DISNEY, WARNER SCALE BACK; ENTERTAINMENT GIANTS REEVALUATING EFFECTIVENESS OF RETAIL OUTLETS.

Byline: Dave McNary Staff Writer

The Walt Disney Co. and Warner Bros. have started moving toward cutting back their once-booming retail store operations for the first time.

The moves by both Burbank-based chains, which sell a wide variety of character-based clothing, toys and collectibles, come amid a rapidly changing retail environment driven by pursuit of hot new trends and fads. Most of the stores occupy space in high-traffic malls with above-average lease rates.

``The easy money has been made for Disney and Warner, but now you've got to work for it,'' said Frederick Marx, retail consultant with Marx Layne Management in Bloomfield Hills, Mich. ``Now it's time for a reality check. At some point, a concept gets mature and can become a classic but it's tough to stay that way because we're talking about a very fickle audience.''

Warner had already pulled the plug on further expansion of its 180 stores earlier this year after it opened a new store in a Tampa, Fla., suburb. The studio's parent, Time Warner Inc., disclosed in a Securities and Exchange Commission filing this week that it was considering closing some of the 140 U.S. locations and may take a charge against earnings as a result.

The filing also said Time Warner was considering decreasing the size of some of the Studio Store locations and reiterated earlier statements that it was placing increased emphasis on e-commerce.

As for Disney, it plans to close a store at the Lenox Shopping Center in Atlanta in mid-January in the first instance of the entertainment giant shuttering an existing Disney Store. Spokeswoman Sondra Haley said Tuesday that Disney had decided to let the store's lease expire rather than renewing it.

Operating profits at Disney's consumer products division fell 38 percent to $102 million in fiscal 1999, pulled down partly by lagging performance at the stores. Disney officials disclosed two months ago that underperforming stores could be closed and that the chain would be working on a prototype of a new design.

At an analysts' meeting earlier this month, executives said they would ease up on opening new locations and boost efforts to make Disney goods appealing to older children.

``We will definitely slow the expansion rate on new stores and focus on existing locations,'' Haley said. ``But we don't have plans to close a certain number.''

Haley said the chain, which opened its first store in Glendale in 1987 and now has 738 locations, is facing lease expirations on a significant number of locations but is currently considering not renewing on only one store. ``This is kind of a natural process as we hit lease expirations to re-evaluate our long-term positions,'' she added.

Retail strategist Michael Crosson said the strategy used by Disney and Warner - blanketing the country with stores at major malls - had worked effectively for most of this decade.

``They had tremendous sales out of the stores, which had a tremendous influence on all their licensed properties,'' said Crosson, chief executive officer of Michigan-based JGA. ``Consumer awareness hit an all-time high a few years ago but peaked. There's now a lot more competition from sports teams, restaurants and logo products from places like Old Navy, Gap, Abercrombie & Fitch.''

The analyst said the proliferation of entertainment-oriented retail has diluted the ``specialness'' of the products they sell. Crosson said Disney and Warner, which opened its first store in 1991 at the Beverly Center in West Hollywood, are most likely to be focusing on adding the ``experience'' element to the retail sites.

``What we're seeing is a trend to reassess strategy, such as should you have experience-based neighbors and whether you should focus on flagship stores in major metropolitan areas instead of having them in every shopping center,'' he added.

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PHOTO (1 -- 2 -- color) Disney and Warner Bros. will cut back their respective retail operations, which sell character-based clothing, toys, and collectibles.