With $12 billion in annual toy sales at stake, Target is looking to take ownership of the category with a new Disney partnership.
At D23 expo, Disney’s bi-annual three-day event celebrating, well, Disney, the House of Mouse announced it would open 25 permanent branded shops inside Target stores across the country by Oct. 4, with 40 more coming by October 2020, plus a Disney experience on Target’s website.
Target is also set to open its own store in 2021 at Walt Disney World Resort in Orlando, Fla. inside Flamingo’s Crossing, a planned development by Disney that will include a mix of hotels and retailers.
With Disney releasing two major movies this year—Star Wars: The Rise of Skywalker and Frozen 2—as well as rolling out its Disney+ streaming service in November, there’s no time like the present to further the exclusivity by bringing stores to Target—that also offer experiential moments such as areas where customers can watch Disney movie clips or listen to Disney music. Analysts say this partnership is a mutually beneficial situation for both brands, who end up gaining access to each other’s customers.
“Stores within stores can be extremely lucrative because when you take a category like toys, [there’s] a lot of junky toys that don’t generate a ton of revenue for Target,” said Sucharita Kodali, a Forrester analyst. “If they can replace that assortment and make most of that discretionary assortment Disney—they can get a guaranteed revenue from Disney. That’s a great outcome for Disney and Target.”
For Disney’s 2018 fiscal year, the company reported a profit of $12.6 billion and a revenue of $59.43 billion, while Target reported $27 billion in revenue for 2018. Last year, with the demise of Toys R Us, Target announced it was adding about a quarter-million square feet of dedicated space to toys in 500 of its stores, and introduced 2,500 new and exclusive toys to its selection.
With the holiday season fast approaching and considering 77% of U.S. customers begin the search for toys on Amazon, according to a report from ecommerce analytics company Profitero, the collaboration is happening at a perfect time. Retailers like Target are finding new ways to bring customers into their brick-and-mortar locations. It’s a strategy that Target’s not alone in employing; Best Buy has done the same with square footage devoted to Samsung and Apple.
“This makes for a neater and cleaner presentation within Target which is a win-win for both companies,” Kodali said. “The brand is able to control more of the appearance, and the retailer usually makes more consistent revenue and incurs fewer costs.”
Part of the partnership also plays into Target’s long-held playbook of offering exclusive collaborations to gain more foot traffic. Whether it’s a partnership with Vineyard Vines, an exclusive Taylor Swift album or this new play with Disney, the retailer stirs up excitement for its customers and gives them a reason to come to the store. Robin Sherk, director of research at CB Insights, said Target’s done that not only with established brands like Lilly Pulitzer but also with direct-to-consumer companies like Harry’s, Quip and more. With Disney, Sherk said, Target gets extra “credibility” as a place of fun and entertainment.
“[Target is a] master at creating excitement around [the] release of products,” Sherk said. “They can certainly leverage that skill there while also using that Disney skill that powers these brands. It might be a marketing audience play of getting in front of people who might not be in Disney’s portfolio.”
And with Disney’s rollout of Disney+ and all the exclusive shows on the streaming platform like The Mandalorian, which is part of the Star Wars universe, Jason Goldberg, chief commerce strategy officer at Publicis, said he wouldn’t be surprised if there’s no direct merchandising tie or marketing to Disney+ at Target stores.
“It’s in Target’s best interest for Disney to be showing seasonal shows that will cause customers to visit the store more often,” Goldberg said. “If you’re Disney, you’re trying to figure out how to reach consumers and have a direct relationship with consumers. Disney was early to open stores but are now in unappealing real estate; moving those efforts over to Target [is beneficial], which are still enjoying traffic growth.”
Goldberg said it’s a unique partnership in which both brands are gaining access to each other’s traffic, since Target is also opening a small-format store on Disney property.
“That’s a Disney sweetener that very few brands can offer,” Goldberg said. “It’s the new retail—seeing more novel partnerships.”