as selling T-shirts and designer jackets. Run by the studio instead of being operated as a separate retail division, the Warner stores lured customers with elaborately designed outlets in pricey shopping venues.

"The problem with theme stores is they are very exciting when they open. People stand in lines to get in. But once you've seen it, what else is there?" said Kurt Barnard, president of the Barnard Retail Trend Report in New York. "Once you've seen it, you've seen it."

Hollywood's retail problems aren't limited to Warner. Walt Disney Co. has opened more than 750 stores since it entered the market in 1987, four years before Warner. Disney now is planning to close more than 130 locations as leases expire. It also is retooling the look of its surviving stores and recasting its strategy, adding a line of home furnishings and apparel for infants and toddlers.

"Disney and Warner have acknowledged--and maybe they acknowledged it too late--that there is such a thing as too many stores," said Marty Brochstein, executive editor of the Licensing Letter in New York.

"Once they had them in every major mall. Then it became just another store in the mall," he said. "It became a pretty expensive billboard."

Warner officials said the stores performed their original mission.

"We wanted to show retailers how powerful our brands were in the market. It was a very successful showcase," said Dan Romanelli, president of Warner Bros.' worldwide consumer products and licensing division. "We all have to reinvent ourselves, and we found that this was not a strategy that we wanted to continue."

Wall Street analysts said the stores' bottom line was obliterated by steep rents, particularly during lean years without a major hit movie to reinvigorate spinoff toy and merchandise sales.

And though Warner has hundreds of appealing characters, analysts said the line of merchandise was too limited to sustain a retail operation.

Warner also was competing with itself, allowing a flood of studio-licensed but lower-priced T-shirts, pajamas and boxer shorts to be sold in Target, Kmart and J.C. Penney stores and on the Internet.

"The product was saturated," said Jessica Reif Cohen, a Merrill Lynch analyst. "It was a fad, but, unfortunately for Warner Bros., it faded."

Compounding Warner's problems has been a blizzard of cable channels that scattered the audience for its TV shows. And movies don't hang around in theaters as long as they once did--making it imperative for marketers to capitalize quickly on the buzz that a film creates.

By the late 1990s, Warner was facing a new reality: the tastes of pint-size customers had changed.

"There just seems to be a general downturn in interest by consumers," said Bob Levin, former head of marketing for both Sony and Disney. "You don't see little boys having the same affinity for action figures."

By the time boys are in kindergarten, sports logos rule, according to industry executives. Nike, the National Football League and the National Basketball Assn. all have aggressively promoted their brand-name merchandise.

But all that doesn't make Tweety Bird the coal mine canary. Industry watchers say there is still a lucrative market for products emblazoned with movie and cartoon characters, which last year constituted 40% of all toys made.

The U.S. and Canadian market for licensed entertainment characters was $15.2 billion in 2000, down $2 billion from its 1994 high, the year of Disney's hit "The Lion King," according to the Licensing Letter.

Romanelli said Warner has projected $7 billion in worldwide retail sales of its licensed merchandise this year. That does not include company store sales.

"We are clearly comfortable with the strength of our brands around the world," Romanelli said.

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